The recent trends in foreign institutional investor (FII) and domestic institutional investor (DII) ownership in Indian equities indicate a notable shift in the market structure:
- Decline in FII Ownership: FIIs now hold only 15.98% of NSE-listed companies’ shares, marking their lowest ownership level in 12 years. Their equity value has dropped significantly by 8.8% between September and October 2024, from ₹77.96 lakh crore to ₹71.08 lakh crore. This represents the most substantial reduction since the market impact during March 2020, suggesting cautious FII sentiment amidst global uncertainties.
- Rise in DII Influence: DIIs have increased their market share, now holding 16.46% as of September 2024, which narrows the gap with FIIs. In October alone, DIIs added ₹1,07,255 crore, compared to an FII outflow of ₹94,017 crore. DIIs have consistently gained ground, with the potential to surpass FIIs as the largest shareowners after promoters if this trend continues.
- Market Dynamics in October and November: FIIs continued selling in November, divesting another ₹15,000 crore worth of shares, which likely solidifies DIIs’ position as key stakeholders in the Indian equity landscape.
- Retail Investors and HNIs: Combined with DIIs, retail investors and high-net-worth individuals now control 26.04% of NSE-listed stocks, indicating a robust domestic backing, which could provide stability amid global FPI fluctuations.
- Global Context of FPI Trends: Globally, foreign portfolio investors (FPIs) have shown a cautious stance, with eight out of eleven markets experiencing outflows. India’s FPI outflows have been the steepest, while countries like China saw inflows over twice that of India in September. Taiwan, the Philippines, and Japan also observed inflows, underscoring a shift in investor sentiment favoring other Asian markets over India.
Implications
- Shift in Market Influence: The rising DII stake could decrease India’s dependence on FIIs, potentially making the market less volatile in response to global shocks. This trend signals growing confidence among domestic institutions in Indian equities.
- Retail and DII Strength: The increased shareholding by domestic players (DIIs and retail investors) reflects a maturing Indian market with more significant domestic participation, potentially offering more resilience to global capital movement fluctuations.
- International Positioning: With outflows continuing and China attracting higher inflows, India might face increased competition for foreign capital within Asia. This could impact liquidity, valuations, and foreign investment flows, especially if global economic concerns persist.
