Domestic liquidity vs FII outflows: what is supporting the Indian equity market?

Domestic Institutional Investors (DIIs) are the pillars that help sustain the Indian equity market despite large Foreign Institutional Investor (FII) outflows. This is a sign of a mature Indian market, where domestic retail and institutional participants help stabilise the market despite global uncertainties.

Recent FII & DII trends

“Foreign Institutional Investors (FIIs) continued net selling in Indian equities through March 12, 2026, with outflows intensifying to ₹7,059 crore on March 12 (FII buy: ₹14,538 crore, sell: ₹21,597 crore), following ₹4,685 crore net sell on March 10 and earlier sessions. Weekly FII outflows since March 4 have exceeded ₹20,000 crore amid rising oil prices, US rate uncertainties, and global risk aversion, pressuring Nifty and Sensex. Domestic Institutional Investors (DIIs) provided robust counter-support, netting ₹7,324 crore buys on March 12 (buy: ₹18,261 crore, sell: ₹10,937 crore), absorbing foreign exits via record SIP inflows,” said Vinit Bolinjkar, Head of Research at Ventura on Friday, March 13, 2026.

Sources fueling domestic liquidity

Domestic Liquidity is being fueled by Systematic Investment Plans (SIPs), where February 2026 has recorded inflows of ₹29,845 cr. (a small drop from January's ₹30,992 Cr.) but still marks a new high in mutual fund AUM at ₹16.64 lakh Cr. The retail investor, investing in equities through SIPs, insurance, and pension products like EPFO, has grown to 10 crore+ accounts. This is a marked shift, where 65%+ domestic ownership is now in terms of free float market cap, thereby offering a cushion against FII volatility.

Historical context and evolution

The DIIs started to perform better than FIIs from 2023-24, as they bought a net of ₹6 lakh crore, whereas FIIs sold ₹28,000 crore in a rate hike cycle. By 2025, the total investments made by DII were ₹11.4 trillion in 25 months, which absorbed the FII exits during the global sell-offs. The year 2026 is not an exception, as the DIIs are performing well because of the 7%+ GDP growth, capex cycle, and PLI schemes in the sectors of manufacturing and renewables.

Sectoral buying patterns

Growth sectors like banks (HDFC, ICICI), IT (Infosys, TCS), defensives, and energy experience bullish DIIs due to oil price volatility. FII selling is visible in metals, realty, and autos, but overall market support came from DII buying in pharma and consumer goods. Nifty Bank has support at 51,000 due to DII buying, driven by FII selling in PSU banks. Vinit Bolinjkar, Head of Research at Ventura, on Friday, March 13, said, “Markets face near-term volatility from sustained FII selling and LPG supply concerns, but DII resilience underscores India's growth trajectory, strong GDP, CapEx, and earnings. Focus on banking, infra, and domestic cyclicals for opportunities as global liquidity stabilises.”

Broader economic backdrop

The RBI's decision to keep the repo rate at 6.5% is a liquidity booster, with credit growth of 15% YoY in the banking sector, which is good for earnings. Fiscal discipline in the budget for FY26, targeting a deficit of 4.4%, will help market sentiment, along with the monsoon prospects that will support rural demand. The Trump impact on US policies may keep a cap on FII returns. 

Quantitative comparison of market resilience

Nifty at 23,151 (down 2% WoW) finds support around 23,000 levels, with DII buying capping corrections at 5-7% vs. 15%+ FII-led crashes. Upside of 25,500 if Q4FY26 earnings surprise positively (15% growth expected). Caution: US data and oil prices. In the long run, the Indian equity tale turns to homegrown engines, which are perfect for SIP compounding. 

Conclusion

Hence, the greatest beneficiaries are the retail investors, and they should continue to invest in SIPs for rupee-cost averaging. FPIs may enter the market after the US elections, and hence, they may cause even higher appreciation in the market. But DII investments are too large to let a repeat of 2020.