Foreign Investors Sell Off, But Domestic Players Keep Indian Stock Market Steady

In 2025, Foreign Institutional Investors (FIIs) offloaded Indian stocks at an unprecedented scale. Yet, the market remained resilient, thanks to strong support from Domestic Institutional Investors (DIIs) and mutual funds. FIIs sold nearly ₹1.80 lakh crore worth of shares over the year. Without the backing of DIIs and mutual funds, the stock market could have witnessed significant turmoil.

Diverging Investor Behavior
Investor behavior this year was clearly divided. While FIIs continued their sell-off, domestic investors stepped in aggressively to stabilize the market. The exit of foreign capital drew the most attention, as investors redirected their funds to markets in the USA, China, Japan, and other countries, citing discomfort with high valuations in India.

Mutual Funds Provided Cushion
Mutual funds played a critical role in mitigating the impact of FII outflows. By absorbing part of the selling pressure, they prevented the market from witnessing extreme volatility.

Shifting Structural Dynamics
A major structural shift was observed in 2025: DIIs overtook FIIs in their shareholding in NSE-listed companies. This marks a historic milestone, reflecting the growing confidence of Indian investors. A decade ago, FIIs held 21% of shares while DIIs held 11%. By March 2025, FII shareholding dropped to 17.5%, whereas DIIs increased their stake to 18.1%, cementing their significance in the market.

Sector-Wise Performance
Stock market cycles typically change every 3–5 years, and retail investors often get caught in momentum-driven trades. In 2025, sectors like media, realty, railways, infrastructure, and energy underperformed. Conversely, previously lagging sectors such as financial services, metals, and auto delivered strong returns.

Railway and Energy Sectors Decline
Railway-related stocks lost approximately ₹1.32 lakh crore in market value. IRFC, a favorite among retail investors in 2024, declined 17% in 2025. Energy sector stocks also fell sharply—Suzlon dropped 16%, and Reliance Power declined 14%.

Investor Patience Tested
More than 120 stocks fell by over 25% during the year. Many investors who bought high in 2024 are still waiting for the right time to sell. Retail investors showed remarkable patience, holding onto their positions even during severe corrections.

Small-Cap Stocks Lose Shine
The year challenged traditional perceptions about small- and micro-cap stocks. Many of these stocks witnessed sharp corrections, teaching investors not to rely solely on market assumptions. In contrast, silver and gold prices surged, attracting significant investment as investors anticipate future gains.

Domestic Investors Lead the Way
Retail investors demonstrated exceptional courage and discipline in 2025. Despite volatility in the first quarter and stock corrections of 30–50%, they maintained their positions. SIP data indicates that long-term investment trends are gaining momentum. The key takeaway from 2025 is clear: the Indian stock market no longer depends on foreign capital to sustain growth.