Foreign Institutional Investors (FIIs) were net sellers of Indian equities for most of 2024 and into 2025, withdrawing over ₹1.5 lakh crore on concerns about elevated valuations, a strengthening US dollar, and geopolitical risk premiums. Domestic Institutional Investors (DIIs) — primarily mutual funds and insurance companies — absorbed every rupee of that selling and more, supported by record SIP inflows and LIC's domestic deployment mandate.
The FII reversal in 2026
Since February 2026, FII flows have turned positive. Key catalysts: - Rupee stabilisation: INR/USD has held 85-87 range after the 2024-25 depreciation, reducing currency risk for dollar-based investors - Earnings resilience: Nifty 50 Q3 FY26 results broadly met expectations despite global headwinds - Valuation normalisation: The Nifty 50's re-rating from 28-30x PE to 20-22x made India more attractive vs. other emerging markets - US Fed trajectory: Expectations of continued US rate cuts reduce the yield differential that was pulling capital to US bonds
DII consistency: the structural story
DII buying has been remarkably consistent regardless of FII behaviour:
| Year | DII Net Buy (₹ Cr) | FII Net Buy (₹ Cr) | |---|---|---| | FY2022-23 | +1,45,000 | -1,21,000 | | FY2023-24 | +2,03,000 | +1,71,000 | | FY2024-25 | +4,81,000 | -1,61,000 |
The DII resilience reflects the institutionalisation of retail savings — ₹21,000+ crore of SIP flows every month mechanically enter equity markets, creating a structural bid regardless of market level.
What to monitor
FII holding in Nifty 500: Currently at 18.5%, down from 24% peak in 2015. FII re-entry at current underweight levels could be a meaningful tailwind for large-caps.
DII sustainability: Depends on SIP retention rates. If retail investors stop SIPs during a correction (as some did in 2025), DII buying power weakens.
Sectoral FII preference: In 2026, FIIs have been buyers of financials and healthcare while remaining sellers of IT and consumer staples — a rotation toward value and defensive sectors.