FII ownership hits 17-year low, but foreign holdings in Indian equities rise 3.6 times to $783 billion: Report

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ETMarkets.com

The investment firm argues that the falling ownership share should not be viewed in isolation, as rising domestic participation has changed India's equity ownership landscape. The shift suggests that a lower FII ownership percentage does not necessarily indicate waning foreign investor confidence.

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Why FII ownership is falling despite higher holdings

According to FPI assets under custody (AUC) data cited by OmniScience Capital, FII holdings stood at around $217.3 billion in 2012, when their ownership share was approximately 15-16%. Holdings rose to around $300 billion by 2015 and $550 billion by 2020 before peaking at approximately $930 billion in September 2024. They currently stand at around $783 billion.

Vikas Gupta, CEO and chief investment strategist at OmniScience Capital, said the decline in ownership share had begun even as foreign holdings increased.

“The ownership share had already declined even as FII holdings rose, falling from around 30% in 2015 and 20% in 2020 to around 17% by 2024. This reflected domestic investors increasing market participation faster than FIIs,” Gupta said.

The firm attributed this shift partly to the financialisation of Indian household wealth, with more investors allocating money to financial assets rather than real estate. It added that domestic equity participation remains below developed-market levels, leaving room for further domestic flows that could reduce the foreign ownership share.

FII outflows need to be seen in context

OmniScience Capital also highlighted the need to assess recent foreign selling against earlier inflows and currency movements.

“The USD 50 billion FII outflow since 2024 also needs context. It compares with approximately USD 40 billion of inflows between 2017 and 2024, when the FII asset base was smaller. Currency depreciation has also contributed to the decline in the dollar value of holdings,” said Ashwini Shami, president and chief portfolio manager at OmniScience Capital.

While foreign selling can put pressure on stock prices, the firm said strong domestic institutional flows could provide support. Shami said investors should focus on stock-level opportunities, pointing to potentially mispriced companies across largecap, midcap and smallcap segments, particularly in financials, power and infrastructure.