When homemade capital grows foreign funds: Can India finance its own growth?

Copyright © HT Digital Streams Limit all rights reserved. Diis had a 17.62% stake in NSE-listed companies, against FPI ownership of 17.22%. (Beeld: Pixabay) Summary The rise of domestic institutional investors (DII) on foreign portfolio investors (FPI) is an important turning point for the economy of India, which shows an increasing self-confidence in a historical reversal, domestic institutional investor (DI’s) (FPIs) listed in their shareholders. (NSE) – a shift that speaks volumes about India’s ripening of capital markets. According to the Prime database, from the March 2025 quarter, Dis had a 17.62% stake in NSE-listed companies, against FPI ownership of 17.22%. This 40 base point shift reflects an in -depth structural transformation. After decades of dominance by foreign investors, Indian Capital is now taking the center in its own market. The question is no longer just about ownership; It is about control, influence and long -term financial confidence. Is India now able to finance its own growth story? To appreciate the extent of this change, you must take into account that FPIs had more than 21% of the NSE market cap in 2020. Their interest has gradually dropped due to the outflow powered by global monetary tightening, rising interest rates in the West, and geopolitical volatility. In contrast, these, including mutual funds, insurance companies, pension funds and banks, have more than doubled since 2020, when they owned just 13.58 % of listed companies. A significant catalyst behind this increase was the increase in investments in mutual fund. Assets under Management (AUM) of Indian mutual funds crossed £ 60 Lakh Crore in December 2025, higher than £ 22 Lakh Crore in 2020, according to Amfi (Association of Mutual Funds in India). In fact, the total amount collected by SIP during March 2025 was £ 25,926 crore, with a broad inflow of the retail revolution. Add to this the increasing equity allocation by long-term institutions such as the Employees’ Provident Funds Organization (EPFO) and the Life Insurance Corporation (LIC), and the result is a deepening pool of domestic capital with a long-term orientation. This transition could not come at a better time. In 2022, FPIs pulled out nearly £ 1.21 trillion from Indian shares due to aggressive rate hikes by global central banks. Nevertheless, the Indian markets remained strikingly resilient – Nifty 50 criterion delivered a 20% return in 2023 alone. The reason? DIIs and retail investors acted and bought the dips and closed the market of global shocks. The traded volume of FPIs and DIIs in Indian stocks has a high negative correlation of -0.85 over the past 100 months (ending until April 2025), which has been stronger in -0.96 over the past 12 months. Also read: Gold, stocks and FPIs: What the market crystal ball predicts for the next three months is India to within this behavioral shift is a sign of the maturity of the market that challenges the long -standing narrative that Indian stocks depend on foreign flow to maintain momentum. The new reality is that Indian markets now have a large, dedicated domestic base that believes in India’s long -term principles. This growing domestic ownership has consequences above market stability. This now has a stronger say in corporate governance. They are increasingly insisting for transparency, adoption of ESG, better board practices and responsible capital award. Institutional activism – seen only among world investors – is also slowly but surely rooting under Indian institutions. But the influence must be applied in a responsible way. They must dissipate key resolutions, prevent the destruction of value and ensure that companies are in line with broader interests in shareholders. Securities and Exchange Board of India (Sebi) played an important role in the offense of greater disclosure and steward codes – but maintenance and consistency remain crucial. DIIs have benefited from a long bull run and growing investor confidence. But what happens when markets face long -term correction or macro -wind? Will retail flow to mutual funds sustain or reversing? FPIs are also known to return quickly when world conditions become favorable. Read also | India again won the emerging market race in FY25. Will it also become a safe haven? Nevertheless, this episode has shown a fundamental truth: India can be strong for world shocks and volatility led by foreign capital, if these are still committed. Much of this progress can be credited on policy shifts in the past decade – whereby EPFO ​​can invest in stocks, KYC can digitize, Bharat Bond ETFs start, increased SIP awareness and deepening market access through platforms such as UPI and mobile trading. Financial inclusion is no longer just a bank metric – it is now visible in equity ownership. In the future, further reforms to encourage the retirement fund participation will, the most important, and protect long -term investment and protect retail investors. Is just as important to promote confidence through consistent regulation, reduced wrongs and robust investor education. India has long have been pursuing foreign capital as a ratification of its growth story. But this shift in ownership indicates something deeper: that confidence in the future of India is now coming from within. That Indian savings may be in line with Indian aspirations for the first time. And in a world full of uncertainty, the kind of homemade conviction is perhaps just the most valuable capital of all. Pratibha Kumari is an assistant professor to Tapmi Bengaluru and Nishat Alam Choudhury is a postdoctoral researcher at the University of Aalto, Finland. 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