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The Indian stock market is witnessing a transformation, one that tells a story of shifting loyalties. As the March 2025 quarter drew to a close, the NSE's Market Pulse report unveiled an interesting narrative. Valuations of companies are probably moving ahead of their fundamentals, if one looks at the shifting shareholding pattern.
For the third consecutive quarter, promoter shareholding has been declining, dropping by 0.22 percentage points to reach a seven-quarter low of just 50.1 percent. This is a red flag for the market.
Private Indian promoters reduced their stakes for the second quarter running, bringing their ownership down to 32.5 percent. Individual promoters, representing 21 percent of total private promoter holdings, showed the most dramatic shift. After three quarters of increasing their stakes, in a falling market, they suddenly reversed course, reducing their ownership by 0.44 percentage points to 6.8 percent.
Meanwhile, non-individual promoters increased their share by 0.28 percentage points to 25.7 percent—their first increase in five quarters.
Interestingly, despite pulling out a staggering $13.4 billion during the quarter, FPI overall ownership actually inched up marginally from a 13-year low of 17.4 percent to 17.5 percent. While their stake in large-cap companies remained relatively stable and even increased in microcap listed companies to a 10-quarter high of 5.9 percent, it was the mid and small-cap segments that bore the brunt of their selling pressure.
The government, too, has been gradually stepping back from its ownership role. For the third consecutive quarter, government stakes declined, falling by 0.05 percentage points to 9.9 percent—a six-quarter low. This represents a cumulative drop of 1.5 percentage points from the post-COVID peak of 11.5 percent reached in June 2024. In value terms, government holdings contracted to Rs 40.5 lakh crore, a 6.8 percent drop, in line with the overall market correction of 6.4 percent.
Amid all this selling, domestic mutual funds (DMFs) have continued their buying. DMFs have been consistently increasing their stakes for seven consecutive quarters. Their shareholding surged to a record high of 10.4 percent in March 2025, representing a 1.4 percentage points increase over the entire fiscal year.
The DMFs infused Rs 1.9 lakh crore into equities in the fourth quarter alone, contributing to total net inflows of Rs 6.1 lakh crore for FY25—the highest annual inflow ever recorded. Passive funds reached an all-time high of 2 percent, while active funds maintained a robust 8.4 percent share.
Another surprise was the fall in individual investors stake. Individual ownership declined by 0.30 percentage points to a seven-quarter low of 9.5 percent, with the selling concentrated primarily in mid- and small-cap companies.
However, individual investors picked up microcap stocks (excluding Nifty 500 companies), where their holdings increased by a steep one percentage point. This suggests a continued appetite for risk among retail investors, even as they trimmed positions in mid- and small-cap names.
March 2025, for the first time in several months, saw net selling by individual investors with outflows reaching Rs 15,353 crore—the highest monthly outflow ever recorded in NSE's secondary markets.
Nonetheless, the most significant development of FY25 was a historic shift in market dynamics. For the first time since 2006, the combined direct and indirect participation of Indian investors (through DMFs) surpassed FPI ownership. This milestone underscores the growing maturity and confidence of India's domestic investor base.
Even as institutional investors—both domestic and foreign—continue to believe in and support the India growth story, the very promoters of the companies they're investing in appear to be losing faith. This presents a troubling contradiction that market participants cannot ignore.
The implications are profound. When those who know their businesses best—the promoters—are reducing their stakes in a rising market, it raises fundamental questions about valuations, future prospects, and market sustainability.
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