Domestic Institutional Investors (DIIs) continued to strengthen their influence on the markets, bringing their share in Nifty 500 companies to a record high of 21% in the quarter ending June 2026. This trend has been maintained for the ninth consecutive quarter, according to a report by Motilal Oswal Financial Services (MOFSL).
Contrast with Foreign Investors
Conversely, the share of Foreign Institutional Investors (FIIs) decreased to a new low of 17% during the same period. MOFSL classifies all companies in the Nifty-500 index as private, Public Sector Undertakings (PSUs), and Multinational Corporations (MNCs).
Investment Flows and Activity
According to the MOFSL report, DIIs invested $22.8 billion in Indian equities in the second quarter of the fiscal year 26, supported by a steady Systematic Investment Plan (SIP) pace. FII flows showed volatility: while they turned positive in the first half of June 2026 amounting to $1.3 billion, the first half of June saw a net outflow of $4.3 billion, leading to a total FII outflow of $13.2 billion in the second quarter of fiscal year 26.
DII Position in the Market
Anirudh Garg, Partner and Fund Manager at INVasset PMS, noted that DIIs continue to believe in the Indian market even during periods of stress, making monthly purchases. He mentioned that in March, at the peak of stress, purchases amounted to INR 142,960 crore, in April to INR 51,064 crore, in May to INR 82,669 crore, in June to INR 85,800 crore, and in July to INR 32,839 crore.
Garg emphasized that this is not speculative timing of downturns, but rather mechanical monthly deployment of funds coming from record SIP inflows, insurance premiums, and distributions from EPFO and NPS, which arrive irrespective of market conditions. He believes that the driving force for DIIs is structural, not emotional, as household financial inclusion is in a multi-decade migration phase, and monthly SIP flows have grown during every correction over the past five years.
Stock Ownership Dynamics
The MOFSL report also showed that the DII share in private companies reached an all-time high of 21.8%, which is 200 basis points (bps) higher compared to the previous year in the quarter ending June 2026. The DII share in PSU companies stood at 17.3% (a rise of 140 bps year-on-year) during the same period.
On the other hand, FIIs reduced their share in private companies by 260 bps year-on-year, bringing it down to 19.4% in June 2026. Meanwhile, their share in PSUs increased by 70 bps year-on-year, reaching 9.7% in June 2026.
Sectoral Changes
From a sectoral perspective, DIIs increased their year-on-year shares in areas such as Private Banks, Telecommunications, Real Estate, Technology, Healthcare, Insurance, Automobiles, PSU Banks, NBFC Lending, Retail, and Capital Goods. A decrease was observed in the shares of EMS, Media, Metals, Consumer Durables, and Consumer Staples sectors.
FIIs, conversely, increased their positions in the Metals, PSU Banks, NBFC Lending, Capital Goods, and Logistics sectors year-on-year. The most significant reduction in their participation was noted in the Private Banks, EMS, NBFC Non-Banking Finance, Technology, Real Estate, Retail, Automobiles, Healthcare, Consumer Staples, Oil & Gas, Insurance, Cement, and Utilities sectors.
Market Outlook
Analysts predict that DIIs will maintain a dominant role in the Indian stock market regardless of market direction. Garg stated that the monthly volume will vary depending on the volume of foreign selling that needs to be absorbed. He concluded that the architecture is set: domestic flows provide the floor, and foreign flows determine the pace.
Although Jyotiviraj Jaypuri, Founder and CEO of Valentis Advisors, believes that the worst period of FII selling might be over, foreign investors are not yet rushing back to Indian markets with optimism. He added that an increase in their undervalued position in India is unlikely, and further flow development will depend on bond yields, rupee-dollar exchange rate, domestic corporate earnings, and the development of artificial intelligence trade.
