Amid rising concerns over global market volatility—driven largely by developments in the US and Japan—India’s equity markets continue to display remarkable resilience. This confidence is rooted not in luck but in a structural transformation in market ownership and investor behavior that now clearly sets India apart from most global peers. Here is a grounded, fact-based look at what is driving this resilience and what it means for investors.
FIIs Are Losing Ground—And That’s Good for India
Foreign Institutional Investors (FIIs) now own roughly 16% of the Indian equity market, down from nearly 20% just a few years ago, and only around 18% in the NSE500. In contrast, Domestic Institutional Investors (DIIs)—mutual funds, insurance companies, pension funds, and banks—now command nearly 84%. This is not a cyclical trend but a structural shift. With strong IPO pipelines, a vibrant domestic investment culture, and rising financial literacy, domestic ownership could climb to 90% over the next few years.
A key force behind this stability is the inherent “stickiness” of domestic capital. Indian investors face withdrawal caps of around USD 250,000 annually, making the bulk of domestic flows long-term and relatively immune to sudden panic-driven exits. This makes Indian equity markets far more resilient to global sentiment swings compared to markets dominated by foreign flows.
Domestic Investors: The Market’s New Backbone
A large share of new equity investors who entered the markets over the last decade are now in their late twenties or early thirties. Having experienced solid returns through multiple cycles, this generation of investors has evolved into a committed equity-participating class. With long income-generating years ahead and 30–40 years of investment runway, domestic inflows are expected to remain strong.
This structural demographic shift—young, digitally enabled, return-aware investors—forms a strong backbone for sustained market depth and liquidity.
Valuations: Euphoric, Yes. A Bubble? No.
Foreign investors often complain about “high valuations” in India, but this critique misses the distinction between euphoria and a bubble. While Indian valuations are elevated, they are not reflective of the extreme exuberance seen in pockets of the US markets—especially AI-linked stocks that are inching toward bubble territory.
Indian investors’ willingness to pay premiums for growth stocks is based on realistic assumptions of long-term economic expansion, consumption growth, and corporate earnings visibility. Elevated valuations today reflect confidence in India’s structural growth story rather than irrational asset inflation.
Rise of Short-Term Thinking and the Growth Chase
The strong returns of recent years have fostered a competitive, performance-driven ecosystem where all eyes are on the next 2–4 quarters rather than FY28 or FY29. Fund managers face constant pressure to deliver near-term performance to retain capital and management fees. This has resulted in aggressive portfolio churn and consistently higher premiums for growth stocks expected to deliver short-term earnings acceleration.
While this short-termism carries risks, it also reflects the intense competition and maturing sophistication within India’s asset management industry.
What Could Disrupt This Domestic Momentum?
Domestic liquidity is a stabilizing force, but not invincible. A few systemic risks could still shake the market:
- A sharp currency crisis
- A deep banking sector collapse
- Major political instability
- A demographic slowdown amplified by AI or rising global trade barriers
Sustained market expansion will depend on the affluent class rising from today’s top 5% to around 10–15% over the next decade. Until then, investors should expect intermittent corrections of 10–20%, but the broader trajectory remains upward.
AI Impact: More Adjustment Than Apocalypse
Contrary to widespread anxieties, AI is unlikely to decimate jobs. Instead, it may accelerate wage inequality. Today’s enterprise AI tools are still in their infancy—far from being transformative—and are largely being used to rationalize the post-COVID workforce after the hiring excesses of 2018–2021. The slowdown in job creation reflects a cyclical correction, not a structural collapse driven by AI.
A Market Powered by Homegrown Confidence
India’s equity market is rapidly evolving into a self-reliant ecosystem dominated by domestic capital. Stable, long-term investors are replacing volatile foreign flows, creating a substantial buffer against global shocks. With disciplined valuations, a pragmatic focus on growth, and strong retail participation, India stands out as a rare zone of relative stability amid global turbulence.
For both seasoned professionals and everyday investors, understanding this new domestic-driven dynamic is crucial for navigating cycles and making informed decisions. India’s markets are not just surviving global volatility—they are thriving because of a deep, structural realignment powered by Indian investors themselves.
