Strong Domestic Inflows Offset Foreign Selling
Domestic Institutional Investors (DIIs) have poured ₹1.2 lakh crore into Indian equities since January 2025, nearly neutralizing the ₹1.06 lakh crore sell-off by Foreign Institutional Investors (FIIs). This trend highlights the resilience of the Indian stock market, even as global uncertainties and valuation concerns trigger large-scale foreign outflows.
According to NSE data, DIIs have emerged as a critical support system for Indian equities in 2025, just as they did in 2024 when they invested a record ₹5.22 lakh crore. In contrast, FIIs ended 2024 as net sellers, withdrawing ₹427 crore from the Indian market.
Despite strong domestic investments, benchmark indices remain under pressure, reflecting ongoing market volatility. The Sensex and Nifty 50 have declined over 3% year-to-date, while the BSE MidCap and BSE SmallCap indices have corrected by more than 20%.
Market Correction and Investor Concerns
The Indian equity market has faced persistent selling pressure, driven by several factors:
- Weak corporate earnings across multiple sectors.
- Concerns over high valuations, particularly in mid- and small-cap stocks.
- Global uncertainties, including the US Federal Reserve’s monetary policy, geopolitical risks, and trade tensions.
- A strengthening US dollar (DXY), which has weighed on the Indian rupee and triggered FII outflows.
Despite these challenges, steady Systematic Investment Plan (SIP) inflows of over ₹25,000 crore per month continue to provide liquidity and stability to the domestic equity market.
Jefferies Warns of Possible Slowdown in Retail Investments
A report by Jefferies has raised concerns that retail fund inflows into Indian equity mutual funds could weaken in the coming months. The brokerage noted that:
- Declining market returns may discourage retail participation.
- A slowdown in household investments in equities could impact liquidity.
- The Indian stock market has been in a downward trend since September 2024, reflecting an earnings slowdown and sustained FII outflows.
However, market analysts believe DIIs will continue their investments, even if they moderate their buying pace in the short term. Experts suggest that while market corrections are possible, a deep crash is unlikely unless a major external shock occurs.
Market Outlook: Key Support Levels and Recovery Prospects
Despite ongoing volatility, experts anticipate strong support for the Nifty 50 around the 22,300-22,500 levels, where fresh buying could emerge. Narinder Wadhwa, MD & CEO of SKI Capital Services, stated that while markets may remain volatile due to FII selling, global uncertainties, and US trade tariffs, the medium-term recovery outlook remains intact.
Key factors supporting a potential recovery include:
- Reserve Bank of India’s (RBI) expected rate cuts, which could improve liquidity and spur economic growth.
- Strong domestic consumption, supported by government spending and tax relief measures.
- Infrastructure-led economic growth, as the government continues large-scale investments in roads, railways, and urban development.
Sectoral Rotation: Where Should Investors Focus?
Market experts believe that sectoral rotation will play a crucial role in determining investment returns in 2025.
Sectors Expected to Outperform:
- Banking & Financials – Expected to benefit from strong credit growth and RBI’s liquidity measures.
- Consumption Sector – Rising disposable incomes and tax relief measures will drive demand.
- Infrastructure & Capital Goods – Government-led spending in infrastructure projects will boost earnings in this sector.
Sectors Likely to Face Pressure:
- IT & New-Age Tech Stocks – High valuations and weak global demand may weigh on these stocks.
- Export-Oriented Sectors – Currency volatility and slowing global trade could pose challenges.
DIIs Remain the Backbone of Indian Markets
Despite heavy FII selling, DIIs have provided strong support to Indian equities in 2025, ensuring that market corrections remain contained. While near-term volatility persists, long-term fundamentals remain strong, making India an attractive investment destination.
Experts believe that institutional interest in Indian equities will continue, supported by macroeconomic stability, domestic liquidity, and favorable policy measures. Investors are advised to focus on fundamentally strong sectors such as banking, consumption, and infrastructure, which are expected to drive market recovery in the coming months.
