FPI Ownership – It is falling rapidly, but that is just part of the story

If you look at the quarterly ownership numbers of FPI and DII ownership, there is a clear shift. Indian markets are shifting from being a predominantly FPI owned market to a market owned by domestic institutions. What does it mean?

Numbers tell a poignant story

If you look at the FPI ownership in the Nifty 500 stocks, their share has fallen to a multi-year low of just 16.8% as of the end of September 2026. In the last one year, the share of FPI ownership in the Nifty 500 stocks has fallen by a full (170) basis points. At the same time, domestic financial institutions (DFIs) have seen their India holdings increase for the tenth consecutive quarter. DFI ownership of the Nifty-500 stocks has gone up in the last 1 year by 120 bps to 21.3%. Clearly, domestic institutions are now more dominant in the Nifty 500 index, but does that mean that FPIs are making a quiet exit.

A shift in the capitalization focus

Scratch the surface, and there are some subtle trends emerging in the way the FPI ownership has changed. If you look at the sharp fall in FPI ownership of the Nifty 500 index stocks in the last 8 quarters, the selling has been most prominent in the large cap stocks. It is in these large cap stocks that bulk of the fall in ownership is seen. On the other hand, their ownership share of small caps and mid-caps has remained almost the same in this period. In short, underperformance of large caps, valuation effect, and the Kurtosis impact has made FPIs prefer small caps and mid-caps in search of alpha. Part of the fall is triggered by falling prices, but FPIs have also pared exposure to large caps.

There is also a sectoral shift happening

Probably, what is more interesting is the sectoral shift in FPI holdings. To be fair, FPI AUC in Indian stocks has fallen from $931 billion to $694 billion between September 2024 and September 2026. In this period, FPIs were net sellers of $(62.3) billion in Indian equities, with the selling a lot more pronounced in secondary market large caps. But there is a clear shift in sectoral preferences of FPIs. In this 2-year period, Healthcare has moved from fifth position to second position by FPI AUC. Capital goods has moved from seventh to fourth; and telecom moved from tenth to seventh. At the same; IT, Oil & gas, and FMCG have seen their relative importance for FPIs fall. That is a sectoral churn!

There is also strategic reallocation happening

More importantly, FPIs are looking at a wider choice in asset allocation. While FPIs have sold large caps in the secondary markets, they have been aggressive buyers in IPOs. Jio Platforms IPO got a 30X demand from anchors. In the last 2 years, FPIs have invested heavily in bonds ahead of index inclusion as well as a favourable tax regime. There is also a larger Asia allocation that FPIs now seem to be doing. AI was the trigger, and the absence of options in India resulted in flows into Taiwan, Korea and China. Much of these flows can always come back when India has a credible story. So, the FPI story is far from over. They are rethinking and realigning; but that is what global investing is all about!