Indian markets stay afloat on DII strength amid FII outflows

Investment

Despite record sell-offs by foreign institutional investors (FIIs) in India, domestic institutional investors (DIIs) have pumped massive capital into equities, keeping the market afloat. The longevity of this support will depend on a combination of retail flows, earnings momentum, and global macro stability.

FII Sell-off

* FIIs have sold over ₹1.3 lakh crore (FII cash) in Indian equities in 2025 so far, marking one of the heaviest annual sell-offs on record.

* In comparison, previous record annual outflows stood at ₹1.2 lakh crore in 2022, and it has already crossed this figure in 2025 with 4 more months to go.

* In July and August 2025 combined, FIIs logged a net outflow of more than ₹50,000 crore (FII SEBI Moneycontrol data), showing relentless selling pressure on Indian stocks.

DII Buying

- While FIIs pulled out funds, DIIs have stepped in, deploying over ₹5 lakh crore so far in 2025. In 2024, this inflow for the entire year stood at ₹5.26 lakh crore.

- Retail flows, especially via SIPs, have been exceptionally resilient, with monthly SIPs touching record highs above ₹28,000 crore in July 2025 (AMFI data). One of the highest monthly inflows on record.

Historical trend

Historically, heavy FII sell-offs caused major market corrections in India.

Recent data shows this impact has become more muted due to aggressive and sustained DII buying, especially via mutual fund SIPs.

In the past, strong FII outflows corresponded with sharp market corrections, especially when DII buying was insufficient or under-evolved as a stabilising force.

This is a strong sign of a maturing market.

Conclusion

In summary, despite record foreign institutional investor (FII) sell-offs in 2025, domestic institutional investors (DIIs) have played an instrumental role in stabilising the Indian equity markets. This could be because of signs such as a robust GDP growth rate, controlled inflation, and signs of a rate cut.

The massive and consistent capital inflows from DIIs — primarily mutual funds — have cushioned the market from sharper declines traditionally seen during heavy FII withdrawals.

However, this DII-led support is not invincible. The sustainability of the current buoyancy depends on continued domestic inflows, corporate earnings growth, and macroeconomic stability. Any reversal in these, or a sharp improvement in global market conditions prompting renewed FII outflows, could test market resilience.

Investors should be cautious not to assume immunity from volatility just because DII buying has so far buffered FII sell-offs.

(Rohan Borawake is Co-Founder & CEO, Sabir Jana is Co-Founder and Head of Quantitative Research, at FinSharpe Investment Advisors.)

Views are personal, and do not represent the stand of this publication.