Domestic institutional investors (DIIs) — comprising mutual funds, banks, and insurance companies, among other entities — have emerged as dominant buyers in the stock market, achieving record-breaking net purchases of over Rs 5 lakh crore in 2024.

This unprecedented milestone reflects a surge in DII activity, with the first Rs 1 lakh crore invested within 60 trading sessions of 2024, the second in 42 sessions, the third in 57 sessions, the fourth in a record 39 sessions, and the fifth in 45 sessions.

The net purchases this year is significantly higher than the last few years as DIIs were net buyers at Rs 2.76 lakh crore in 2022 and Rs1.81 lakh crore in 2023.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities has termed this a historic movement, driven by a digital revolution and robust domestic economic growth

Indian retail investors increasingly view equities as the most promising long-term asset class, leading to greater participation in mutual funds, portfolio management services (PMS), and other investment avenues. This surge in retail investment has resulted in consistent monthly inflows into mutual funds, providing DIIs with a strong cash reserve to deploy in Indian equities over the past year, he said.

India's benchmark indices, Sensex and Nifty, have posted gains of over 11 percent each in 2024 so far, while the BSE MidCap and BSE SmallCap indices have surged by more than 29 percent and 32 percent. However, the stock markets have witnessed significant volatility since early October, driven by sustained outflows from foreign institutional investors (FIIs), who sold over Rs 1 lakh crore worth of shares during this period.

This was largely attributed to expectations of a delayed rate cut by the Reserve Bank of India (RBI) and weaker-than-anticipated earnings for the September quarter. However, DIIs have counterbalanced this trend, absorbing the FII sell-off with equivalent buying in Indian equities.

Analysts say the Indian stock market, once heavily reliant on FPIs, is now predominantly driven by DIIs. While FPIs still play a significant role, their influence has diminished as DIIs take the lead in steering market trends.

Experts further add that this momentum is fuelled by robust inflows into mutual funds, provident funds, index funds, and insurance funds from their respective investor categories. Fund managers have been actively channelling these investments into the stock market.

Deven Choksey, MD of DRChoksey FinServ said the year 2024 has witnessed an uptick in initial public offerings (IPOs), with significant DII participation in these new listings, further driving market activity. These trends coincide with a strong trajectory for India’s economic growth, creating a favourable environment for sustained investment.

Looking ahead, analysts remain optimistic about sustained equity inflows. They note that equity investment in India remains under-penetrated, with individual investors allocating a relatively small percentage of their assets to the stock market. This indicates substantial room for growth as more Indians embrace equities as a viable investment option.

Published on December 19, 2024 / 09:35 IST

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