Several reports, including one of the Economic Times, have been indicating that Indian markets in 2025 are less dependent on Foreign Institutional Investors (FIIs) and more on Domestic Institutional Investors (DIIs). This year, DIIs have set the record for investment by investing over ₹6 trillion in Indian equities, thereby neutralizing the effects of the FII sell-offs which have resulted in outflows of roughly ₹2 trillion.
This transition signifies a fundamental change in India’s capital markets, where the domestic investors—mutual funds, insurance companies, pension funds, banks, and financial institutions—are the ones who ensure the market’s stability and viability amidst global uncertainties and foreign exit pressures.
Domestic investors have aggressively increased their exposure to Indian stocks throughout 2025, as evidenced by their record investments of ₹6 trillion—the highest amount ever recorded for a calendar year since the data tracking started. This wave of investments has not only compensated for the large sell-offs of foreign investors, who together have withdrawn around ₹2 trillion so far but also kept the market going in a positive direction in spite of the worsening of the US trade relations and the global economic slowdown.
The data unearths an excellent narrative: Mutual funds have been the main movers, supported by systematic investment plans (SIPs) which saw monthly inflows going beyond ₹25,000 crore. The participation of retail investors has been strengthened with more than 200 million demat accounts opened by June 2025, which means that the base of individual investors has widened, and they are getting more and more confident that equity investing is a good way to create wealth in the long run. The proportion of equities in the saving of households has increased twofold over the last few years, and now it accounts for more than 5% of the savings, which is a sharp increase from only 2.5% in 2020.
Apart from mutual funds, insurance companies and pension funds have attracted a lot of money, in fact, they have together contributed more than ₹1 lakh crore, which indicates a radical change in the investment preference of institutional players. Banks and financial institutions have also been part of this trend by working together to create a domestic capital ecosystem that is robust and therefore a source of comfort for the market when it is hit by external shocks.
It is worth noting that FIIs have cut their secondary market holdings to a 13-year low—approximately 16.7%—while domestic institutional ownership has surpassed 18.2%. This is a historical landmark, pointing to a new market mechanism where domestic investors not only facilitate liquidity but also help maintain equilibrium during episodes of capital flight from abroad.
The growing power of domestic investors is having a ripple effect. One of the effects has been a decline in market volatility and India’s market trends have become less correlated with global indices such as S&P 500. Furthermore, active domestic investor involvement ensures a very active IPO market; companies benefit by getting better valuations and high liquidity, whereas the founders and early investors are mostly using the gains domestically for reinvestment thus creating a self-sustaining cycle of wealth generation and reinvestment.
Though there are certain issues such as profit-booking in small-cap funds and some shift of investments to real estate due to the festive season, the overall mood is still optimistic. Analysts foresee the corporate sector to generate a net profit growth of over 15% p.a. by FY27, and domestic inflows are expected to stay at a healthy level unless there is a major global crisis.
The Indian equity market in 2025 serves as an example of how domestic capital has become the chief power driving force. With the help of increased financial literacy, technology such as zero-fee brokerage, and the growing middle class which is rapidly becoming equity investors, India is experiencing the democratization of wealth creation through the stock market.
The dominance of the domestic investors not only makes the market less risky in times of foreign selling but also turns India into an economy that is resilient, self-sufficient and has a bright investment future. The story of Indian markets today is not only about the figures; it is about the changed mindset of billion-plus nation which is at the same time a priority setter of economic sovereignty and long-term prosperity.
Such a significant change shows that Indian markets are not dependent on foreign investments anymore but rather they are a story of empowered domestic investors whose loyalty is with the Indian markets, hence a permanent transformation of the Indian capital market landscape.
