FII ownership of Indian shares hits 12-year low, dips below 16%

The value of shares held by mutual funds stood at Rs 42.36 lakh crore with the value of stocks owned by domestic institutional investors (DIIs) pegged at Rs 76.80 lakh crore at the end of the September quarter

The share of foreign investors in NSE-listed companies dropped to 15.98 percent in October, the lowest in twelve years. Foreign investors’ assets under custody in equity totaled Rs 71.08 lakh crore in October, down 8.8 percent from Rs 77.96 lakh crore a month ago—the sharpest fall since March 2020, according to data from NSDL.

Meanwhile, the share of mutual funds hit a record high of 9.58 percent in October, up from 9.32 percent a month prior. The value of shares held by mutual funds stood at Rs 42.36 lakh crore in October. The total value of assets owned by DIIs is unavailable for October; however, September shareholding data from stock exchanges pegged their total holdings at Rs 76.80 lakh crore.

The FII and mutual fund share is calculated by dividing October’s assets under custody (AUC) data, as reported by NSDL, by the total market cap of all NSE-listed firms based on the daily average for October.

As of the September quarter, DIIs’ stake reached a record 16.2 percent, up from 16.15 percent the previous quarter. FIIs also saw a slight increase in share, rising to 16.44 percent from 16.27 percent, driven by net inflows of Rs 97,408 crore—Rs 67,059 crore in the secondary market and Rs 30,349 crore in the primary market.

DIIs Surpass FPIs?

Although AUC data for DIIs for October is not currently available, it’s possible that DII exposure may now be inching close to, or has surpassed, the FIIs’ stake, supported by over Rs 1 lakh crore in domestic inflows during October. Although the exact position will be clear only when comparable shareholding data is available at the end of December, this could mark a significant turning point for India’s capital markets.

Pranav Haldea, Managing Director of PRIME Database Group, believes this will be a significant shift in the Indian stock market landscape, as FIIs have historically been the largest non-promoter shareholders, with their investment decisions heavily influencing market trends. However, their dominance appears to be waning.

DIIs, along with retail investors (holding shares valued up to Rs 2 lakh) and High Net Worth Individuals (HNIs) (holding over Rs 2 lakh), have increasingly played a stabilizing role. Their collective market share reached a record high of 26.04 percent as of September 30. While FIIs remain a key market force, their control over the Indian capital market has decreased. This was evident in October, as benchmark indices declined by only 6 percent despite substantial FII sell-offs, Haldea noted.

The difference between FII share and DII stake fell to a historic low of 0.24 on September 30, 2024. By comparison, in March 2015, the DII share was 10.09 percent below FII holdings.

Meanwhile, FIIs continued their selling spree in October, driven by geopolitical tensions, anticipation of the Federal Reserve's rate decisions, potential Chinese stimulus, and the upcoming US elections. Additionally, Indian stock valuations remained elevated, both in absolute terms and relative to emerging market peers. Near-term earnings have slowed, with earnings revisions showing more downgrades than upgrades.