DIIs In, FIIs Out! Analysts decode election results, other key signals for investors

India’s equity markets remain at a crucial juncture, with domestic investors strengthening their dominance even as foreign flows stay volatile amid global uncertainty, according to reports by Motilal Oswal Financial Services, Morgan Stanley, Jefferies, Macquarie and Citi.

Domestic institutional investors (DIIs) have become the key support for Indian equities. According to Motilal Oswal, DII holdings in Nifty-500 companies rose to an all-time high of 20.9 per cent in March 2026, reflecting sustained domestic participation.

“Domestic investors have continued to repose their unstinted faith in Indian equities,” the brokerage said, highlighting their role in stabilising markets during volatile phases.

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FIIs see sharp swings amid geopolitical tensions

Foreign institutional investors (FIIs) remained volatile during the period. After inflows of about $1.7 billion in February 2026, heavy selling of $14.2 billion was recorded in March following geopolitical tensions linked to the Iran-Israel-US conflict.

This led to total FII outflows of $15.8 billion in the first quarter of CY26. Motilal Oswal said even an easing of these outflows would be viewed positively by markets.

Structural shift in ownership continues

The ownership pattern in Indian equities is undergoing a structural shift. FII holdings declined to 17.1 per cent in March 2026, while DII holdings climbed further. The FII-DII ownership ratio contracted to 0.8 times, indicating a steady shift towards domestic investors.

Within the Nifty-500, DIIs increased their stakes in 73 per cent of companies, while FIIs reduced their holdings in 54 per cent of companies year-on-year.

DIIs raise stakes across most sectors

DIIs increased their holdings in 21 out of 24 sectors on a year-on-year basis. The sharpest rise was seen in private banks, technology, telecom, real estate, healthcare and lending NBFCs. On a sequential basis, infrastructure, private banks, technology, real estate and telecom witnessed the highest increase in DII ownership.

This reflects broad-based domestic confidence across sectors despite market volatility.

FIIs cut exposure in several sectors

FIIs reduced holdings in 17 sectors, including private banks, consumer, infrastructure and technology. FII allocation to the technology sector declined to an all-time low of 7.3 per cent in March 2026.

However, FIIs increased their stakes in metals, PSU banks and logistics, indicating selective positioning.

DIIs expand presence across mcap

DIIs raised their exposure across large-, mid- and small-cap stocks. Their holdings rose to 22 per cent in large-caps, 19 per cent in mid-caps and 17.7 per cent in small-caps as of March 2026.

In contrast, FIIs reduced their holdings across all market capitalisation segments on a year-on-year basis. Promoter holdings remained largely stable, while retail participation also increased slightly during the period.

Earnings growth remains steady: Morgan Stanley

Morgan Stanley said corporate performance remained stable despite market volatility. “Revenue, EBITDA and net profit growth stood at 13 per cent, 11 per cent and 11 per cent year-on-year,” it said.

It added that 20 Nifty companies reported revenue growth above estimates, while broader market growth also remained at 13 per cent year-on-year. Profit growth was strongest in materials, utilities and financials, while consumer discretionary and energy sectors saw a decline.

Political trends indicate strengthening mandate: Jefferies

Jefferies said political developments suggest continued strengthening of the ruling alliance. “BJP continues trend of improving performance since 2024,” it said, adding that populist policies remain a key feature in state elections.

The brokerage noted that the party has won eight of the last 12 state elections, indicating sustained political momentum.

Policy alignment and stability in focus: Macquarie

Macquarie highlighted that political consolidation could support economic growth and policy execution. “Alignment between BJP-led state governments and the central government should enable more coordinated policymaking,” it said.

The brokerage added that India stands out amid global uncertainty, supported by improving political stability and development focus. However, it noted that several states currently have fiscal deficits above the 3 per cent threshold recommended by the Finance Commission.

Broader macro outlook remains supportive: Citi

Citi said recent election outcomes reflect continued political gains and geographic expansion for the ruling alliance. “Results underscore continued popularity and renewed expansion,” it said.

The brokerage added that a stronger mandate could support smoother implementation of reforms and better coordination between the Centre and states.

Markets are likely to monitor policy execution and fiscal discipline going forward. Brokerages said Indian equities are increasingly driven by domestic liquidity, with DIIs playing a central role in absorbing volatility caused by global uncertainties.

While FII flows remain sensitive to geopolitical developments, any stabilisation in global conditions could improve foreign investor sentiment. At the same time, steady earnings growth and strengthening political stability continue to provide support to the broader market outlook.