Sep FII holdings in Nifty 500 plunge to 16.8%: Why DIIs are buying private banks, telecom & tech

Domestic institutional investors increased their Nifty 500 holdings for the tenth consecutive quarter, while foreign institutional ownership fell to a record low. Motilal Oswal points to sustained domestic inflows and diverging sector preferences as the two groups move in opposite directions.

Domestic institutional investors (DIIs) raised their ownership of Nifty 500 companies to a record 21.3% in September 2026, extending their run of quarterly increases to ten, while foreign institutional investors (FIIs) cut their holdings to 16.8%, according to Motilal Oswal Financial Services.

The latest figures show a widening divergence between domestic and foreign institutional positioning in Indian equities. DII ownership rose 120 basis points year-on-year and 30 basis points quarter-on-quarter. FII ownership, meanwhile, declined 170 basis points over the year and 20 basis points sequentially.

Motilal Oswal attributed the contrasting trends to differences in investment flows and market positioning. In its October 2026 strategy report, the brokerage wrote, “While FIIs have sharply stepped up selling in response to adverse global events and news flow, DIIs have remained active buyers, consistently stepping in with strong inflows to absorb the selling pressure.”

The report added that foreign investors had increasingly directed capital towards primary-market investments even as they continued selling in the secondary market.

Domestic institutions, meanwhile, have benefited from sustained participation by local investors and continued inflows through systematic investment plans (SIPs). Motilal Oswal noted that monthly SIP inflows had reached around Rs 34,000 crore, strengthening domestic institutional ownership.

The result is a growing domestic presence in the shareholder base of listed companies, even as foreign institutional ownership has retreated.

The rise in DII holdings extends beyond the largest listed companies. Motilal Oswal’s analysis shows domestic institutions increasing their ownership across market-cap segments, while foreign investors reduced their holdings year-on-year.

The shift is also evident in the Nifty 50, where DII ownership rose to 26.2% in September 2026 from 24.7% a year earlier. FII ownership declined to 22.4% from 24.7% over the same period.

Source: Motilal Oswal Financial Services, October 2026.

The report also tracks a sustained increase in DII ownership over a longer period. Its historical chart shows DII holdings in the Nifty 500 rising from 12.3% in September 2024 to 21.3% in September 2026. FII ownership declined from 19.4% to 16.8% over the same period.

Motilal Oswal noted that promoter holdings had edged lower, reaching 49.2% in September 2026 after a 20-basis-point quarterly decline. The growing DII share has therefore accompanied a broader change in the ownership composition of Indian equities.

Sector-level data show that domestic institutions have continued adding to selected areas of the market, rather than increasing their exposure uniformly.

Private banks accounted for the largest DII holding among Nifty 500 sectors, at 39.1%, followed by Internet and New-Age Technology at 32.5%, consumer stocks at 23.6%, telecom at 23.3% and capital goods at 22.8%.

DIIs increased their holdings in 20 of the 28 sectors over the year. Private banks recorded the largest increase, at 550 basis points, followed by insurance at 390 basis points, telecom at 310 basis points, Internet at 260 basis points, infrastructure at 240 basis points and defence at 200 basis points.

The brokerage captured the breadth of the move in a section of its report titled “Sectoral holdings YoY: DIIs raise holdings in 20 sectors, while FIIs reduce theirs in 21”.

Within the same analysis, Motilal Oswal wrote, “Within the Nifty-500, DIIs raised their holdings in 20 of 28 sectors.”

On a sequential basis, DIIs increased their portfolio weights in Internet and new-age technology, technology, automobiles, healthcare, metals and insurance. They reduced their weights in consumer stocks, private and public sector banks, non-banking financial companies, oil and gas, capital goods and utilities.

Their allocation to banking, financial services and insurance moderated to 28.5% of DII holdings in the Nifty 500 in September, down 60 basis points quarter-on-quarter, but remained 130 basis points higher year-on-year.

These figures indicate that the rise in overall domestic ownership has been accompanied by changes in sector preferences, including increased exposure to Internet businesses, telecom and selected industrial sectors.

Foreign institutional investors retained significant exposure to financial services and technology-related sectors, but their holdings declined across much of the market.

Private banks accounted for 40% of FII holdings within the sector, followed by Internet at 23.4%, telecom at 21%, real estate at 18.7%, healthcare at 17.3%, automobiles at 16.6%, non-banking financial companies at 16.3% and technology at 16%.

However, FIIs reduced their holdings in 21 of the 28 Nifty 500 sectors over the year. The report identified increases in public sector banks, logistics, textiles, metals and non-banking financial companies, with declines across most other sectors.

Motilal Oswal’s assessment of the contrasting sector trends was direct, “Within the Nifty-500, DIIs raised their holdings in 20 of 28 sectors, while FIIs reduced their holdings in 21.”

The difference in portfolio composition is also reflected in market-cap preferences. In September 2026, FII ownership stood at 18.7% in large-cap stocks, 14.6% in mid-caps and 11.2% in small-caps. DII ownership was higher across all three categories, at 22.7%, 19.8% and 17.5%, respectively.

FIIs remained overweight in banking, financial services and insurance relative to the sector’s 29.8% weight in the Nifty 500, even after their allocation moderated to 33.1% in September. Their allocation to the sector declined 130 basis points both sequentially and year-on-year.

The data suggest that foreign investors’ reduced ownership has not been uniform, with selected sectors continuing to attract or retain foreign capital. Nevertheless, the overall direction remains different from that of domestic institutions.

Motilal Oswal described the trend in its opening analysis, “Over the past two years, institutional sentiment and positioning in India’s secondary market have diverged sharply.”

The brokerage also observed that the changes in ownership had gained momentum since 2021, with domestic institutions increasing their share of Nifty 500 companies while foreign holdings declined.

Its report stated, “Sustained retail participation and record monthly SIP inflows of ~$3.4b have further strengthened domestic institutional ownership.” The report’s figure expresses SIP inflows in US dollar terms. Its corresponding Indian currency equivalent is approximately Rs 34,000 crore a month.

Motilal Oswal expects the contrasting flow patterns to persist in the near term, citing differences in institutional positioning and the global macroeconomic backdrop.

Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.