Shifting ownership on Dalal Street? FPI holding hits 13-year low--Key takeaways from NSE report

The ownership structure of India Inc. is undergoing a major transformation, with foreign portfolio investors (FPIs) hitting a 13-year low in NSE-listed companies, while domestic mutual funds (MFs) and retail investors are stepping up in a big way. According to the latest India Ownership Report for December 2024, FPIs’ stake in NSE-listed firms fell to 17.4 per cent, a level last seen in 2011. Meanwhile, MFs and individual investors are rewriting history, holding a combined 18.2 per cent of the market, surpassing FPIs for the first time since 2006.

The Big Reshuffle in Ownership

Promoters, traditionally the largest shareholders in NSE-listed companies, saw their ownership dip for the second straight quarter, now standing at 50.4 per cent. The biggest chunk of this decline came from government holdings, which dropped 53 basis points (bps) to 10 per cent. This coincided with a sharp underperformance of PSU stocks, dragging the Nifty CPSE index down 16.1 per cent in the December quarter.

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On the other hand, MFs continue their meteoric rise, with their share climbing to a record 10 per cent, driven by sustained SIP (systematic investment plan) inflows. MFs poured Rs 1.5 lakh crore into equities in the December quarter alone, reinforcing their role as a market stabilizer.

FPIs retreat, but retail investors fill the gap

FPIs saw significant outflows, withdrawing a staggering $11.9 billion in the December quarter, marking the largest exodus in 10 quarters. Their ownership in NSE-listed firms declined 30 bps, while their weightage in Nifty 50 stocks fell to a 12-year low of 24.3 per cent. The pullback was particularly visible in large-cap stocks, even as FPIs strengthened their overweight stance on financials while trimming exposure to consumer staples, energy, and materials.

In a shift, individual investors’ direct ownership rose to 9.8 per cent, a 70-quarter high. If we include mutual fund investments, retail participation now accounts for 18.2 per cent of the total market, overtaking FPIs for the first time in nearly two decades. Over the last two years alone, retail investors have added Rs 30 lakh crore to their equity holdings, reflecting growing confidence in domestic markets.

The Mid- and Small-Cap Effect

A key trend emerging from the report is the declining concentration of institutional ownership in Nifty50 stocks. The share of Nifty50 firms in institutional portfolios fell to a record low of 58.7 per cent as funds increasingly chased mid-and small-cap stocks, which outperformed in the December quarter.

The shift is also evident in the Herfindahl-Hirschman Index (HHI), a measure of portfolio concentration, which indicates a broadening exposure to mid-and small-cap stocks. FPIs, who once primarily focused on large caps, now have stakes in over 1,845 stocks—up from 1,200 just four years ago.

The Road Ahead

The data paints a clear picture: India’s equity markets are no longer solely driven by foreign capital. With MFs setting new records and retail investors expanding their footprint, domestic liquidity is becoming a dominant force. While FPIs remain influential, their declining share suggests that local investors are taking greater control of India’s financial markets.

As the market recalibrates, one thing is certain, India’s equity ownership landscape is witnessing a historic shift, and retail investors are at the heart of it.