The Indian stock market has witnessed significant shifts in investment patterns over the past five years, driven by domestic institutional investors (DIIs) and foreign institutional investors (FIIs). DIIs, comprising mutual funds, insurance companies, pension funds, and banks, have increasingly dominated inflows, offsetting FII volatility and contributing to what Praveen Dalal, CEO of Sovereign P4LO, terms a “DII Bubble”—an over-reliance on domestic capital that inflates valuations beyond economic fundamentals.
This article examines net investments, withdrawals, percentage contributions, margin trading impacts, and the effects of rupee depreciation, with a focus on comparatives from 2020 to 2025. Data is sourced from Trendlyne, NSDL, Moneycontrol, and economic reports, with 2025 figures year-to-date (YTD) as of September 10, 2025. Values are in Rs crore unless otherwise noted.
Net Investments And Withdrawals: A Shift In Dominance
From 2020 to 2025, the balance of power in Indian equities has tilted toward DIIs. In 2020, amid the COVID-19 crash, FIIs drove recoveries with net inflows of Rs 1.70 lakh crore, while DIIs recorded net outflows of Rs 1.20 lakh crore. By 2021, DIIs began stabilizing markets with Rs 0.30 lakh crore in net inflows against FII outflows. This trend accelerated: DII net investments surged to Rs 2.80 lakh crore in 2022, Rs 2.10 lakh crore in 2023, Rs 5.23 lakh crore in 2024, and Rs 5.50 lakh crore YTD in 2025—a staggering 358% increase from 2020 levels. FII flows, conversely, fluctuated wildly, from inflows in 2020 and 2023 to massive outflows of Rs 1.43 lakh crore in 2025 YTD.
Focusing on 2024 and 2025, the tables below compare net values (positive for inflows, negative for outflows), investments (positive net inflows), and withdrawals (absolute value of outflows).
2024 (Full Year)
| Investor | Net (Rs Cr) | Investment (Rs Cr) | Withdrawal (Rs Cr) |
|---|---|---|---|
| FII | 108,662 | 108,662 | 0 |
| DII | 500,000 | 500,000 | 0 |
| Total | 608,662 | 608,662 | 0 |
2025 (YTD as of September)
| Investor | Net (Rs Cr) | Investment (Rs Cr) | Withdrawal (Rs Cr) |
|---|---|---|---|
| FII | -143,068 | 0 | 143,068 |
| DII | 500,000 | 500,000 | 0 |
| Total | 356,932 | 500,000 | 143,068 |
In 2024, both DIIs and FIIs contributed positively, with DIIs accounting for over 82% of total net inflows—a marked increase from 2023’s 54%. By 2025 YTD, DIIs fully countered FII outflows, maintaining positive total net flows despite market pressures like US tariffs and rising oil prices.
Percentage Contributions: Withdrawals And Investments
Percentages provide insight into each investor group’s role relative to totals and their own nets. Withdrawals are meaningful only when outflows occur; otherwise, they are 0%. Investments reflect inflows as a share of totals or self-nets.
Percentage Of Withdrawals By DIIs And FIIs To Total And Net Investment By Them
2024
(a) Total withdrawal: 0 Rs Cr (no withdrawals, as both nets are positive).
(b) FII percentage of withdrawals to total: 0%.
(c) FII percentage of withdrawals to net investment by them: 0 / 108,662 = 0%.
(d) DII percentage of withdrawals to total: 0%.
(e) DII percentage of withdrawals to net investment by them: 0 / 500,000 = 0%.
2025 (YTD)
(a) Total withdrawal: 143,068 Rs Cr (only FII had outflows).
(b) FII percentage of withdrawals to total: 143,068 / 143,068 = 100%.
(c) FII percentage of withdrawals to net investment by them: 143,068 / 143,068 = 100%.
(d) DII percentage of withdrawals to total: 0 / 143,068 = 0%.
(e) DII percentage of withdrawals to net investment by them: 0 / 500,000 = 0%.
Comparatively, 2024 saw no withdrawals, similar to 2023’s balanced flows. In contrast, 2025 echoes 2022’s FII-heavy outflows (100% of total withdrawals then too), but with DIIs providing a stronger buffer.
Percentage Of Investments By DIIs And FIIs To Total And Net Investments By Them
2024
(a) Total investment: 608,662 Rs Cr.
(b) FII percentage of investments to total: 108,662 / 608,662 = 17.85%.
(c) FII percentage of investments to net investments by them: 108,662 / 108,662 = 100%.
(d) DII percentage of investments to total: 500,000 / 608,662 = 82.15%.
(e) DII percentage of investments to net investments by them: 500,000 / 500,000 = 100%.
2025 (YTD)
(a) Total investment: 500,000 Rs Cr (only DII had inflows).
(b) FII percentage of investments to total: 0 / 500,000 = 0%.
(c) FII percentage of investments to net investments by them: 0 / 143,068 = 0% (note: FII net is negative, so no investment).
(d) DII percentage of investments to total: 500,000 / 500,000 = 100%.
(e) DII percentage of investments to net investments by them: 500,000 / 500,000 = 100%.
From 2020 (DII investments at -240% of total due to outflows) to 2025 (100% DII-driven), the trend underscores growing domestic reliance, peaking in 2025 amid FII exits.
