Insurance companies and pension funds added over Rs 1 lakh crore, while other investors including portfolio managers, alternative funds, and banks contributed the remainder. Analysts, however, note early signs of slowing momentum as market returns stagnate and global headwinds affect sentiment.

Despite strong DII inflows, Indian equities have underperformed global peers. The Sensex rose just 2 per cent and the Nifty 4 per cent in dollar terms this year, compared with double-digit gains in major Asian and Western markets. Rising redemptions from small-cap and thematic funds, along with GST rationalisation and festive spending, could limit new equity allocations.

Meanwhile, foreign institutional investors (FIIs) have remained net sellers, offloading Rs 1.80 lakh crore so far in 2025. However, FIIs continue buying in the primary market, acquiring Rs 1,559 crore in September. Analysts believe corporate earnings growth above 15 per cent in FY27 could turn around FPI sentiment.

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In August, the RBI kept the policy rate at 5.50 per cent after previous easing. Dr Soumya Kanti Ghosh, SBI’s Chief Economic Advisor, said CPI inflation could drop another 65-75 basis points due to GST cuts. Without GST changes, CPI is already below 2 per cent in September and October.

Ghosh added that the 2019 GST rationalisation reduced inflation by 35 basis points in just months. With the new CPI series and base revisions, inflation should stay near the lower end of the RBI target, 4±2 per cent, through FY26 and FY27. October CPI could even reach 1.1 per cent.

SBI believes a September rate cut is justified. Ghosh said the RBI must communicate clearly to avoid mistakes. Lower inflation and stable growth give the central bank room to cut rates and support the economy.

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