Domestic Investors Now Lead Indian Stocks as Foreign Funds Pull Back

India's stock market is undergoing a significant change, with domestic institutional investors (DIIs) now holding more shares in Nifty-500 companies than foreign investors for the first time. By March 2026, DII ownership hit a record 20.9%, while foreign institutional investors (FIIs) dropped to a multi-year low of 17.1%. This shift has pushed the FII-DII ownership ratio in the Nifty-500 to 0.8, meaning domestic capital is now the main market driver.

DIIs continued to invest, putting about ₹2.72 lakh crore into the market in the first quarter of 2026. This provided key stability when global tensions, especially the Iran-Israel conflict, led foreign investors to pull ₹1.58 lakh crore. This stability shows growing domestic confidence in India's long-term economic path, even with global uncertainty.

Sector Shifts and Resilience

Motilal Oswal's analysis shows DIIs increased their stakes in 21 out of 24 sectors year-on-year. The biggest increases were in private banks, technology, telecom, real estate, and healthcare. FIIs, however, reduced positions in 17 sectors, with their share in technology stocks falling to 7.3% by March 2026. This shift indicates a greater domestic interest in growth sectors that might be less affected by global risks.

Motilal Oswal's Strategic Stock Picks

Amid this changing market, Motilal Oswal has identified companies set to gain from domestic capital flows and strong sector fundamentals. The brokerage has a positive view, based on strong company fundamentals and growth plans.

Cholamandalam Investment and Finance: Financial Sector Stalwart

Motilal Oswal reaffirmed a 'Buy' on Cholamandalam Investment and Finance with a target price of ₹1,900, suggesting a 16% potential rise based on estimated March 2028 book value. The non-banking financial company (NBFC) showed strong growth, reporting a profit after tax of ₹1,640 crore in Q4 FY26, a 30% year-on-year increase that beat expectations. Assets under management (AUM) grew 21% year-on-year to ₹2,24,000 crore, with newer areas contributing 13% of the total. Credit quality is improving, with Stage 3 assets at 3.05% and the company expects lower credit costs for FY27. The company's P/E ratio is around 25-26 times, reflecting its premium market value within the financial services sector, which is forecast to see 11-13% non-food credit growth in the first half of 2026.

Ambuja Cements: Navigating Input Costs for Long-Term Play

Despite a difficult fourth quarter of FY26 where EBITDA fell 22% year-on-year to ₹1,460 crore due to higher fuel, freight, and packing costs, Motilal Oswal keeps a 'Buy' on Ambuja Cements with a target price of ₹530. The firm sees rising costs as a short-term issue, expecting Q1 FY27 to show the highest cost per tonne. Management plans significant cost savings through better operational efficiency and sourcing. The company's ambitious capacity expansion, targeting 155 MTPA by 2028, remains a key reason for long-term confidence. However, other analysts point to ongoing cost pressures from rising fuel prices due to global tensions, resulting in reduced earnings estimates and targets. Some analysts maintain hold or buy ratings but urge caution. Ambuja Cements trades at a P/E ratio around 18-27 times.

Aditya Birla Capital: Diversified Financial Powerhouse

Motilal Oswal set a target price of ₹430 for Aditya Birla Capital, based on its various businesses, indicating a 24% upside. The diversified financial group reported a strong 30% year-on-year rise in profit after tax (excluding one-time items) for Q4 FY26. Its lending business grew 32% year-on-year, with the housing finance segment seeing rapid growth at a 53% AUM increase. Management expects stable credit costs, and the company forecasts a profit after tax CAGR of around 30% from FY26-FY28, with Return on Equity (ROE) reaching about 16% by FY28. This matches a positive view for India's banking sector, which expects 11-13% credit growth.

APL Apollo Tubes: Market Leader in Structural Steel Tubes

Trading at 35 times its FY28 estimated earnings, APL Apollo Tubes has a target price of ₹2,250, suggesting a 20% potential gain. The company reported a 24% year-on-year EBITDA growth in Q4 FY26, with EBITDA per tonne increasing 14%. Market share has grown significantly. Despite lowering its volume growth forecast for FY27 due to global uncertainty, the company raised its EBITDA per tonne guidance, showing strong pricing ability. APL Apollo is making large capacity expansions, aiming for 10 million tons by 2030 with major capital investment. Competitors include Jindal SAW and Maharashtra Seamless, but APL Apollo holds a leading market position. Analysts largely rate it a 'Strong Buy.'

Potential Risks and Concerns

While domestic investment offers support, several risks need watching. The cement sector faces ongoing pressure from high fuel and packaging costs due to global instability, likely reducing profits even with price increases. Companies like Ambuja Cements, while expanding rapidly, must manage costs effectively and integrate acquisitions to rebuild investor trust. For financial firms, a sudden decline in credit quality or a faster-than-expected rise in borrowing costs amid less available cash, as Fitch Ratings noted, could hurt profits. The Nifty-500's FII-DII ratio of 0.8 also suggests market stability relies heavily on continued domestic buying, which could weaken if sentiment changes. APL Apollo Tubes' volume growth forecast has been lowered due to global uncertainty, pointing to possible short-term challenges. The banking sector, though stable, could face margin pressure if interest rates stay high or funding costs rise further.

Outlook

The shift towards DII leadership in Indian equities provides a stable base. Motilal Oswal's analysis suggests this domestic capital support, combined with company strengths and growth plans, means its recommended stocks are well-placed for steady growth. The hope of better FII flows once global tensions ease could lead to stronger market gains, boosting prospects for Indian equities overall. Investors will focus on companies showing strong execution, cost control, and market leadership.