Domestic mutual funds now own 10.6% of NSE-Listed companies, highest ever: NSE Pulse Report

Domestic investors, primarily individuals via mutual funds, now hold 18.5% of India's total market capitalization, surpassing Foreign Portfolio Investors for the third consecutive quarter. This growing influence is underscored by record mutual fund activity in July, including over Rs 28,000 crore in SIP inflows and Rs 42,000 crore in equity inflows, pushing total AUM past Rs 75 lakh crore. Active funds increased their ownership in NSE-listed companies to 8.6%, while passive funds, despite a lower 1.9% share, have seen their AUM grow at a robust 61.5% CAGR over the past decade, collectively highlighting the increasing depth and resilience provided by domestic capital in the market.

Analysis

A significant structural shift is underway in the Indian equity market, with domestic investors solidifying their influence. Individuals, through a combination of direct (9.6%) and indirect mutual fund holdings (8.9%), now own 18.5% of the total market capitalization, outpacing Foreign Portfolio Investors (FPIs) for the third consecutive quarter. This trend is fueled by unprecedented inflows into mutual funds, which saw a record-breaking July with over Rs 42,000 crore in equity inflows and Systematic Investment Plan (SIP) contributions exceeding Rs 28,000 crore, pushing total industry AUM past the Rs 75 lakh crore milestone. The consistency of these domestic flows, evidenced by a 28.9% year-over-year increase in average monthly SIPs in Q1 FY26, provides a resilient support layer for the market, increasing its depth and mitigating volatility from external factors. Within this trend, actively managed funds have expanded their ownership to a record 8.6% of listed companies, growing AUM by 14.8% QoQ. Concurrently, passive funds, while holding a smaller 1.9% share, exhibit explosive long-term growth, with their AUM registering a 61.5% CAGR over the past decade, signaling a rising preference for low-cost investment strategies among the expanding retail investor base.

Key Decisions for Investors

• The powerful and consistent domestic fund flows, particularly via SIPs, provide a strong structural support for the broader market, suggesting that periods of FPI-driven selling or global volatility could represent attractive entry points for long-term investors.
• Given the divergence between active and passive growth, investors should consider a dual allocation strategy, leveraging actively managed funds that are increasing their market share while also building core positions in low-cost passive funds to capture their superior long-term AUM growth trend.
• As domestic capital is now a primary driver, especially in the outperforming mid- and small-cap segments, monitoring domestic mutual fund flow data is critical for identifying and capitalizing on trends that are less dependent on foreign institutional sentiment.
• Investors should remain vigilant regarding the sustainability of these retail inflows, as any significant reversal driven by macroeconomic pressures on disposable income could remove a key pillar of market support.