Foreign Institutional Investors Reduce Portfolio Exposure Across 17 Sectors Amid Increased Domestic Investment Activity

Indian Equities See Shift in Ownership Patterns as DIIs Become Stabilizing Force

A significant structural shift has taken place in the Indian equities market, with domestic institutional investors (DIIs) emerging as a stabilizing force, offsetting volatile foreign institutional investor (FII) outflows. This shift in ownership patterns is a key factor in determining market direction, with experts pointing to the potential for a reversal in FII flows as a major catalyst for market movement.

According to a recent strategy report by Motilal Oswal Financial Services, DIIs have sharply increased their stakes in key sectors such as private banks, technology, telecom, real estate, and healthcare over the past year. In contrast, FIIs have reduced exposure across a majority of sectors, signaling a decisive shift in ownership patterns.

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The divergence between DIIs and FIIs is stark at a sectoral level, with DIIs raising their holdings in 21 out of 24 sectors in the Nifty-500 universe over the past year. DIIs have increased their stakes in sectors such as private banks, technology, telecom, real estate, infrastructure, and healthcare, while FIIs have cut their stakes in 17 sectors, including private banks, NBFCs, technology, consumer, infrastructure, and real estate.

As a result, DII ownership in the Nifty-500 has pushed to an all-time high of 20.9 percent as of March 2026, up 170 basis points year-on-year. In contrast, FIIs have seen their holdings decline to 17.1 percent, down 180 basis points over the same period. The shift is even more pronounced in free-float terms, with DIIs now accounting for 41.2 percent of the free float in Nifty-500 companies, compared with 33.8 percent for FIIs.

The changing ownership structure is marked by contrasting capital flows, with DIIs investing USD 27.2 billion in the first quarter of calendar 2026, supported by strong and consistent SIP inflows. FIIs, on the other hand, remained volatile, with inflows in February reversing into heavy selling of USD 14.2 billion in March, taking total outflows for the January-March quarter to USD 15.8 billion.

The report suggests that even a moderation in FII outflows could be viewed positively by markets, while a sustained return of foreign inflows could trigger sharper rallies once geopolitical risks subside.

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