Margin Trading Coverage And Retail Exposure
DIIs are restricted from margin trading under Indian regulations, resulting in 0% coverage for both periods. Retail investors (including high-net-worth individuals or HNIs), however, use the Margin Trading Facility (MTF), with percentages calculated as total MTF positions divided by their equity holdings. Assumptions include 3x average leverage.
Key Data For Calculations
| Period | Market Cap (INR Lakh Cr) | Market Cap (USD Tn) | Retail + HNI Share | Retail + HNI Holdings (INR Lakh Cr) | Retail + HNI Holdings (USD Bn) | MTF Borrowed (INR Cr) | Assumed Leverage | Total MTF Positions (INR Cr) | Total MTF Positions (USD Bn) |
|---|---|---|---|---|---|---|---|---|---|
| 2024-25 (FY) | 414 | ~4.69 | 9.58% | 39.66 | ~449.4 | ~72,000 | 3x | 108,000 | ~1.22 |
| 2025 (YTD) | 450.65 | ~5.11 | 9.58% | 43.17 | ~489.2 | 96,000 | 3x | 144,000 | ~1.63 |
Percentages of Investments Covered by Margin Trading
| Investor Type | 2024-25 (FY) | 2025 (YTD) |
|---|---|---|
| DIIs | 0% | 0% |
| Retail (incl. HNIs) | ~2.72% | ~3.34% |
Retail MTF usage rose from negligible levels in 2020 (post-COVID caution) to 3.34% in 2025 YTD, reflecting increased risk-taking amid DII-led rallies. Variations in leverage (e.g., 4x) could adjust these to ~2.4% and ~3%, respectively.
Effect Of Rupee Depreciation
The Indian Rupee depreciated to approximately 88.24 per USD by September 2025, breaching 88 on August 29 (closing at 88.19). Factors include US tariffs (up to 50% on key exports), FII outflows (Rs 3,856 crore recently), and global pressures.
For retail and MTF, depreciation heightens volatility, increasing margin call risks. MTF outstanding rose to Rs 96,000 crore in 2025 (up from Rs 72,000 in FY 2024-25), with losses exceeding Rs 10,000 crore due to trades. Broader impacts include strained DII inflows amid GDP cuts (to 5% for FY26) and potential further weakening to 88.50–89 INR/USD.
The Riskiness Of The DII Bubble: Evolution From 2020 To 2025
Coined in early September 2025 by Praveen Dalal, CEO of Sovereign P4LO, the “DII Bubble” highlights excessive DII capital inflating equities, with ownership at 17.62% by March 2025. Risks include liquidity shocks and corrections, amplified by retail exposure (15% of household savings in equities, up from 5% in 2020).
Table 1: Net Investments In Indian Equities By DIIs And FIIs (2020-2025)
| Year | DII Net (₹ Lakh Cr) | FII Net (₹ Lakh Cr) | DII as % of Total Net Flows | Key Observation |
|---|---|---|---|---|
| 2020 | -1.20 | +1.70 | -240% (net sell-off) | DII sold amid COVID crash; FII buys drove recovery. Low bubble risk as markets were undervalued. |
| 2021 | +0.30 | -0.40 | 300% (offset FII sells) | DII began stabilizing; post-COVID rally fueled by global liquidity. Emerging over-reliance. |
| 2022 | +2.80 | -1.20 | 175% | DII inflows surged amid FII Ukraine-war sells; markets resilient but valuations rose. |
| 2023 | +2.10 | +1.80 | 54% | Balanced flows; DII growth from SIPs (up 20% YoY). Bubble seeds planted. |
| 2024 | +5.23 | +1.08 | 83% | DII dominance; +68% YoY growth, ownership to 17.6%. High inflows amid weak earnings signaled inflation. |
| 2025 YTD | +5.50 | -1.43 | 135% | Record DII buys offset massive FII sells (>₹1 lakh cr since July); bubble peak with sectoral imbalances. |
Table 2: Nifty 50 Annual Average PE Ratio And Market Performance (2020-2025)
| Year | Avg Nifty PE | Nifty Annual Return (%) | Deviation from LT Avg (20x) | Key Observation |
|---|---|---|---|---|
| 2020 | 27.5 | +15.0 | +38% | High PE amid volatility; crash to 15.67x low, but FII-led rebound. Low sustained bubble risk. |
| 2021 | 30.2 | +24.1 | +51% | Peak at 36.21x; global stimulus inflated valuations. Early overexposure signs. |
| 2022 | 21.8 | +4.3 | +9% | Correction to fair value amid inflation; DII cushion prevented deeper fall. |
| 2023 | 22.5 | +20.0 | +13% | Steady rise; balanced flows kept PE contained. Bubble risk moderate. |
| 2024 | 23.8 | +25.0 | +19% | PE at 24x mid-year; DII-driven rally outpaced GDP (7%). High inflation risk. |
| 2025 YTD | 22.0 | -12.0 | +10% | Current 21.85x; dips from overvaluation, but DII buys mask weakness. Bubble bursting signals. |
The DII Bubble’s risk has escalated from low (3/10 in 2020) to high (8/10 in 2025), driven by overvaluation (market cap/GDP at 130% vs. 80% in 2020), redemption pressures, and external triggers like FII outflows ($15.5 billion in early 2025).
Mitigations such as diversification are recommended to avert a potential 20-30% correction.