Domestic Money Is Winning – The Case for Long-Term Investing in Indian Equities

The Great Reversal: Domestic Investors Take the Lead

Domestic Institutional Investors (DIIs) — including mutual funds, insurance companies, and pension funds — have achieved a remarkable milestone. Their shareholding in NSE-listed companies surged to 18.26% in September 2025, marking the highest level ever recorded since data collection began in 2009. In stark contrast, Foreign Portfolio Investors' (FPIs) holdings have declined to 16.71%, representing a 13-year low.

This crossover represents more than just numbers on a spreadsheet. It signifies a maturation of India's domestic capital markets and the growing financial confidence of Indian investors. The gap between domestic and foreign institutional investments has widened to a 25-year high, with DII holdings rising by 44 basis points while FPI ownership slipped by 34 basis points in the September quarter alone.

Domestic Money Absorbs Foreign Selling

The resilience of domestic investors was put to the test during the July-September 2025 quarter, and they passed with flying colors. While FPIs sold Indian stocks worth ₹1.02 lakh crore during this period, domestic investors stepped in with conviction, purchasing ₹2.21 lakh crore worth of equities.

This dramatic intervention by domestic investors proved that Indian money now acts as a powerful stabilizing force in the market. Even when foreign investors retreat due to global uncertainties, high valuations, or currency concerns, the Indian market no longer experiences the severe disruptions it once did.

For the year 2025, FPIs have been net sellers of approximately ₹1.47 lakh crore in equities. Yet, the Indian market has remained relatively stable, thanks to the unwavering support from domestic institutions and retail investors.

The SIP Revolution: Retail India's Steady Hand

One of the most significant developments in Indian capital markets has been the explosive growth of Systematic Investment Plans (SIPs). Monthly SIP inflows have consistently exceeded ₹20,000 crore and reached a record ₹29,361 crore in September 2025, up from ₹28,265 crore in August.

The number of active SIP accounts has grown to 9.25 crore, with SIP assets under management climbing to ₹15.52 lakh crore. These aren't just statistics — they represent millions of Indian families systematically building wealth through disciplined investing.

Between January and August 2025 alone, SIPs contributed ₹2.2 trillion in gross inflows, with nearly 90% directed toward equity-focused products. This steady stream of monthly inflows creates a powerful averaging effect, helping retail investors benefit from market volatility rather than fear it.

The Financialization of Indian Savings

India's mutual fund industry has undergone a spectacular transformation over the past decade. Assets Under Management (AUM) have surged from approximately ₹8 lakh crore to over ₹74 lakh crore, representing a tenfold increase. The equity portion of this AUM has grown even faster, from ₹20.6 lakh crore to ₹44.7 lakh crore in just two years, compounding at 37% annually.

What took 50 years to build — reaching ₹50 lakh crore in AUM — added another ₹10 lakh crore in just six months during 2024. This acceleration demonstrates that Indian households are increasingly shifting away from traditional savings instruments like fixed deposits and gold toward equity investments.

Why Indian Equities Are a Long-Term Goldmine

Economic Growth Momentum

India continues to be the fastest-growing major economy globally, with robust GDP expansion. The International Monetary Fund (IMF) revised India's GDP growth forecast for 2025 upward to 6.6%, with projections of 6.2% for 2026. According to DBS Bank's comprehensive outlook, India's economy is poised to expand at an average of 6.7% between 2025 and 2040, setting it on course to surpass $10 trillion in GDP and become the world's third-largest economy.

This consistent growth trajectory provides a solid foundation for corporate earnings and equity returns. Unlike many developed economies struggling with sluggish growth and high inflation, India presents a contrasting narrative of strong GDP growth, stable currency, and moderating inflation and interest rates.

Corporate Profitability at Multi-Year Highs

Indian corporations are generating exceptional profits. The corporate profit-to-GDP ratio for Nifty-500 companies reached 4.7% in FY25, marking a 17-year high. For all listed companies, this ratio stands even higher at 5.1%, the highest level seen in 14 years.

Nifty-500 companies demonstrated resilience with 10.5% year-on-year profit growth in FY25, building upon FY24's impressive 30.5% increase. This performance was achieved despite global headwinds, demonstrating the strength and competitiveness of Indian businesses.

Key sectors contributing positively to this profitability surge include telecommunications (which shifted from negative to positive territory), PSU Banks, Healthcare, Consumer goods, Metals, and Infrastructure. This broad-based improvement across sectors indicates that corporate India's success isn't dependent on just one or two industries.

