DII Holdings Hit Record High As FII Ownership Drops To 13-Year Low In September Quarter

The gap between domestic and foreign institutional investments in Indian equities widened to a 25-year high in the September quarter, highlighting the growing divergence in market flows.

According to Prime Database data, domestic institutional investor (DII) holdings in all listed NSE companies rose by 44 basis points to 18.26% — the highest level on record since 2009. In contrast, foreign ownership slipped by 34 basis points to 16.71%, marking a 13-year low.

DIIs had already overtaken foreign portfolio investors (FPIs) in terms of ownership during the March quarter. The gap has since expanded as domestic institutions, buoyed by steady inflows from retail investors, continued to deploy funds in equities, while global investors pulled back amid

concerns over valuations and growth outlook.

Retailisation of Indian Equities

“The widening gap between FII and DII holdings indicates the ‘retailisation’ of corporate India,” said Siddarth Bhamre, Head of Research, Asit C Mehta Intermediates. “A major chunk of mutual fund flows is driven by retail investors, while institutional money is deployed through trusts and family offices.”

Mutual fund ownership of Indian companies climbed to an all-time high of 10.9% in the September quarter, up from 10.56% in the June quarter, supported by record monthly contributions to systematic investment plans (SIPs).

During July–September, foreign investors sold Indian equities worth Rs 1.02 lakh crore, while domestic investors purchased shares worth Rs 2.21 lakh crore. “Overseas investors have been sellers for most of the year, preferring the US and other emerging markets such as China, Taiwan, and Korea,” said Sriram Velayudhan, Senior Vice President, IIFL Capital Services.

Foreign ownership in Indian companies has been on a steady decline since December 2020, when it stood at 21.21%. The pace of reduction has accelerated since June 2023, when their holdings were at 18.96%.

Despite this foreign selloff, Indian equities have remained resilient, thanks to consistent domestic inflows. “Earlier, a pullback from global investors would result in a market crash,” said Pranav Haldea, Managing Director, Prime Database Group. “That is no longer the case, as local inflows now provide a cushion.”

Primary Market Participation

Bhamre noted that while mutual funds are mandated to deploy inflows regardless of valuations, foreign investors have the flexibility to shift funds to other attractive global markets.

Even so, overseas investors have shown renewed interest in Indian initial public offerings (IPOs). In October, they invested $1.2 billion (Rs 10,708 crore) in the primary market — the second-highest this calendar year after $1.7 billion (Rs 14,247 crore) in July. This also marked the fourth consecutive month where FPIs invested more in primary issuances than in the secondary market.

“While global investors are selling in secondary markets, they are participating in primary issuances, which is a healthy sign,” said Velayudhan.

However, analysts caution that despite IPO inflows, foreign investors remain cautious on India due to high valuations. “When markets correct or undergo time consolidation, FIIs are likely to return, as retail money may pull back in such a scenario,” Bhamre added.