In the history of the Indian stock market, 2025 may be remembered as a year when foreign investor confidence weakened significantly. During the year, Foreign Institutional Investors (FIIs) carried out net selling of over Rs 1.5 lakh crore in the Indian equity market. Meanwhile, Domestic Institutional Investors (DIIs) continued with record levels of buying. This sharp contrast has left investors wondering: what exactly is happening in the market?
In this article, we explain why 2025 turned out to be the ‘worst year for foreign investment’ and the economic factors driving this trend.
What’s Happening?
Foreign Institutional Investors (FIIs) began selling Indian stocks as early as October 2024. The pace of selling intensified in the months that followed, with only brief periods of buying in between. As a result, 2025 has emerged as the worst year so far for foreign investment in the Indian equity market.
According to NSDL data, FIIs have sold a record Rs 1,59,779 crore worth of shares in 2025 so far. Out of the 12 months, FIIs were net sellers in eight months. January was the worst month, witnessing sales of Rs 78,027 crore, while May was the best month, with net buying of Rs 19,860 crore.
In contrast, domestic investors have played a remarkably strong role. As per NSDL data, during the first nine trading days of December, FPIs withdrew Rs 17,955 crore, while DIIs, including mutual funds, purchased shares worth Rs 36,101 crore during the same period. With this, total DII investment in 2025 has surged to a record Rs 7.44 lakh crore, clearly highlighting the growing strength and confidence of domestic investors in the Indian market.
Foreign Ownership in Indian Markets Falls to a 15-Year Low
Persistent FII selling has led to a sharp decline in foreign investor presence in the Indian stock market. According to an NSE report, FPI ownership in NSE-listed companies fell to 16.9% in Q2, marking a low of over 15 years. In addition, foreign ownership in the NIFTY50 slipped to 24.1% and in the NIFTY500 to 18%, both touching lows of more than 13 years.
At a sectoral level, foreign investors remained overweight on financials, turned slightly positive on communication services, and continued to remain cautious on consumer staples, energy, materials, and industrials.
DIIs Provide Support amid FII Outflows
Domestic investors have absorbed foreign outflows with remarkable strength. Domestic mutual fund ownership rose to a record 10.9%, supported by steady SIP inflows and consistent equity buying. This marked the ninth consecutive quarter of record mutual fund ownership. DIIs also outpaced FPIs for the fourth straight quarter, a trend last seen in 2003.
Meanwhile, direct retail ownership remained stable at 9.6%. However, when combined with mutual fund holdings, total individual investor control increased to 18.75%, a 22-year high. Although domestic equity wealth declined by approximately Rs 2.6 lakh crore in Q2FY26, cumulative gains since April 2020 still stand at Rs 53 lakh crore, taking total domestic equity holdings to around Rs 84 lakh crore.
What Does This Mean for Investors?
FII outflows in 2025 may appear alarming for retail investors, but they do not tell the complete story. History suggests that foreign selling often creates short-term pressure, while strong fundamentals drive the market’s long-term direction. As of November 2025, available data indicate that nearly 1,000 listed companies have fallen by more than 20% from their all-time highs, while around 440 stocks have declined by over 50%, with some experiencing corrections of up to 90%.
In such an environment, prudence is more important than panic. Phases of correction often create opportunities to accumulate quality stocks at more reasonable valuations. At the same time, it has become increasingly clear that foreign investors alone no longer dictate market direction. Domestic investors are now playing a far more significant role in shaping market trends than ever before.
What’s Next?
In 2025, foreign investor selling hit record levels, with FIIs offloading Indian equities at an average pace of around Rs 152 crore per trading hour. Despite this, the market avoided a major shock, as Domestic Institutional Investors (DIIs) absorbed the pressure, supported by steady SIP inflows.
However, while short-term volatility may persist, CNBC TV18, citing Pankaj Tibrewal, CIO of IKIGAI Asset Manager, notes that improving earnings visibility, strong corporate balance sheets, and supportive macroeconomic factors could pave the way for a return of foreign investors. He believes 2026 could deliver a positive surprise for FII flows. Investors should also keep an eye on key triggers such as the India–US trade deal, as these could influence exports and the strength of the rupee.
*The article is for information purposes only. This is not investment advice.
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