Institutional activity on December 18 offered a mixed but revealing snapshot of the underlying tone in Indian equity markets. Foreign institutional investors returned as marginal net buyers, while domestic institutional investors once again emerged as the primary stabilising force, even as benchmark indices struggled to hold gains.

Throughout 2025, Indian markets have been shaped by a persistent divergence in investor behaviour. Foreign institutional investors (FIIs) have remained net sellers for most of the year, pressured by global interest rate uncertainty, currency volatility, and shifting risk appetite across emerging markets. In contrast, domestic institutional investors (DIIs), backed by steady inflows into mutual funds and insurance pools, have consistently absorbed supply, preventing deeper market corrections.

The December 18 session fits squarely into this broader narrative. While headline indices showed little movement, the flow data points to a continued tug of war between cautious foreign capital and confident domestic money.

What is changing

According to provisional exchange data, FIIs were net buyers of Indian equities worth ₹596 crore during the session. They purchased shares worth ₹11,442 crore and sold shares amounting to ₹10,847 crore. While the net figure is modest, it marks a continuation of sporadic buying interest after extended periods of selling.

DIIs, meanwhile, remained firmly supportive. They bought shares worth ₹12,376 crore and sold ₹9,675 crore, resulting in net purchases of around ₹2,700 crore. This level of participation highlights the growing influence of domestic capital in determining near-term market direction.

However, the year-to-date picture remains sharply divergent. FIIs have been net sellers to the tune of ₹2.79 lakh crore so far in 2025, while DIIs have net bought shares worth approximately ₹7.52 lakh crore. This structural shift has materially altered market dynamics, reducing India’s dependence on foreign flows compared with previous cycles.

Why it matters

The significance of December 18’s data lies less in the absolute numbers and more in what they signal about market resilience. Despite sustained foreign selling over the year, Indian equities have held up relatively well, largely due to domestic participation. This has helped dampen volatility and limited drawdowns even during phases of weak global cues.

That said, the limited scale of FII buying also indicates that confidence among overseas investors remains tentative. Net inflows of a few hundred crore rupees are not yet indicative of a decisive trend reversal, especially when seen against cumulative outflows running into lakhs of crores.

Market performance and sector cues

Despite supportive domestic flows, equity benchmarks ended slightly lower. The Sensex closed down 77.84 points, or 0.09 percent, at 84,481.81, while the Nifty slipped 3 points to end near 25,815.55. Intraday, the indices failed to sustain momentum, suggesting that buying interest was selective rather than broad-based.

The BSE Midcap index finished flat, while the Smallcap index declined about 0.3 percent, pointing to mild risk aversion beneath the surface. Sectorally, realty gained 0.3 percent and IT rose around 1 percent, benefiting from selective buying and relative defensiveness. In contrast, auto, media, pharma, oil and gas, and capital goods stocks declined between 0.3 and 1 percent.

On the stock-specific front, Sun Pharma, Power Grid Corporation, Tata Steel, Bajaj Auto, and Asian Paints were among the notable laggards on the Nifty. Gains were seen in InterGlobe Aviation, Max Healthcare, TCS, Infosys, and Tech Mahindra, with IT stocks drawing interest amid currency-related factors.

Official views and market commentary

Market participants pointed to global cues and currency movements as key drivers of caution. Ajit Mishra, SVP – Research at Religare Broking, observed that sentiment remained fragile, with traders reluctant to take aggressive positions. He noted that while intermittent buying emerged in select index heavyweights on a rotational basis, it was insufficient to establish a clear directional trend, keeping overall activity stock-specific.

Implications for Indian markets

From a broader perspective, the data reinforces the idea that Indian markets are increasingly domestically driven. As long as DII inflows remain robust, sharp downside risks may stay contained. However, the absence of sustained foreign buying could limit upside momentum, particularly for large-cap stocks that rely more heavily on global capital participation.

Bull vs Bear scenario

The bullish case rests on continued domestic inflows, improving retail participation, and selective sector leadership, particularly in IT and defensives. Any stabilisation in global rates or currency conditions could also encourage stronger FII participation.

The bearish scenario centres on prolonged foreign selling, adverse global cues, and valuation fatigue at higher index levels. If DII inflows slow or shift tactically, markets could become more vulnerable to external shocks.

Key risks

Key risks include sharp currency volatility, global risk-off events, and policy-driven changes that impact liquidity. Additionally, sustained narrow market breadth could increase the risk of abrupt corrections if leadership stocks lose support.