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Despite market turbulence from geopolitical tensions and global trade woes, domestic institutional investors (DIIs) have shown resilience, pouring a record ₹3.5 trillion into Indian equities in the first half of calendar year 2025 (H1-CY25).
The strong domestic flows continued to cushion the markets, as money from foreign institutional investors (FIIs) remained volatile when risk-off sentiment deepened. FIIs sold stocks totalling ₹1.3 trillion in the first six months, the worst selloff since 2022, data shows.
DIIs, according to Anirudh Garg, Partner and Fund Manager at INVasset PMS, have remained remarkably steady in their equity allocations, and this stems primarily from rising retail participation through systematic investment plans (SIPs). “Also, the valuation reset in the mid-and small-cap space has fueled the buying in H1-CY25,” he said.
Monthly SIP inflows rose to a new high of ₹26,688 crore in May, a 28 per cent year-on-year growth. Retail investors directly investing in the stock market have mopped up stocks worth ₹12,754 crore in the six months, according to data.
At the bourses, the benchmark Nifty50 index has risen by 5.92 per cent to 25,044 levels, while the 30-stock Sensex has advanced 5.01 per cent to 82,055, so far in H1-CY25.
Strong inflows by domestic funds began this year when the equity market saw record FII outflows amid China's resurgence and high valuation in local stocks. Later, Dalal Street was marked with heightened volatility with US President Donald Trump's trade policies that threatened global supply chains.
Geopolitical instability followed between India and Pakistan, heading almost to an all-out war after the deadly Pahalgam terror attack. Markets later felt the jolt of rising tensions in West Asia, with Iran and Israel exchanging missile strikes, prompting US involvement.
“Amidst this, while global investors were on the sidelines, DIIs took the lead, driven by bottom-up conviction, macro confidence, and ample liquidity,” Garg said.
Supportive macros
Macros, too, have been supportive, said Shrikant Chouhan, head of equity research at Kotak Securities, which helped bolster sentiment among DIIs despite high valuations for most part of H1-CY25.
Global funds, he said, deploy money in the emerging markets only if global macros are stable. “In its absence, they try to stay invested in safe havens or developed markets,” Chouhan suggests.
Going ahead, analysts suggest the next triggers for the markets will be developments regarding tariffs and geopolitics. Reports suggest that India and the US are eyeing to seal an early trade deal before a July 9 deadline when higher US reciprocal tariffs are set to kick in.
“Further, the liquidity push by front-loading rate cuts by the RBI, earnings stability in the first quarter of the current financial year and retail inflows will anchor long-term inflows. However, any geopolitical tensions will be key to watch out for,” Garg said.
For retail investors, sticking to SIPs, especially in volatile markets, allows investors to average into quality at better valuations, experts said, adding that diversification is equally crucial. “It is the only way to generate returns and beat the markets in the long run,” Chouhan advised.
