The resilience shown by the Indian stock market in 2025 has surprised global investors.
India's stock market is experiencing an unprecedented phase in 2025. While Foreign Portfolio Investors (FPIs) are withdrawing a record amount of money from the Indian stock market, domestic investors are not only managing this sell-off but also propelling the market to new highs.
According to recent Bloomberg data, foreign investors have withdrawn $10.6 billion (approximately ₹88,000 crore) from the Indian stock market so far this year. This is the highest amount compared to any other country in Asia. Yet, major indices like Nifty 50 and Sensex have registered an increase of over 5 percent.
Domestic Investors Show Their Strength
Despite the massive sell-off by FPIs, the rise in the Indian stock market is attributed to Domestic Institutional Investors (DIIs). These investors include mutual funds, insurance companies, and retail investors. From the beginning of 2025, DIIs have purchased approximately $36.1 billion (about ₹3 lakh crore).
In the first week of June, while FPIs sold shares worth $0.59 billion, DIIs purchased shares worth approximately $5.32 billion. This figure is more than 11 times the FPI sell-off, clearly indicating that domestic investors have played a crucial role in determining the market direction.
The Growing Strength of Mutual Funds
The mutual fund industry in India is rapidly expanding. In May 2025, the Assets Under Management (AUM) of mutual funds crossed ₹70 lakh crore for the first time. This is a historic achievement and evidence that ordinary Indian investors are now considering the stock market as a means of increasing their wealth, moving away from traditional methods.
Crores of rupees are being invested in the market every month through Systematic Investment Plans (SIPs). This money, channeled through DIIs, is bringing stability to the market and balancing the impact of FPI sell-offs.
Reasons for FPI Sell-off
- Middle East Tensions: The ongoing geopolitical tensions between Israel and Iran have increased volatility in global markets. This has led to a surge in crude oil prices, which is a negative sign for an importing country like India. This increases company costs and reduces profits, leading FPIs to withdraw funds to avoid risk.
- Uncertainty Regarding US Interest Rates: Suspense remains regarding the US Federal Reserve's monetary policy. If interest rates are not cut, the dollar will remain b, making investments in emerging markets less attractive. This is why many FPIs are withdrawing funds from India.
- Cheap Stocks in China: Signs of improvement are emerging in the Chinese economy, and Chinese shares are available at lower valuations compared to India. Therefore, some FPIs are diverting some investments towards China.
- Threat of Global Trade War: Trade tensions between the US and China are rising again. If this crisis deepens, the possibility of a global recession may increase, making FPIs cautious.
The Market Landscape is Changing
In recent years, it has become clear that the Indian stock market is no longer as dependent on FPIs. An unprecedented increase in the participation of domestic investors has been observed. According to data released by NSE, DIIs now hold a larger stake in Nifty 500 companies than FPIs.
In the last 10 years, DIIs have invested $195 billion in the Indian market, while FPI investment has been only $53 billion. This means the contribution of domestic investors is almost four times that of foreign investors.
