Foreign Investors’ Share in Indian Equities Falls to 17-Year Low

Foreign institutional investors (FIIs) have seen their share of ownership in Indian equities drop to the lowest level in 17 years, even as the absolute value of their holdings has surged significantly over the past decade. According to an analysis by OmniScience Capital, the proportion of Indian equities held by FIIs declined to around 15.1%, marking a sharp contrast to the $783 billion worth of investments they currently hold.

This apparent contradiction underscores a shift in the Indian equity market’s ownership structure. Domestic investors, including retail participants, have increased their presence at a faster rate, reshaping the overall landscape. The reduction in foreign ownership percentage does not imply a retreat of foreign investors but rather reflects the accelerated growth of domestic capital inflows.

Data from OmniScience Capital highlights this trend with detailed figures. In 2012, foreign holdings were valued at $217.3 billion, representing roughly 15-16% of the market. This grew steadily over the years, reaching nearly $300 billion in 2015, $550 billion in 2020, and peaking at about $930 billion in September 2024. Currently, these holdings stand at approximately $783 billion, a decline of $147 billion or about 16% from the recent peak.

Despite this recent dip, the value of FII investments has risen by approximately $566 billion since 2012. The ownership share, however, fell from around 30% in 2015 and 20% in 2020 to about 17% by 2024. Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, attributes this to the faster pace at which domestic investors have increased their market participation.

The growing involvement of domestic investors is partly driven by the financialisation of Indian household wealth. More Indian households are now allocating their savings to financial assets, including equities, rather than focusing predominantly on real estate. This diversification has expanded the domestic investor base, although it remains below the levels seen in more developed markets.

OmniScience Capital suggests that there is still considerable potential for domestic equity participation to grow further. If this trend continues, the foreign institutional investor ownership share might decline even if the absolute value of foreign investments keeps rising. This distinction between ownership share and investment value is important. While ownership share reflects the percentage of the market held by foreign investors, the dollar value indicates the total size of their investments. These two measures can move in opposite directions depending on overall market growth and domestic investor activity.

The recent reduction in FII holdings coincides with significant foreign selling. The firm estimates that foreign investors have withdrawn around $50 billion since 2024. However, this figure should be viewed in context. Between 2017 and 2024, FIIs contributed approximately $40 billion in inflows when their asset base was smaller. Additionally, currency depreciation has played a role in reducing the dollar value of their investments.

Ashwini Shami, President and Chief Portfolio Manager at OmniScience Capital, noted that while foreign selling can exert downward pressure on prices, strong domestic institutional inflows often provide support. He advises investors to look beyond headline ownership statistics and focus on stock-specific opportunities. Several undervalued companies exist across large-, mid-, and small-cap segments, especially within the financial, power, and infrastructure sectors.

The figures paint a nuanced picture of foreign investment in India’s equity markets. The decrease from the September 2024 peak reflects not only recent net selling but also changes in currency valuations and the expanding role of domestic investors. This evolving dynamic highlights the importance of considering multiple factors when assessing market trends and investment opportunities in Indian equities.