19

Mar

Exodus of Foreign Investors Continues

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Media Map News Network

New Delhi | Wednesday | 19 March 2025

Foreign investors continue to exit the Indian stock market. On March 3, FIIs sold shares worth Rs 4,788 crore, contributing to Rs 4,08,984 crore this financial year, spreading fears. The market primarily consists of three major categories of investors: retail investors, foreign institutional investors (FIIs), and domestic institutional investors (DIIs).

Retail investors allocate some of their savings into the stock market, hoping for better returns than traditional investments like fixed deposits, gold, or real estate. While long-term investors focus on company fundamentals and sector growth, many new retail investors entered at overvalued prices and faced heavy losses. A significant number of retail investors have been attracted by government and media narratives suggesting that the stock market is the fastest route to wealth. However, speculation now prevails over long-term investment.

FIIs, traditionally long-term investors with large portfolios, play a crucial role in market stability. According to NSDL data, 2024 witnessed erratic FII trading, with substantial selling in the first and last quarters, although they invested following the general election results. Despite a net FII investment of Rs 427 crore in 2024, signs of disinterest in the Indian market emerged due to economic weaknesses, a strengthening US dollar, better returns from the US Federal Reserve, and China’s economic stimulus packages.

In 2025, these concerns have materialised. FIIs withdrew Rs 78,027 crore in January, Rs 34,574 crore in February, and Rs 12,026 crore in March so far, shifting focus to the US and China.

Comparing data from 2004-2013 (UPA) and 2014-2025 (NDA), FIIs invested a net Rs 6 lakh crore under UPA, while NDA’s tenure recorded only Rs 3.65 lakh crore—almost half. While global markets flourish, structural weaknesses and geopolitical turmoil render India a less attractive option. Donald Trump’s trade policies add to India’s challenges, as he often labels India a "tariff king" and threatens reciprocal tariffs. These policies, particularly in IT and pharmaceuticals, may significantly impact the Indian market.

 

Article at a Glance
Foreign institutional investors (FIIs) are increasingly exiting the Indian stock market, having sold shares worth Rs 4,788 crore on March 3, contributing to a total of Rs 4,08,984 crore in sales this financial year. This trend raises concerns about market stability, as retail investors, who often enter at overvalued prices, face significant losses.
While FIIs traditionally provide stability, their net investment has decreased significantly under the current government compared to the previous one. In contrast, domestic institutional investors (DIIs) have become more prominent, increasing their market share from 11% in 2015 to 17% by March 2025.
 DIIs have played a crucial role in stabilizing the market amid FII withdrawals, but questions remain about their motivations and the sustainability of their support. As global economic uncertainties persist, the Indian government's economic policies will be vital for future market stability.

DIIs, which include banks, LIC, mutual funds, and pension funds, are playing an increasingly crucial role in market stability. Many of these funds are government-backed and manage crores of rupees from customers' provident funds and pension schemes. Until 2015, FIIs dominated the Indian stock market, but by 2025, DIIs have taken the lead.

In 2015, FIIs held 21% of shares in Nifty 500 companies, which fell to 17.8% by March 2025. Conversely, DIIs increased their holdings from 11% in 2015 to 17%. Aggressive investments by DIIs have shielded the market from collapsing amid FII withdrawals. By February 2025, DIIs had accumulated Rs 55 lakh crore in the mutual fund market alone. In March 2025, DIIs bought equities worth Rs 12,000 crore in a single day to counter FII selling, preventing a deeper market decline.

Without DII support, analysts suggest the stock market could have fallen by 60-70% instead of the current 25-40% decline.

A key concern is whether DIIs act solely in the interest of investors or if their actions serve commercial and political interests. Some believe DIIs may be artificially inflating the market, jeopardising public savings. LIC’s investment strategy exemplifies this shift. As of March 31, 2023, LIC’s portfolio was around Rs 10 lakh crore, with significant stakes in companies such as Reliance Industries (6.31%), ITC (15.21%), TCS (4.84%), SBI (9.02%), and ICICI Bank (6.93%).

Previously, LIC invested heavily in public sector enterprises with guaranteed returns, ensuring policyholders received their assured payouts. Today, however, LIC plays a stabilising role in the market rather than focusing solely on its customers. If Indian industries continue to struggle and depend on Chinese imports for exports, Trump’s tariff threats could have severe consequences.

If current trends persist, the stock market may eventually become entirely reliant on DIIs, raising concerns about their long-term strategy. If DIIs are artificially propping up markets, Indian investors may face significant risks. The question remains: is the Indian government prepared to handle a situation where DIIs and their crores of customers face market instability?

With FIIs withdrawing and retail investors struggling, the Indian stock market is increasingly dependent on DIIs. While DIIs have successfully prevented a market crash, questions linger regarding their investment strategies and whether they serve broader financial and political interests. As global uncertainties loom, India’s economic policy decisions in the coming years will be crucial in determining market stability.

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