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According to Motilal Oswal Financial Services latest India Strategy Report, volatility in the Indian market persisted, making FY26 one of the most turbulent years for domestic equities. Indian equity markets stand at a pivotal juncture, supported by several tailwinds yet overwhelmed by geopolitical headwinds emanating from the ongoing Iran Israel/US conflict.

DIIs remain the bedrock; even an abatement of FII outflows will help - Domestic investors have continued to repose their unstinted faith in Indian equities, demonstrating strong resilience and an impressive capacity to absorb volatility over the past few years. In 1QCY26, DIIs have invested USD27.2b in Indian equities, backed by the unwavering SIP run rate. Conversely, FII flows have been volatile; while they turned positive in Feb’26 with ~USD1.7b of inflows, the onset of the Iran war sparked another bout of massive selling of USD14.2b in Mar’26 – taking the 1QCY26 FII outflows to USD15.8b. Once the war dust settles, there is a high likelihood of a better FII flow environment, and even an abatement in outflows will be taken positively by the market, while a full-blown positive flow can lead to sharper rallies. 

The FII-DII ownership ratio in the Nifty 500 contracts to 0.8x in Mar’26 - As a proportion of the free float of Nifty-500, FII ownership dipped 360bp YoY (180bp QoQ) to 33.8%. However, DII ownership rose 310bp YoY (+120bp QoQ) to 41.2%. This structural shift in institutional ownership, which has gained momentum since 2021, continues to strengthen as DII holdings reach new peaks, touching 20.9%, while FII holdings touched a new low of 17.1% in Nifty 500 companies.

DII holdings in the Nifty-500 continue to surge: Over the past one year, DII ownership rose 170bp YoY (+50bp QoQ) to an all-time high of 20.9% in Mar’26. In contrast, FII ownership dipped 180bp YoY (-110bp QoQ) to 17.1% (from 18.9% in Mar’25). Promoter holdings, which have historically remained range-bound, saw an increase of 40bp QoQ (flat YoY) to 49.4% in Mar’26. Retail holdings also increased to 12.7% in Mar’26 (+30bp YoY and QoQ). 

Sectoral holding trends: Within the Nifty-500, FIIs and DIIs showcased divergent trends. On a YoY basis, DIIs raised their holdings in 21 out of 24 sectors. The maximum increase in holdings was visible in Private Banks, Technology, Telecom, Real Estate, Healthcare, and NBFC - Lending, while EMS, NBFC – Non-Lending, and Metals experienced a reduction in holdings.

According to the SEBI's categorization, large-, mid-, and small-cap stocks accounted for 67%, 22%, and 11% of the total Nifty-500 market cap, respectively. DIIs significantly raised their exposure across both in Private and PSU to an all-time high of 21.5% and 17.5%. FII sectoral allocation trends indicate a decline in exposure to BFSI to 32.1%, while allocations increased in sectors such as Metals, Healthcare, Utilities, and Oil & Gas. Notably, FII allocation to Technology declined to an all-time low of 7.3% in Mar’26.

Overall, the data highlights a continued strengthening of domestic institutional participation, with DIIs playing an increasingly dominant role in shaping market direction amid global uncertainties.

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