Foreign investors are bearish on Indian stocks, while domestic institutional investors (DIIs) are bullish on Dalal Street. In a little more than five months to 2026, DII’s net purchases have crossed Rs 4 lakh crore. DIIs have bought shares worth more than Rs 4.16 lakh crore so far in 2026, while FIIs have sold Indian shares worth Rs 2.7 lakh crore. Domestic institutional investors have bought Indian shares worth Rs 39,098 crore so far this month. At the same time, foreign investors have sold Indian shares worth about Rs 35,445 crore during this period. This trend has also been seen in the last months.
Iran war also had no impact
The markets remained largely stable in January. Nifty had reached new highs at the beginning of the month, while investors had no idea what was going to happen next. That month DIIs bought Indian shares worth Rs 69,221 crore. In February, concerns about AI affected the sentiment of shares of big IT companies, causing them to fall drastically. Anthropic’s innovation scared investors about the possibility of major change or disruption due to AI in India’s famous IT sector. Despite the concerns, DIIs remained positive about the Indian market and bought shares worth Rs 38,423 crore.
The Iran-US war was in the headlines in March, which shook global markets. On the last weekend of February, when bulls and bears were fast asleep on Dalal Street, the US and Israel carried out targeted military attacks on Iran, in which Iran’s Supreme Leader Ayatollah Ali Khamenei was killed. Iran then launched retaliatory attacks in several areas of the Middle East, leading to large-scale tension and conflict in the oil-rich Middle East region.
Record investment made in March
When the markets opened in March, due to the huge bloodbath, a huge amount of investors’ wealth was lost and bears reigned on the market. Rising crude oil prices, rising tensions, rising bond yields, rupee weakness and other factors spooked investors, causing the Nifty to fall 11% in March. FIIs made massive withdrawals from Dalal Street and sold shares worth about Rs 1.2 lakh crore. Still, DIIs maintained their composure. Amid these uncertainties, DIIs bought shares worth about Rs 1.36 lakh crore in March, the largest such purchase by domestic institutional investors (DIIs) in any month this year.
The months that followed witnessed considerable instability due to fluctuating political developments in the Middle East. US President Donald Trump’s continuous threats, weak ceasefire, Pakistan’s futile efforts for peace talks and other incidents kept investors restless. Even amidst this turmoil, DIIs remained calm. DIIs bought Indian shares worth Rs 51,064 crore in April and Rs 82,669 crore in May.
What are DIIs looking for?
DIIs (which include mutual funds, insurance companies, pension funds and treasuries) remained net buyers on Dalal Street, although their net buying volume declined compared to last year. For example, DIIs bought shares worth Rs 79,620 crore in December, Rs 77,084 crore in November and Rs 52,794 crore in September, while FIIs overall remained net sellers during this period. Retail investors often start reconsidering their investment (exposure) in the stock market after getting low returns from the market for two years. Monthly mutual fund SIP inflow declined to Rs 31,115 crore in April compared to a record Rs 32,087 crore in March. However, on an annual basis, monthly SIP inflows have increased by 18% to Rs 26,400 crore in April 2025.
Dheeraj Relly, MD and CEO of HDFC Securities, said in an ET report that Nifty is currently trading at about 10 per cent lower price than its long-term average. This is an unusual situation for a market that usually trades at a premium multiple. Reilly said valuations are close to long-term averages, especially among large-cap stocks, while earnings are expected to accelerate in the second half of fiscal 2027. Therefore, any fluctuations in the near future should be seen as an opportunity to increase investment in equities. I believe that once the uncertainty over the US-Iran conflict starts to subside, Nifty may touch a new all-time high by the end of this year.
Which way is the market going?
After the sharp fall, Nomura estimates that Nifty will reach the level of 25,900 by March 2027. This international brokerage has said in its recent India Equity Strategy report that it has increased its earlier Nifty target of 24,900 for December 2026. The report emphasized that despite the decline after the start of the US-Iran war, Dalal Street’s performance in 2022 has been better than the decline at the start of the Russia-Ukraine war.
According to Nomura, this time the expectations are based on the fact that the conflict in West Asia will end and the Strait of Hormuz will open, which will reduce oil prices. Besides, the strong trend of AI and the cooperation of central banks is also playing an important role. If seen overall, Indian equities have also performed well, although their performance has been weak compared to many global indices.
The Nifty has fallen 10 percent since the conflict began, which is less than the decline seen in 2022. However, the broader market, reflected in the Nifty Mid-Cap and Small-Cap indices, recorded positive returns during this struggle. The international brokerage further said that due to the cyclical impact of high oil prices, structural impact of AI and no significant improvement in valuations, FIIs continued heavy selling.
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