Impact of FII Outflows and DII Support on the Market in January 2026

Foreign Institutional Investors (FIIs) continued their selling spree in January 2026, with an outflow of ₹25,000 crore. Despite this significant monthly selling pressure, Domestic Institutional Investors (DIIs) stepped in strongly, buying ₹40,000 crore during the same period. This net positive flow has played a crucial role in supporting the market, keeping indices like the Nifty near their highs. Understanding this dynamic is essential for market participants, analysts, and investors who wonder why the market has not crashed despite persistent FII selling.

FII Selling Continued in January 2026: ₹25,000 Crore Outflow

The trend of FII selling that marked 2025 has carried over into the new year. January saw FIIs withdrawing ₹25,000 crore from Indian equities, continuing the pattern of heavy foreign selling pressure. This follows a record outflow of ₹1.58 lakh crore in 2025, which was the highest ever recorded. The sustained FII exodus reflects global uncertainties, rising interest rates abroad, and shifting risk appetites among foreign investors.

FIIs have traditionally been major drivers of market momentum in India. Their selling often triggers volatility and downward pressure on stock prices. However, the market’s resilience in January 2026 shows that other forces are at play, cushioning the impact of these outflows.

But DII Buying ₹40,000 Crore Supports Market Stability

Domestic institutions have emerged as the dominant force in the market, stepping up their buying to offset FII selling. In January, DIIs purchased ₹40,000 crore worth of equities, creating a net positive flow of ₹15,000 crore despite the heavy foreign selling. This buying was led by mutual funds, insurance companies, Employees’ Provident Fund (EPF), and the National Pension System (NPS).

These domestic investors have become the backbone of market support. Their combined buying power now exceeds that of FIIs, making them critical to market stability. Mutual funds, in particular, have attracted significant retail inflows, which they have channeled into equities. Insurance funds and pension schemes also maintain steady buying to meet long-term liabilities.

Domestic Institutions Are Now Market Leaders

The dominance of domestic institutions is clear. Mutual funds, insurance companies, EPF, and NPS combined have become the largest net buyers in the market. This shift has changed the market’s structure compared to previous years when FIIs were the primary movers.

• Mutual Funds: Benefiting from rising retail participation and systematic investment plans (SIPs).

• Insurance Companies: Investing steadily to match long-term policyholder obligations.

• EPF and NPS: Contributing consistent inflows as part of retirement savings.

  
  

This domestic dominance provides a more stable and predictable source of market support, less prone to sudden reversals than foreign flows.

Market Resilience Despite FII Selling

Despite the ₹25,000 crore FII selling in January 2026, the Nifty index remained near its highs. This resilience is unusual given the scale of foreign outflows. The net positive flow from DIIs has absorbed the selling pressure, preventing a sharp market decline.

This situation highlights the growing importance of domestic investors in maintaining market equilibrium. It also reflects confidence in India’s long-term growth story among local institutions. The market’s ability to hold steady despite foreign selling suggests a maturing ecosystem with diversified participation.

Warning Signs: What If DII Buying Stops?

While the current scenario looks stable, there are warning signs. The market’s support depends heavily on continued DII buying. If domestic institutions reduce their purchases or turn sellers, the market could face significant stress. Without DII support, the ₹25,000 crore monthly FII selling would likely push the market lower.

Investors should watch for changes in DII behavior closely. Factors that could affect DII buying include:

• Changes in mutual fund inflows due to market sentiment or redemption pressures.

• Regulatory changes impacting insurance or pension fund investments.

• Macroeconomic shocks that alter domestic investor confidence.

  
  

The market’s current strength is conditional. The absence of DII buying would leave the market vulnerable to foreign selling pressure.

What This Means for Market Participants

For retail investors and analysts, the key takeaway is that the market is currently supported by strong domestic institutional demand. This support has prevented a crash despite ongoing foreign selling. However, the situation requires careful monitoring.

• Retail Investors: Should understand that domestic institutions are the main market drivers now. Their flows influence market direction more than FIIs.

• Institutional Analysts: Need to track DII buying trends and fund flows to anticipate market moves.

• Students and Observers: Can learn from this shift in capital flows how markets adapt to changing investor profiles.

  
  

The interplay between FII selling and DII buying is a critical factor shaping market behavior in 2026.

Summary

January 2026 saw continued FII selling with ₹25,000 crore outflows, following a record ₹1.58 lakh crore exodus in 2025. Despite this, strong DII buying of ₹40,000 crore created a net positive flow that supported the market and kept the Nifty near its highs. Domestic institutions—mutual funds, insurance companies, EPF, and NPS—have become the dominant market players, providing stability and absorbing foreign selling pressure.