Foreign portfolio investor ownership in Indian equities has fallen to its lowest level since 2011, highlighting a shift in the ownership structure of India’s stock market as domestic institutional investors continue to increase their exposure. FPIs held 14.02% of 5,638 BSE-listed companies at the end of September, according to a Mint analysis. Foreign ownership declined by nearly 0.4 percentage points during the September quarter and by 154 basis points over the past year.
The decline came despite FPIs turning net buyers during the September quarter, investing ₹13,970 crore after withdrawing ₹1.43 lakh crore in the June quarter. The broader trend indicates that domestic investors are increasingly accounting for a larger share of Indian equity ownership.
Domestic Institutions Increase Their Share as FPI Holdings Decline
Domestic institutional investors invested a net ₹1.7 lakh crore in equities during the September quarter. Their ownership in Nifty 500 companies reached a record 21.3%, compared with 16.8% for FPIs, according to Motilal Oswal.
Domestic mutual fund ownership also reached a record 11.59%. The gap between domestic mutual funds and foreign investors narrowed to 2.43 percentage points from 4.77 percentage points a year earlier.
Foreign stakes have fallen to multi-year lows in nearly 70% of India’s top 100 companies. Reliance Industries’ foreign ownership is at a 15-year low, while TCS, HCL Technologies and Maruti Suzuki have seen foreign holdings fall to levels not recorded in more than two decades. FPI ownership in Infosys declined to 25.1%, its lowest since March 2001. At Axis Bank, foreign holdings fell to 38.1% from 49.4% since September 2024.
The shift comes as investors reassess India’s relative valuations and earnings outlook. UBS expects MSCI India companies to deliver 10% to 12% earnings CAGR in dollar terms over 2027 and 2028. The brokerage expects Nifty 50 earnings growth to be broadly similar, potentially a few percentage points higher due to differences in index composition.
UBS Sees Banking Opportunities as Tax Relief Debate Continues
UBS said India’s valuation premium over emerging markets has narrowed from around 110% in September 2024 to 65% currently. However, Indian equities continue to trade at a premium to emerging market peers, nearly double the 30% to 40% level seen before the COVID-19 pandemic.
Banking is among UBS’s preferred sectors, with valuations significantly below historical levels. The brokerage sees potential value as corporate and management-related uncertainties settle and investors refocus on fundamentals. It also sees opportunities in companies supplying the power and data centre ecosystems, supported by rising infrastructure demand.
The outlook for foreign flows has also brought stock market taxation back into focus. Finance Minister Nirmala Sitharaman said the government would consider investor concerns over stock-related taxes amid the prolonged market decline. She acknowledged anxiety among retail investors but did not confirm any specific changes to long-term capital gains tax, short-term capital gains tax or securities transaction tax.
Separately, the reported SEBI recommendation to scrap long-term capital gains tax for foreign investors remains a non-binding proposal. UBS said a reduction in the tax could improve foreign investor sentiment in the near term, but would not be sufficient on its own to generate sustained inflows. Earnings growth, valuations and India’s relative performance against other emerging markets will remain important factors in foreign investment decisions.
What is the current FPI ownership level in Indian equities?
FPIs held 14.02% of 5,638 BSE-listed companies at the end of September, the lowest level since December 2011.
Are domestic investors holding more Indian equities than foreign investors?
Yes. DII ownership in Nifty 500 companies reached 21.3%, compared with 16.8% for FPIs, according to Motilal Oswal.
What is UBS’s earnings outlook for Indian companies?
UBS expects MSCI India companies to deliver 10% to 12% earnings CAGR in dollar terms over 2027 and 2028.
Which sectors does UBS prefer?
UBS sees potential value in banking stocks and companies linked to power and data centre infrastructure.
Has the government announced an LTCG tax cut for FPIs?
No. The reported SEBI recommendation to remove LTCG tax for foreign investors is non-binding. The government has not announced an approved tax change.
