Even with sustained selling by foreign institutional investors (FIIs), Indian markets are holding firm due to solid backing from domestic institutional investors (DIIs) and retail players.
In 2025, FIIs witnessed all-time high outflows from Indian equities. But DIIs have balanced this by pumping more than Rs 4 lakh crore into the Indian stock market during this year—the biggest cash market inflow by this group in the first seven months since 2007.
DIIs more than accounted for 80% of cumulative inflows in the first seven months of 2025, lending precious market support. Their year-to-date investment equated to 2.2% of the average Nifty market cap, highest since 2007, from 1.4% in 2024 and 0.6% in 2023.
Retail investors too are gaining confidence, injecting Rs 427 billion ($4.9 billion) into equity mutual funds in July alone. It was the largest one-month inflow for equity funds, while foreign investors took out $3 billion in the same month.
NSDL data indicates that FIIs have net sold more than Rs 1.5 lakh crore in the secondary market till date in 2025, crossing all its earlier annual records. The selling is attributed to weakening corporate earnings, elevated valuations, increasing geopolitical tensions, and relatively lower-cost investment options overseas.
US, Chinese, and European markets are presenting lower valuations and higher near-term prospects for return. Although India is the fastest-growing large economy, geopolitical uncertainties today are persuading portfolio managers to follow tactical asset allocation instead of "buy-and-hold" strategies.
Uncertainty regarding US-India trade agreements and potential prolongation of US-China talks is influencing foreign investment flows. Foreign investors, including Indian players, are keenly observing the scheduled August 15 meeting between US President Donald Trump and Russian President Vladimir Putin in the hope that a positive development could soften uncertainty related to tariffs.
