How are DIIs and GST Reforms Supporting the Indian Equity Market Amid FIIs' Exodus?
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Synopsis
In August, the Indian equity market showed resilience thanks to strong DII investments and favorable GST reforms, even as FIIs pulled out over $4 billion. Discover how GDP growth and auto sector rallies contributed to this stability amidst global trade tensions.
Key Takeaways
- Strong DII activity has mitigated market corrections.
- Positive signals from GST reforms have bolstered investor confidence.
- Q1 GDP growth of 7.8 percent showcases economic resilience.
- Tariff concerns from the US present challenges to the market.
- Mid and small-cap stocks faced greater declines than large caps.
New Delhi, Sep 12 (NationPress) The surge in Domestic Institutional Investor (DII) activity, along with positive sentiments surrounding GST reforms, has helped stave off a significant downturn in the Indian equity market. This comes despite a staggering $4 billion sell-off by Foreign Institutional Investors (FIIs) and tariff concerns stemming from US President Donald Trump, as highlighted in a report released on Friday.
In August, DIIs injected $10.8 billion into the market, effectively counterbalancing the $4.3 billion divestment by FIIs. This dynamic resulted in only a modest decline in the indices, with the Sensex and Nifty recording decreases of 1.5 percent and 1.2 percent, respectively, as per data from HSBC Mutual Fund.
The Q1 FY26 GDP figures outperformed expectations, revealing a robust growth rate of 7.8 percent year-on-year (YoY), bolstered by strong performance in both the services and manufacturing sectors. Additionally, the Consumer Price Index (CPI) moderated to 1.6 percent in July, marking the lowest rate in over eight years, which further fueled market activity.
Particularly, the automotive sector thrived, benefiting from GST rate reductions, while the oil and gas, power, and real estate sectors lagged behind.
In August, S&P raised India's sovereign rating to BBB (Stable) from BBB–, marking the first upgrade in nearly two decades and providing additional momentum to the equity market.
However, mid-cap and small-cap stocks faced steeper declines, dropping 2.8 percent and 3.6 percent, respectively.
The US's decision to impose a 50 percent tariff on Indian exports has impacted the currency, equity, and bond markets, leading to a depreciation in the Indian rupee while yields have increased due to fiscal concerns, according to the report.
Despite expectations of meeting the fiscal deficit target of 4.4 percent of GDP, challenges such as weak tax collections and GST reforms may introduce risks.
The report pointed out that the Reserve Bank of India (RBI) has already implemented a 100 basis point rate cut in 2025 and is likely to pause further adjustments.
Nevertheless, liquidity remains high, which supports shorter-end yields in the debt market.
Despite facing global trade challenges and tariff pressures, India's macroeconomic fundamentals remain strong, characterized by robust GDP growth, low inflation, and a supportive policy environment, as noted in the report.
Point of View
I affirm that the Indian market exhibits resilience against external pressures, driven by solid domestic institutional support and positive economic indicators. The combination of strong GDP growth and effective GST reforms positions India favorably, despite the ongoing challenges posed by global trade tensions.
NationPress
12/09/2025
Frequently Asked Questions
What factors contributed to the stability of the Indian equity market in August?
The stability was primarily due to strong DII buying, positive sentiment around GST reforms, and robust Q1 GDP growth.
How much did FIIs sell off in August?
FIIs sold off over $4 billion during that month.
What was the GDP growth rate for Q1 FY26?
The GDP growth rate for Q1 FY26 was an impressive 7.8 percent year-on-year.
What impact did the US tariffs have on the Indian market?
The US's 50 percent tariffs on Indian goods negatively affected the currency, equity, and bond markets.
What is the current status of India's sovereign rating?
S&P upgraded India's sovereign rating to BBB (Stable) from BBB–, marking a significant improvement.
