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DII Ownership Poised to Exceed FII in Indian Firms?

Rise in Domestic Institutional Holdings

In December 2023, domestic institutional holdings in Indian companies surged to 18.19%, marking a significant increase from 13.7% in December 2018. Conversely, foreign holdings dipped to 18.1% from 19.6% over the same period. This narrowing gap suggests that domestic institutional investors (DIIs) may soon overtake foreign institutional investors (FIIs) in terms of ownership of NSE-listed companies.

Decline in Foreign Holdings

According to sources, DIIs’ ownership of NSE-listed companies reached an all-time high of 8.81% in December 2023, propelled by robust net inflows amounting to Rs 58,198 crore during the quarter. In comparison, FIIs’ investment stood at Rs 21.76 lakh crore, slightly lower than DIIs’ investment of Rs 21.85 lakh crore in 2023.

Continued Buying Trend in Indian Cash Markets

Market experts attribute this trend to record flows into mutual funds‘ equity schemes and pension funds, which have bolstered the influence of domestic institutional investors in the Indian stock market. Investments through systematic investment plans into mutual funds also hit a record high of Rs 7,17,610 crore in December, reflecting the growing preference for domestic investment avenues.

Date  FII Holdings (Rs crore) DII Holdings (Rs crore)
Net Purchase / Sales Net Purchase / Sales
Jan-24 -35,977.87 26,743.63
Dec-23 31,959.78 12,942.25
Nov-23 3,901.82 12,720.36
Oct-23 -29,056.61 25,105.86
Sep-23 -26,692.16 20,312.65
Aug-23 -20,620.65 25,016.95
Jul-23 13,922.01 -1,184.33
Jun-23 27,250.01 4,458.23
May-23 27,856.48 -3,306.35
Apr-23 5,711.80 2,216.57
Mar-23 1,997.70 30,548.77
Feb-23 -11,090.64 19,239.28
Jan-23 -41,464.73 33,411.85

Shift in Investment Trends

In December, Foreign investors (FIIs) and domestic institutional investors (DIIs) sustained their buying trend in Indian cash markets, with FIIs recording a net inflow of Rs 31,959.78 crore and DIIs registering a net inflow of Rs 12,942.25 crore in Dec-23. FIIs turned net sellers in FY24 (Apr-Dec’23) with a net outflow of Rs 1,745.39 crore, compared to the net outflow of Rs 1.98 lakh crore in the previous year. Meanwhile, DIIs have invested a higher amount, as compared to foreign investors, to the tune of Rs 1.25 lakh crore in Indian equities in the current fiscal.

Narrowing Gap Between FII and DII Holdings

Over the past decade, DII holdings have been steadily increasing, while foreign ownership has declined. DII holdings in NSE-listed companies rose to 15.96% in December 2023, up from 13.77% in December 2018. On the other hand, foreign holdings decreased from 19.66% in December 2018 to 18.19% in December 2023.

DII Overtaking FII Ownership

The gap between FII and DII holding has narrowed to an all-time low, with DII holding now standing at just 12.23% lower than FIIs.
The shift in ownership dynamics signals a significant transformation in the Indian stock market, which has traditionally been dominated by promoters and foreign investors. With domestic institutional investors gaining prominence, the market landscape is evolving, presenting new opportunities and challenges for investors and market participants alike.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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