The institutional flow in the Indian equity markets is expected to play a significant role in driving the market trends in the calendar year 2025, according to a report by ICICI Securities. In 2024, the Indian equity markets witnessed robust institutional flows of nearly ₹4 lakh crore, with Foreign Institutional Investors (FIIs) playing a major role in shaping market trends.
Despite a major sell-off of ₹1.5 lakh crore in the secondary markets during October and November, the Nifty index delivered a 9 per cent annual return in 2024. This resilience can be attributed to inflows in the primary markets via Qualified Institutional Placement (QIPs), Offer for Sale (OFS), and Initial Public Offerings (IPOs).
A notable shift in FII strategy was observed in 2024, with funds flowing away from traditional heavyweights like BFSI and Oil and Gas sectors towards Capital Goods, Healthcare, and Telecom sectors. Sectors such as Auto and FMCG saw reduced FII exposure, while sectors like Consumer Services, Realty, and Chemicals attracted increased investments, reflecting a rebalancing of sectoral allocations.
On the domestic front, financial inclusion and increased participation through systematic investment plans (SIPs) have boosted market stability. The SIP inflows reached a monthly run rate of ₹25,000 crore, with projected fresh inflows of nearly ₹3 lakh crore for 2025. These “sticky” investments have been instrumental in sustaining market momentum.
Thematic funds focused on non-banking and non-FMCG portfolios have also contributed to the broadening of market flows, allowing mid- and small-cap stocks to outperform. The NSE500/Nifty ratio breaking a 25-year resistance level signals continued outperformance in the coming years.
Assets under management (AUM) concentrating on mid and small-cap funds have seen significant jumps, leading to a broad-based performance of the market. Mutual funds are also deploying their major allocations in emerging sectors such as Telecom, Consumer Durables, and Capital Goods, while sectors like FMCG, Oil and Gas, and Financials see relatively lower allocations.
Overall, the institutional flow in the Indian equity markets is expected to anchor the market in 2025, with a bullish outlook for the Nifty index and continued outperformance by mid- and small-cap stocks. The shift in FII strategy, along with increased domestic participation through SIPs, is likely to drive market trends and provide opportunities for investors in the coming year.
