DIIs on a ₹11.4 Trillion Buying Spree: What’s Driving Their Conviction Amid Global Headwinds?

Domestic Institutional Investors (DIIs) have pumped ₹11.4 trillion into Indian equities over the last 25 months—the longest buying streak in the market’s history. Mutual funds, insurers, and pension funds have powered this rally, offsetting Foreign Portfolio Investor (FPI) outflows and tilting market ownership firmly towards domestic hands. For traders and investors, the key question is what fuels this resilience—and how DII flows are shaping valuations, liquidity, and sectoral trends.

What Is Fuelling DII Conviction?

Several factors explain why domestic institutions continue their buying streak:

• SIP-Led Retail Participation Surge

Systematic Investment Plans (SIPs) have become the backbone of DII inflows, with monthly contributions hitting ₹28,464 crore in July 2025, marking an all-time high. Over 75% of the ₹11.4 trillion DII inflows since August 2023 originated from mutual funds, which are primarily fed by retail SIPs.

The number of active SIP accounts crossed 9.11 crore in July 2025, up from 6.3 crore in March 2023, reflecting over 36% growth. This granular, recurring inflow has created a resilient foundation for DIIs, enabling them to counteract volatile movements by foreign portfolio investors (FPIs).

• Shift From Bank Deposits

The ratio of mutual fund assets under management (AUM) to total bank deposits rose from 10% in March 2014 to 23.8% in March 2024. This structural shift indicates a growing preference for market-linked instruments over traditional savings. As of August 2025, mutual fund AUM stood at ₹75.36 trillion, up from ₹40.05 trillion in March 2023, an 88.16% increase in 27 months.

This reallocation is driven by higher post-tax returns, inflation hedging, and improved financial literacy. DIIs, particularly mutual funds, have capitalised on this trend to deepen their equity exposure.

• Volatility Index

The India VIX index averaged 11.2 in Q1 FY 2025–26, down from 14.7 in Q1 FY 2023–24, indicating reduced volatility. NSE cash market turnover rose to ₹2.18 trillion daily average in July 2025, up from ₹1.39 trillion in July 2023.

DII ownership in listed equities surpassed FII in March 2025, reaching 17.62%, with mutual funds alone hitting 10.35%. Combined with retail and HNI holdings, domestic share rose to 27.1%, overtaking foreign ownership.

• Counter-Cyclical Buying

In July and August 2025, FPIs sold ₹54,463 crore worth of equities, while DIIs bought ₹1.5 trillion, including ₹1.02 trillion from mutual funds alone. This counter-cyclical behaviour has positioned DIIs as shock absorbers during global risk-off phases.

For instance, during the US-China trade tensions in Q3 2025, DIIs increased exposure to domestic cyclicals and midcaps, absorbing volatility. Their ability to deploy capital during corrections has helped stabilise valuations and maintain liquidity, especially in sectors like financials and consumer discretionary.

• Block Deal Participation

DIIs have actively participated in block deals, contributing ₹72,673 crore in June 2025 alone. These transactions allowed DIIs to accumulate large stakes in fundamentally strong companies at negotiated prices. Such targeted accumulation has enabled DIIs to bypass secondary market volatility and gain governance influence. The trend reflects a shift from passive investing to strategic capital deployment.

• Taxation Clarity

The clarity on mutual fund taxation under Sections 112 and 115AD, along with the removal of indexation benefits for debt funds, has redirected flows toward equity schemes. The Securities and Exchange Board of India (SEBI) circular on T+1 settlement and enhanced disclosure norms for fund houses has further improved transparency. These reforms have reduced regulatory arbitrage and enhanced investor confidence, allowing DIIs to scale participation without compliance friction.

• Fiscal and Monetary Context

India’s fiscal deficit for FY 2024–25 was contained at 5.8% of GDP, while CPI inflation fell to a 77-month low of 2.1% in June 2025. The Reserve Bank of India maintained a policy repo rate of 5.5%, with forward guidance indicating a dovish stance. These macro conditions have created a conducive environment for domestic capital deployment, especially as global central banks remain hawkish.

What Could Challenge DII Momentum?

Here are some barriers that may halt DII momentum:

• Even though DIIs are strong buyers, domestic markets remain affected by global demand and earnings performance. A recent Nuvama report warns that many of India’s top companies depend significantly on exports, so global slowdowns could curb growth.

• Emerging market valuations are now one standard deviation above average, and India is no exception. If valuations are deemed high, that could eventually dampen investor enthusiasm.

• Despite strong DII buying, gains have been concentrated in a limited number of stocks. For example, less than half of the BSE-500 companies delivered positive returns last year. Liquidity alone doesn’t ensure broad-based market gains.

Conclusion

For investors, the ₹11.4 trillion DII buying spree signals strong confidence in Indian equities despite global headwinds. Backed by rising retail SIP inflows, higher AUM, and strategic block deal participation, DIIs have emerged as stabilisers against FPI outflows. Their counter-cyclical approach cushions volatility, while regulatory clarity and favourable macro conditions further strengthen conviction. For retail investors, this means greater market resilience, deeper liquidity, and reduced dependence on foreign flows.

However, risks such as expensive valuations, export reliance, and concentration of gains remain. Thus, while DII flows enhance stability, investors must remain cautious of underlying global and sectoral challenges.

Also Read:

What are Domestic Insititutional Investors?

Sources
Business Standard
The Economic Times
CNBC TV18
Association of Mutual Funds in India
Investing.com
Money Control
Mint
EY