FIIs, mutual funds, retail stock investors: Where are they investing?

Elara Securities in its latest strategy note suggested a clear divergence in investment behaviour across key investor classes. Foreign institutional investors (FIIs) are paring large-cap exposure and selectively rotating into mid- and small-cap opportunities. Domestic institutional investors (DIIs), led by mutual funds and insurers, continue steady accumulation across consumption- and credit-linked sectors, providing stability to the market. Promoters are gradually diluting stakes as institutional participation deepens, while retail investors, after a brief pause, are re-engaging selectively in mid- and small-cap segments. Together, these trends point to a maturing and more diversified equity ownership landscape.

FIIs cut large-cap exposure

FII holdings in the Nifty 50 have moderated from a peak of 28.3 per cent in FY21 to 25.5 per cent as of September 2025, reflecting global risk aversion and selective profit-taking. However, FIIs have rotated toward mid- and small-cap segments, where ownership has risen to multi-year highs of 16.1 per cent and 14.2 per cent, respectively. Sectorally, foreign investors trimmed exposure to Energy (-9.3 per cent year-on-year), Utilities (-10.1 per cent), and Consumer Staples (-7.3 per cent), while increasing stakes in Industrials (+3.9 per cent), Healthcare (+12.9 per cent), Information Technology (+7.9 per cent), and Telecom (+14.4 per cent).

DIIs offset FII outflows

Domestic institutional investors—mutual funds and insurers—have continued their counter-cyclical accumulation, offsetting FII selling pressure. DIIs expanded ownership across market segments, reflecting strong investor confidence in domestic demand and financial system health. Consumer Discretionary (+26.4 per cent), Financials (+12.4 per cent), and Telecom (+5.5 per cent) led the additions, while Media (-16.6 per cent) and Utilities (-11 per cent) saw marginal trimming due to weak earnings visibility.

Promoter ownership declines

Promoter holdings continue to trend lower, a function of ongoing equity dilution and rising institutional ownership. In the Nifty 50, promoter stakes have declined from 44 per cent in FY21 to 40 per cent, while mid- and small-cap holdings fell to 54 per cent and 50 per cent, respectively. Sector-wise, Auto (+3.6 per cent) and Utilities (+3.6 per cent) saw marginal increases in promoter holdings, while Healthcare (-7.2 per cent), Consumer Discretionary (-6.6 per cent), and IT (-5.9 per cent) reported declines.

Retail investors show cyclical enthusiasm

Retail participation, which surged during FY21–22, has normalised in large caps but remains high in smaller names. Public shareholding in the Nifty 50 stands at 11.3 per cent, while small caps remain retail-heavy at around 20 per cent. Sectorally, retail interest rose in Media (+19.6 per cent) and Real Estate (+19.7 per cent) amid broader mid-cap optimism, but eased in Telecom (-18.9 per cent), Auto (-7.8 per cent), and Materials (-10.7 per cent).

Market now domestically anchored

Overall, India’s equity market is transitioning from being FII-led to domestically anchored. Deepening DII participation, a stable promoter base, and diversified retail ownership have created a more balanced and resilient market structure, cushioning volatility amid global uncertainty.