The Indian equity market has witnessed sharp volatility in the last few months due to sustained fund inflows by foreign institutional investors (FIIs) amid valuations concerns, weak corporate earnings, and escalated geo-political tensions. However, despite a dip in the market due to fund outflows by FIIs, domestic investors continued to support Indian equities, outperforming their foreign counterparts in terms of activity and impact.
According to a latest data, the share of domestic mutual funds (MFs) in NSE-listed companies touched a new all-time high of 9.45% in the September quarter of 2024, from 9.18% in the previous quarter. This was driven by strong net inflows of ₹89,038 crore by domestic MFs during the quarter, as per primeinfobase.com, an initiative of PRIME Database Group.
As a result, the share of domestic institutional investors (DIIs) as a whole increased to an all-time high of 16.46% in Q2 FY25 (up from 16.25% in Q1 FY25), with a net inflow of ₹1,03,625 crore during the quarter. The DIIs includes domestic MFs, Insurance Companies, Banks, Financial Institutions, Pension Funds, Non-Banking Financial Companies (NBFCs), Domestic Sovereign Wealth Funds (SWFs), Asset Reconstruction Companies (ARCs) etc.
On the other hand, with a net inflow of ₹97,408 crore (₹67,059 in the secondary market and ₹30,349 crore in the primary market, the share of FIIs also increased, albeit slightly, to 17.55% from 17.39% during the quarter.
With this, the difference between the share of FIIs and DIIs reduced further and hit an all-time low of 1.09% (17.55% vs 16.46%) as on September 30, 2024, amid increase in shares of DIIs at a faster pace than its foreign counterparts.
“In INR value terms, DII holding of ₹76.80 lakh crore is now just 6.19% lower than FII holding, another all-time low. The FII to DII ownership ratio also decreased to an all-time low of 1.07% as on September 30, 2024,” says Pranav Haldea, Managing Director, PRIME Database Group.
“The widest gap between FII and DII holding was in the quarter ending March 31, 2015, when DII share was a staggering 10.31% lower than FII share. In INR value terms, DII holding was 49.82% lower than FII holding on March 31, 2015, while the FII to DII ownership ratio was 1.99%,” explains Haldea.
Increasing dominance of DIIs in equity market
Over the years, FIIs have been the largest non-promoter shareholder category in the Indian market with their investment decisions having a huge bearing on the overall direction of the market. This is no longer the case. DIIs along with retail (individuals with up to ₹2 lakh shareholding in a company) & High Net Worth Individuals (HNIs) (more than ₹2 lakh) investors have now been playing a strong counter balancing role with their share reaching an all-time high of 26.04% as on September 30, 2024.
While FIIs continue to remain an important constituent, their strangle hold on the Indian capital market has come down. This was also evident in October with the benchmark indices falling by just 6% despite the huge FII selloff.
According to Haldea, Indian markets have continued their steadfastly march towards atmanirbharta (self reliance) in the quarter ending September 2024. With net outflows of FIIs of ₹94,017 crore (outflow of ₹1,13,859 crore in secondary market and inflow of ₹19,842 crore in primary market) and net inflows of DIIs of ₹1,07,255 crore in October, DII share is likely to have already overtaken FII share by now, a landmark moment for the Indian capital market.
DIIs increased their allocation most to Consumer Discretionary (from 14.47% of their total holding as on June 30, 2024 to 15.27% of their total holding as on September 30, 2024) while they decreased their allocation most to Financial Services (25.88% to 24.90%). FIIs increased their allocation most to Healthcare (5.62% to 6.31%) while they decreased their allocation most to Financial Services (28.18% to 27.27%).
The share of the government (as promoter) decreased to 9.71% from 10.64% during the quarter, with a net sale value of ₹2,408 crore. On the other hand, the share of private promoters increased to 41.34% from 40.87% despite ongoing stake sales. Private promoters reduced their stake in as many as 465 companies during the quarter while increasing their stake in just 122 companies.
The share of retail & HNI investors declined slightly to 7.61% and 1.97%, respectively as on September 30, 2024 from 7.64% and 1.98% as on June 30, 2024. As such, the combined retail and HNI share decreased to 9.58% from 9.61% during the quarter. Individual investors bought a net of ₹17,810 crore in the secondary market during the quarter.
There were 14 companies in which the trinity of Promoters, FIIs and DIIs all increased their stake during the quarter these being (in descending order by market capitalisation) JSW Steel, Tata Consumer Products, Dabur, Indus Towers, Godrej Industries, Himadri Speciality Chemical, Jai Balaji Industries, Redtape, TTTK Prestige, Saregama India, Suprajit Engineering, Meghmani Organics, Aarti Surfactants and Mangalam Organics.
Life Insurance Corporation of India (LIC), India’s largest institutional investor, on the other hand, saw its share (across 283 companies where its holding is more than 1%) decreasing to an all-time low of 3.59% as on September 30, 2024 from 3.64% as on June 30, 2024, primarily on account of profit booking (LIC increased its stake in 78 companies during the quarter while reducing its stake in 103 companies). Given that LIC commands a lion’s share of investments in equities by insurance companies (at least 69% share or ₹16.76 lakh crore), the overall share of Insurance companies also went down marginally from 5.24% to 5.21%, with them selling a net of ₹4,091 crore during the quarter.
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