DIIs Increase Holdings in Nifty 500; FII Ownership Drops

New Delhi, May 5 (PTI) Domestic institutional investors (DIIs) have strengthened their grip on Indian equities, with holdings in Nifty 500 companies rising to a record 20.9 per cent in the March quarter even as foreign institutional investor (FII) ownership declined to 17.1 per cent, according to a report released by Motilal Oswal Financial Services on Tuesday.

The report noted that Indian equity markets remained volatile in FY26, driven by global uncertainties, particularly geopolitical tensions arising from the Iran-Israel/US conflict, even as domestic flows provided strong support.

DIIs continued to anchor the markets, investing USD 27.2 billion in the January-March 2026 period, supported by steady systematic investment plan (SIP) inflows. In contrast, FII flows remained volatile, with net outflows of USD 15.8 billion during the quarter, including massive selling of USD 14.2 billion in March following escalation in geopolitical tensions.

"Once the war dust settles, there is a high likelihood of a better FII flow environment, and even an abatement in outflows will be taken positively by the market, while a full-blown positive flow can lead to sharper rallies," the report noted.

The FII-DII ownership ratio in the Nifty 500 contracted to 0.8 times in March 2026, reflecting a structural shift in institutional ownership. While FII ownership in free float terms declined to 33.8 per cent, DII ownership rose to 41.2 per cent, it added.


On a year-on-year basis, DII holdings in the Nifty 500 rose 170 basis points to an all-time high of 20.9 per cent in March 2026, whereas FII holdings fell to 17.1 per cent from 18.9 per cent a year ago. Promoter holdings remained largely stable at 49.4 per cent, while retail participation edged up to 12.7 per cent during the same period.

Sectorally, DIIs increased their exposure in 21 out of 24 sectors, with the highest incremental allocations seen in private banks, technology, telecom, real estate, healthcare and NBFC-lending segments. However, sectors such as EMS, NBFC (non-lending) and metals saw a decline in DII holdings.

FII allocation trends showed reduced exposure to the BFSI segment, which fell to 32.1 per cent, while allocations increased in metals, healthcare, utilities and oil and gas. Notably, FII exposure to the technology sector declined to a record low of 7.3 per cent in March 2026.

The report said large, mid and small-cap stocks accounted for 67 per cent, 22 per cent and 11 per cent, respectively, of the total Nifty 500 market capitalisation. DIIs increased their exposure across both private and PSU segments to 21.5 per cent and 17.5 per cent, respectively.

The report highlighted that domestic investors continue to play a pivotal role in absorbing market volatility, and any moderation in FII outflows or a return to positive inflows could further support equity markets.