The Indian stock market today is at a point where domestic investors and foreign investors appear to be moving in two entirely different directions. In recent months, foreign investors have pulled out a large amount of money from Indian equities, while domestic institutional investors (DIIs) have continued to buy aggressively. This contrast is not the outcome of one single event. It is a combined result of several global and domestic signals that are making FIIs increasingly cautious.
To understand why foreign investors are stepping back, it is important to look closely at the data and the trend forming in the background.
What’s Happening?
The most important question is why foreign investors have suddenly started such heavy selling. Data shows that in 2026 alone, up to 29 January, FIIs and FPIs recorded net selling of Rs 43,686.59 crore in Indian equities. During the same period, domestic institutional investors bought Rs 69,821.77 crore. This helped reduce short term pressure on the market, although the pace of FII selling still remains a concern.
Foreign institutional investors were once considered the backbone of India’s market rally. Their behaviour has changed significantly. In 2025 they were net sellers in 8 months out of 12 in the cash segment. Their total annual equity outflow touched Rs 3,06,419.09 crore, which was the highest ever. As a result, FII holdings in the Nifty 50 slipped to a 13 year low of 24.1%. This aggressive sell off increased market declines because foreign capital exiting the market often intensifies short term price pressure.
What the FII Selling Trend is Signalling
Data from Research360 shows that foreign investor sentiment toward India has remained consistently negative for several years. At the beginning of 2026, FIIs sold Rs 43,686.59 crore, and the Nifty fell by 2.78%, reflecting a pattern seen in previous years. In 2025, FIIs withdrew Rs 3,06,419.09 crore; in 2024, ₹3,02,434.91 crore; and in 2022, Rs 2,78,429.52 crore.
What stands out is that despite heavy FII outflows, the Nifty delivered strong returns in several years. The index gained 10.05% in 2025, 8.75% in 2024, and 20.03% in 2023. This pattern highlights a clear shift: FII flows are no longer the sole driver of market direction. The market is now less dependent on foreign capital than it once was.
The data points to an important insight, the growing role of domestic investors. Stability increasingly comes from DIIs and retail participation. When FIIs withdraw large sums, domestic liquidity often steps in to cushion the impact. This explains why the market still posted healthy returns in 2025 and 2024 despite sustained foreign selling. In contrast, in years such as 2022, when FII selling was high and DII support relatively weaker, the Nifty’s performance remained subdued.
DII Flows are Becoming India’s New Strength
The data shows that domestic institutional investors have become the strongest support system for Indian equities. In 2026, DIIs have already invested Rs 69,821.77 crore. In 2025, their buying reached an exceptional Rs 7,88,184.38 crore; in 2024, Rs 5,26,545.13 crore; in 2023, Rs 1,84,650.23 crore; and in 2022, Rs 2,76,698.72 crore.
This consistent rise in domestic flows reflects a major structural shift. The Indian market is no longer reliant on foreign capital alone, domestic investors have become the primary engine of stability and growth. The Nifty’s rise from 10,862.55 in 2018 to around 25,400 in 2026 illustrates this transition clearly.
Even in challenging periods such as 2020, when DIIs were net sellers at Rs 35,663.21 crore, the market came under pressure. In most other years, however, strong domestic inflows helped push the market to new highs. This underscores how India’s savings culture, SIP inflows, and long-term participation from mutual funds and insurance companies have made the market far more resilient to foreign outflows.
What Does This Mean for Investors?
The key point for investors is not to panic simply because FIIs are selling. Large FII outflows do not always signal economic weakness. In many situations this is a part of global portfolio rebalancing where investors allocate money to other strong performing markets.
If we look at the data, strong DII buying shows solid confidence in India’s long term growth story. Domestic flows and SIPs are providing a stable base for the market. Heavy FII selling often results in high quality stocks becoming available at attractive valuations. For long term investors, this can be an opportunity rather than a risk.
Investors should also remember that foreign flows usually depend on short term global macro conditions, while domestic flows are anchored in India’s structural economic strength. This is why both often move in different directions.
What’s Next?
In the coming months, FII flows will depend heavily on global market performance. Latest data shows that FIIs are moving toward economies with stronger and more stable growth. In 2025, China’s CSI 300 returned 18%. South Korea’s Kospi gained 76% which was its best year since 1999. Japan’s Nikkei 225 gained 26%. In comparison, India’s Nifty 50 delivered only 10.5%. This made other markets more attractive for foreign capital. Brazil, for example, gained 39.4% and pulled strong inflows.
Inside India, the real strength came from domestic institutional investors. According to the Economic Survey 2025 to 26, mutual funds and insurance companies provided steady support and absorbed the volatility created by continuous FII selling. The survey noted that in Q4 FY25, for the first time, the share of DIIs by value of holdings exceeded the share of FIIs. By Q2 FY26, DIIs reached an all time high share of 18.3%. Meanwhile FIIs fell to 16.7% which is the lowest in 13 years.
This marks a major shift in the structure of the Indian equity market. It is now more domestic driven, more stable and more resilient to foreign selling than ever before.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
