Domestic investors brought in $3 for every $4 pulled out by foreign investors

• Indian stock markets have seen a lot of volatility this year, but they have yet remained steadier as compared to their global counterparts.
• One major trend that has been spotted is the massive and continued pullout of foreign investors over the last eight months.
• However, far from tanking the Indian markets, FIIs have seen a considerable fightback from domestic investors in this period.
• We try to break down this phenomenon and understand what has changed for domestic investors.

Foreign investors have $4 from the Indian markets in the last eight months (₹3.26 lakh crore). But all is not lost for the markets as domestic investors plowed in over $32 billion (₹2.5 lakh crore) during the same period.

Due to this bracing, the benchmark Nifty 50 index has lost a little over 10% of its value — which is why the decline is relatively lesser as compared to its counterparts in the US and elsewhere.


Not just foreign money

The Indian stock markets have come a long way from being heavily influenced by the moods of foreign investors to now holding relatively steady despite a rout in global equity markets.

“Indian retail investors have played a key role, especially during the last two years; they have shown the world what they can do by standing up and becoming shock absorbers, unlike FPIs,” said finance minister Nirmala Sitharaman in a speech last month.

According to Kranthi Bathini, director of equity strategy at WealthMills Securities, domestic investors have adequate liquidity, which is why we are seeing an average of ₹2,000 crore net investments daily.

Here’s how some of the major stock indices have performed in 2022:

Index	YTD performance
Nifty 50	-10.4%
Nasdaq Composite	-28.4%
S&P 500	-18.7%
NYSE Composite	-12.4%
DAX	-14.1%
Nikkei 225	-7.8%

The mutual fund angle

This brings us to the main piece of the puzzle – what are the domestic investors seeing in India Inc that foreign investors are not?

Among domestic investors, mutual funds are the biggest source of investments, suggests Kranthi Bathini.

According to a report by Motilal Oswal, the average price earnings multiple of Nifty is currently at 19, which is lower than the 10-year average PE of 19.4.

This, Bathini says, makes investing in Indian companies an attractive proposition for investors, and is one of the reasons behind mutual funds being prolific investors over the past few months.


“Mutual funds cannot let money in their funds lie idle for a long period of time, otherwise they will underperform. Apart from this, the valuations seem attractive enough now for mutual funds to pour in money,” Bathini told Business Insider India.

Domestic investments - a party that might not last

Ambaresh Baliga, an investment analyst too believes that MFs are pouring money into Indian markets.

“Most of the money is coming from retail investors because investing in Indian equities is what they are comfortable with since they have earned in the past,” he told Business Insider India.

While they have invested substantially, the current happenings in the market might spook them too.

“The retail investors have become cautious over the last month or two due to the steep correction in the market, and while they will not sell at a loss, their investment quantum could reduce,” he added, suggesting that the DII inflows could slow down over the next few months.

Bathini added that foreign investors have been pulling out money for different reasons, and that they will return at some point. When they return, the market sentiment could see a considerable boost and result in a rally.

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