Demographic Dividend: A Young Nation's Advantage

India's demographic profile is one of its greatest strengths. With approximately 65% of the population under 35 years of age, the country possesses a young, aspirational, and increasingly affluent workforce. This demographic dividend translates into:

• Rising consumption: Young populations drive demand for housing, automobiles, consumer durables, financial services, and lifestyle products
• Growing workforce: A larger working-age population increases productivity and economic output
• Digital adoption: Younger demographics are more comfortable with technology, driving India's digital revolution
• Entrepreneurial energy: Young Indians are creating startups and businesses at an unprecedented rate

This favorable demographic structure is expected to persist for at least another two decades, providing sustained momentum for economic growth and corporate earnings.

Policy Stability and Structural Reforms

India has implemented several transformative reforms that have strengthened the business ecosystem:

• Goods and Services Tax (GST): Unified the fragmented tax system, creating a genuine national market
• Insolvency and Bankruptcy Code (IBC): Improved credit discipline and accelerated resolution of stressed assets
• Digital infrastructure: UPI, Aadhaar, and digital payment systems have revolutionized financial inclusion
• Production-Linked Incentive (PLI) schemes: Attracting manufacturing investments across multiple sectors
• Corporate tax reforms: Competitive tax rates making India attractive for business

These reforms have created a more efficient, transparent, and investor-friendly environment that supports long-term wealth creation.

FPIs: Cautious but Not Absent

While FPIs have reduced their exposure to Indian secondary markets, they haven't abandoned India entirely. The selling pressure in the July-September quarter was primarily driven by multiple factors:

• US policy shocks including steep tariff hikes of up to 50% on Indian goods
• A one-time $100,000 H-1B visa fee affecting sentiment toward export-oriented sectors
• Currency depreciation concerns as the rupee reached record lows
• High valuations prompting rotation to other Asian markets

However, FPIs continue to show interest in Indian primary markets, investing US$1.2 billion in October 2025 in Indian IPOs alone. In fact, after three consecutive months of selling, FPIs turned net buyers in November 2025, purchasing stakes worth ₹14,610 crore in October.

As valuations moderate and policy uncertainties diminish, foreign investors are expected to return selectively to Indian equities. India's strong structural growth story, robust corporate profitability, and improving macroeconomic indicators make it difficult for global investors to ignore this market for long.

The Message for Retail Investors: Patience Pays

The transformation of India's equity markets offers several crucial lessons for retail investors:

Consistency Over Timing

SIPs have proven that consistent investing trumps trying to time the market. While FPIs sold heavily during July-September 2025, retail investors who continued their monthly SIPs benefited from rupee-cost averaging and accumulated more units at lower prices.

Domestic Support Reduces Volatility

The days when FPI selling would trigger sharp market corrections lasting months are over. With domestic investors now holding larger stakes and providing consistent support, market volatility has moderated. This creates a more stable investing environment for long-term wealth creation.

Long-Term Compounding Works

The mutual fund AUM growth from ₹8 lakh crore to ₹74 lakh crore over a decade represents not just institutional success but the wealth creation of millions of retail investors. Those who stayed invested through multiple market cycles have been the biggest beneficiaries.

Discipline During Volatility

The SIP stoppage ratio, which measures investors pausing or stopping their SIPs, spiked to 296% in April 2025 during periods of market stress but has since normalized to around 76% by September. Investors who maintained discipline during volatile periods positioned themselves for subsequent gains.

Core Belief: The India Decade Ahead

The narrative of Indian equities has fundamentally changed. Foreign money may come and go based on global factors largely beyond India's control, but Indian money will stay, grow, and compound. This shift has profound implications:

1. Market stability: Reduced dependence on FPI flows means less volatility from global risk-on/risk-off sentiment
2. Long-term orientation: Domestic investors, especially retail investors through SIPs, have longer investment horizons than many foreign investors
3. Cultural alignment: Indian investors understand Indian businesses, consumption patterns, and growth drivers better
4. Wealth creation at home: Returns from Indian equity markets now increasingly benefit Indian households directly

Those who believe in India's growth story — supported by favorable demographics, rising corporate profitability, policy stability, and increasing financialization of savings — stand to be the real winners over the next decade.

Final Thoughts

The historic crossover of domestic investors overtaking foreign investors in Indian equity markets represents more than a statistical milestone. It symbolizes the maturation and self-reliance of India's capital markets, the growing financial sophistication of Indian households, and the confidence of domestic investors in India's economic future.

Short-term volatility will always exist. FPIs will continue to buy and sell based on global factors. Market corrections will happen periodically. But the underlying trend is clear: domestic money is winning, and this trend is likely to strengthen further.

Your monthly SIPs, your patience through market corrections, and your disciplined investing are not just building your personal wealth — they're collectively becoming the new foundation of India's market strength. The investors who recognize this transformation and stay committed to their long-term investment plans will likely be the biggest beneficiaries of India's remarkable growth story over the coming decade.

The era of domestic dominance in Indian equities has arrived. The question isn't whether to invest in Indian equities, but rather: can you afford not to be part of this historic wealth creation journey?