Do FPIs still drive Dalal Street? Here's what the data shows about domestic investors changing market dynamics

A common perception is that Foreign Portfolio Investors (FPIs) dictate the direction of Indian markets. While FPIs remain influential, especially in large-cap and index-heavy stocks, their ability to control the market has declined significantly over time.

Do FPIs still dominate the Indian market?

For long, large FPI inflows and outflows often coincided with sharp market movements.

For example, during 2008, FPI equity outflows of nearly ₹53,000 crore coincided with steep declines across major indices, while strong inflows in 2009 helped fuel a sharp market recovery.

However, it is a completely different story, now. In 2022, despite heavy FPI outflows of over ₹1.2 lakh crore, the Nifty 100 generated a positive return of 4.9%. Similarly, in 2025, FPI selling of about ₹1.64 lakh crore did not prevent the Nifty 100 from gaining over 10%.

What changed now?

With increase in financialisation of household savings the Indian equity markets have structurally outgrown their dependence on foreign capital, explains Abhishek Kumar, SEBI RIA, Founder- SahajMoney,

A decade ago, FPI flows of ₹1 lakh crore could swing the market because they formed nearly 2% of total market cap but today even larger flows account for less than 0.5% of it. That’s why 2022 and 2025 played out so differently from 2008 when FPIs sold over ₹1.2 lakh crore and ₹1.6 lakh crore respectively, yet the Nifty 100 still delivered positive returns, he adds

“The difference is the domestic investor. SIP driven mutual fund flows, insurance and pension money have made DIIs a powerful counterweight as domestic institutions bought more than four times what FPIs sold, absorbing the shock almost entirely.”

As we are still a country with consistent capital account deficit hence FPIs still remain important investor in large index heavy names where they still hold ~92% of their portfolio, he concludes

Where can FPIs invest in India?

Foreign Portfolio Investors (FPIs) can invest across a wide range of Indian financial instruments, subject to regulations prescribed by SEBI, the Reserve Bank of India (RBI) and FEMA.

Equity Segments

• FPIs can invest in listed and proposed-to-be-listed shares through both the primary and secondary markets.
• They are also permitted to invest in warrants, Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs) and units of domestic mutual funds.

Debt Instruments

• FPIs can access corporate bonds, Central Government securities, State Government securities, municipal bonds and repo/reverse repo markets through routes such as the Fully Accessible Route (FAR), Voluntary Retention Route (VRR) and the general investment route. Debt investments are governed by RBI-prescribed limits and regulations.
• FPIs can also participate in hybrid instruments, including units of domestic mutual funds that invest across asset classes.

How Do FPIs Invest in India?

• To invest in India, the FPI must first register with a Designated Depository Participant (DDP), which helps them complete the registration processe, conduct Know Your Customer (KYC) etc
• DDP acts on behalf of SEBI to grant registration & perform KYC
• Large global custodian banks, such as JP Morgan, serve as DDPs, helping foreign investors to complete process.
• Once registered, FPIs appoint a domestic custodian responsible for holding securities in dematerialised form, settling trades etc.