Domestic Mutual Funds Halve Ownership Gap with Foreign Institutional Investors in NSE-Listed Companies
In a significant shift in India's equity market landscape, domestic mutual funds have dramatically narrowed their shareholding gap with foreign institutional investors (FIIs) in companies listed on the National Stock Exchange (NSE). According to a comprehensive report by primedatabase.com, the gap has been reduced by nearly half, plummeting from 10.51% at the end of December 2022 to just 5.5% by the close of December 2025.
Retail Inflows Fuel the Transformation
This remarkable convergence is primarily fueled by strong and sustained inflows from retail investors, who have increasingly channeled their savings into mutual fund schemes over the past few years. Between December 2022 and December 2025, the net assets under management (AUM) in equity-oriented mutual fund schemes surged by an impressive 134%, reflecting growing retail participation.
Mutual funds, flush with retail money predominantly coming through systematic investment plans (SIPs), invested a substantial Rs 1.06 lakh crore on a net basis during the December 2025 quarter alone. In stark contrast, net FII outflows stood at Rs 11,765 crore during the same period, comprising an outflow of Rs 42,090 crore in the secondary market and an inflow of Rs 30,325 crore in the primary market.
Historical Context and Peak Gap
The current narrowing represents a dramatic reversal from historical trends. At its peak, the ownership gap between FIIs and domestic mutual funds was a substantial 17.14% on March 31, 2015, with FIIs holding a 20.70% share compared to mutual funds' mere 3.56% share. "The balance of ownership in Indian equities is tilting inward, reinforcing the market's growing atmanirbharta (self-reliance), as MFs alone seem set to overtake FIIs in the coming quarters," stated Pranav Haldea, Managing Director of PRIME Database Group.
Haldea further elaborated that this transformative trend began with demonetisation in 2016 and accelerated significantly during the Covid-19 pandemic years, marking a pivotal shift in market dynamics.
Domestic Institutional Investors Reach All-Time High
Supported by these higher inflows from mutual funds, the share of domestic institutional investors (DIIs) ownership in local companies hit an all-time high of 18.72% as of December 31, 2025, up from 18.28% as of September 30, 2025. Notably, DIIs had already surpassed FIIs in shareholding across domestic companies during the March quarter, underscoring their growing dominance.
"FIIs have traditionally been the largest non-promoter shareholder category in the Indian market, with their investment decisions having a huge bearing on the overall direction of the market. This is no longer the case," Haldea emphasized, highlighting the diminishing influence of foreign investors.
Combined Share of Domestic Players Hits Record
DIIs, along with retail investors and high-net-worth individuals (HNIs), are now playing a strong countervailing role in the market. Their combined share has reached an unprecedented all-time high of 28% as of December 31, 2025, according to the report. This collective strength marks a fundamental shift towards greater domestic control and resilience in India's equity markets.
Sectoral Allocation Shifts
On a sectoral basis, the report detailed specific allocation changes by DIIs:
- DIIs increased their allocation most significantly to the financial services sector, raising it from 27.46% of their total holding as of September 30, 2025, to 28.34% as of December 31, 2025.
- Conversely, they reduced their allocation most substantially to the consumer discretionary sector, cutting it from 16.24% to 15.72% during the same period.
These adjustments reflect strategic portfolio rebalancing in response to evolving market conditions and growth prospects.
The data underscores a profound transformation in India's capital markets, with domestic investors increasingly driving market trends and reducing reliance on foreign capital, thereby enhancing financial sovereignty and stability.
