The Indian market is now significantly less reliant on foreign portfolio inflows, a mutual fund industry veteran said, citing the market’s resilience to bad news and the rise of local institutional investors.
Domestic investors’ participation has accelerated since the covid-19 pandemic, said Harshad Patwardhan, chief investment officer at Union Asset Management Co. “In the 2013 taper tantrum, the Nifty fell 11% and the rupee slid 17% three months after the event.
Fast forward to today, after three months when Donald Trump announced reciprocal tariffs in April 2025, the Nifty was up 10% and the Indian currency depreciated only 0.3%. Even when a 50% import duty was imposed on India recently, Nifty is still up 7% and the Indian rupee depreciated only around 3.5%,” Patwardhan said at the Mint Money Festival in Bengaluru.
He added that between 1994 and 2009, there were seven instances when the Nifty fell more than 20%. However, between 2009 to 2025, the Nifty fell more than 20% only thrice.
Global shocks impact India markets
“Indian markets once reacted sharply to global shocks, with 20% drawdowns every two years. Now, such drawdowns occur only once in five years,” said the veteran investment manager.
Patwardhan said that foreign institutional investors (FIIs) once dominated the market, with FII flows forming 4.2% of market cap in 2003. In the last 4-5 years, they have been net sellers, but domestic institutional investors (DIIs) have more than offset their outflows. “The vulnerability of Indian markets to foreign investors has significantly reduced.”
He also said that while the share of FII investments in NSE-listed companies had touched 21% in FY20 and the DII share was just 13.4%, the latter is slowly catching up. In the first quarter of FY26, DIIs’ share of NSE-listed companies was 16.1%, a tad below FIIs’ share of 17.3%.
Investors used to demand 6-7% more for lending to the Indian government than to the US; now, the yield gap has reduced to around 2%. “The yield spread between the 10-year government bond papers of India and the US has also narrowed from around 7% in 2011 to around 2%,” the mutual funds expert said. “This is a recognition by the investors that the relative riskiness of the Indian market has reduced.”
“This is good news for foreign investors too, as they no longer have to worry about shallowness or illiquidity of the Indian market,” Patwardhan said.
