Despite foreign portfolio investors (FPIs) pulling out $10.6 billion from Indian equities in 2025 — the highest outflows among Asian markets — the Nifty 50 has rallied over 5% year-to-date. This unexpected resilience in Indian equities is being powered by record-breaking inflows from domestic institutional investors (DIIs), mainly mutual funds, who have invested over $36.1 billion this year alone.
While FPIs have remained cautious amid global uncertainties — including volatile oil prices, high Indian market valuations, and geopolitical tensions — DIIs have stepped in to drive the market forward. With consistent contributions from retail investors, Indian mutual fund assets under management (AUM) surpassed ₹70 lakh crore in May, marking a significant shift in market dynamics.
This growing domestic participation is not just plugging the gap left by FPI exits — it’s changing the structure of ownership in Indian markets. For the first time, DII holdings in Nifty-500 companies have surpassed FPI holdings, reflecting a stronger homegrown investment base.
Analysts suggest that India’s stable inflation outlook, strong economic fundamentals, and rising retail investor engagement are key drivers behind this outperformance. Over the past decade, DIIs have pumped in nearly $195 billion — nearly four times the FPI inflows of $53 billion during the same period.
Still, uncertainty looms. Further FPI outflows may occur if crude oil prices rise due to escalating Middle East tensions or if global central banks maintain elevated interest rates. Moreover, cheaper valuations in China and other Asian markets might attract FPI attention elsewhere.
Nevertheless, India’s stock market continues to defy global trends, underpinned by its strong domestic investor base and structural economic strength.