Discover who’s calling the shots in 2025 and what it means for the future of Indian equities
India’s stock markets are seeing a powerful tug of war between two major forces. Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) are going at it. While both are key players in shaping market trends, recent developments have shown that domestic funds are now playing a much larger role in holding up the market even as foreign investors take a step back.
In June 2025, this trend will become even more visible. FIIs have been pulling out money from Indian equities, while DIIs have continued to invest heavily, helping keep the markets stable. This shift raises an important question: Who is controlling the direction of the Indian stock market?
FIIs Step Back as Global Worries Mount
Foreign investors began June 2025 on a cautious note. In just the first week of the month, FIIs sold Indian equities worth ₹8,749 crore. This comes after a strong May, when FIIs had poured in nearly ₹19,860 crore into Indian markets, marking a sharp reversal in sentiment. By mid-June, the total outflow from FIIs had crossed ₹4,800 crore. These withdrawals were driven largely by concerns around global interest rates, rising U.S. bond yields, and increasing geopolitical tensions such as the trade friction between the U.S. and China.
Even though there were short bursts of foreign buying — for example, FIIs invested ₹8,710 crore in Indian stocks between June 17 and 20 — overall, they have remained net sellers throughout most of the month. This means that the total amount of money they have taken out from the market exceeds what they have put in.
This trend shows that foreign investors are being very cautious and are reacting strongly to global developments. For them, emerging markets like India often become less attractive when returns elsewhere — especially in developed markets — look more promising or stable.
DIIs Provide Market Support
While FIIs have been pulling back, domestic investors have been doing the opposite. In June alone, DIIs invested nearly ₹57,500 crore in Indian equities up to June 17. This includes investments from mutual funds, insurance companies, pension funds, and banks. On some days, DIIs have even invested more than twice the amount that FIIs have withdrawn. For example, on June 17, DIIs bought stocks worth ₹7,797 crore, compared to FIIs, which invested ₹1,616 crore.
Since the start of 2025, DIIs have added around ₹3.33 lakh crore to Indian stocks, while FIIs have taken out about ₹1.27 lakh crore. This growing gap shows how domestic investors are becoming the primary force behind India’s market momentum.
This rise in DII activity is supported by strong participation from retail investors. Mutual fund investments through Systematic Investment Plans (SIPs) have been growing steadily, helping build a stable base of long-term capital. India’s total mutual fund assets under management hit a record ₹72.2 lakh crore by May, thanks largely to consistent monthly contributions from retail investors.
Sector Trends: Where the Money Is Going
FIIs have been making clear choices about where they put their money. Over the past six months, they have withdrawn close to ₹1 lakh crore across key sectors like Information Technology (IT), Fast-Moving Consumer Goods (FMCG), auto, power, and consumer services. The IT sector has been hit the hardest, with FIIs selling more than ₹33,000 crore worth of shares. FMCG came next with a ₹17,800 crore sell-off.
This sector-based exit suggests that FIIs are taking profits from stocks that performed well in recent quarters and are shifting focus to areas they believe offer better long-term growth. In early June, FIIs increased their investments in financial services, chemicals, and oil & gas, while continuing to exit FMCG and telecom stocks.
On the other hand, DIIs have maintained a more balanced and steady approach. In May alone, mutual funds poured ₹17,370 crore into financial services, ₹10,213 crore into FMCG, ₹5,730 crore into telecom, and continued investing across services and utility sectors. These investments helped cushion the market from the selling pressure caused by foreign exits.
What’s Causing the FII Exit?
There are several reasons behind the FII withdrawal. Rising U.S. bond yields make it more attractive for global investors to put their money into safer assets in developed markets. When interest rates go up in the U.S., the returns from investing in emerging markets like India appear less appealing.
Geopolitical tensions, especially between major economies like the U.S. and China, have also created uncertainty. When global risks increase, foreign investors often pull back from markets that are seen as riskier.
Another reason is the high valuation of Indian stocks. Some sectors, especially those like IT and FMCG, are trading at expensive price levels compared to their earnings. This has made investors cautious, pushing them to book profits and look for cheaper opportunities elsewhere.
Finally, FIIs are also rotating their capital from traditional defensive sectors into areas expected to benefit more from India’s structural growth, such as banking, energy, and infrastructure.
DIIs Becoming the Market Leaders
With FIIs turning cautious, DIIs have stepped up and taken on a leadership role in the market. Their strong inflows have come at a time when the markets needed support the most. Unlike FIIs, domestic funds are less affected by global trends and are backed by long-term investors who invest regularly regardless of short-term market movements.
This has given domestic funds a more stable and consistent presence in the market. Increased participation by Indian households through SIPs and retirement funds has also strengthened this position.
Regulators like SEBI and the Reserve Bank of India (RBI) are also making efforts to support both foreign and domestic investors. SEBI has relaxed certain rules for foreign investments in government bonds, extended licensing timelines for FPIs, and made it easier for mutual funds to operate. These policy steps aim to improve the overall investment environment in India.
Who’s Pulling the Strings?
Looking at current trends, domestic funds appear to have a stronger grip on the Indian market. Their regular inflows and broader support from retail investors have made them a major stabilizing force. Although FIIs still have a significant influence, their recent selling shows that they are more reactive to global events and economic uncertainty.
If international conditions improve, such as lower bond yields or easing geopolitical risks, FIIs may return with stronger flows. Until then, domestic investors are likely to remain the main drivers of the Indian market.
Final Thoughts
The Indian stock market is currently being shaped more by local money than global capital. FIIs are playing defense, while DIIs are confidently driving the market forward. This change in power dynamics suggests a shift toward a more self-reliant investment ecosystem in India.
The strong foundation built by domestic investors, combined with consistent policy support, is helping the market stay resilient despite global pressures. As a result, the real power behind the Indian stock market today lies with the domestic institutions that continue to invest steadily and with conviction.
