Factually speaking, the Indian stock market saw a massive pullback by foreign investors this year, about Rs 1.5 lakh crore till now. Since FIIs are the most prominent investors in the Indian markets, it affects the country’s overall capital, business and economy. However, domestic institutional investors (DIIs) like mutual fund houses, pension funds, insurance companies etc., tried saving the sinking boat by constantly investing in equities.
Now FIIs are selling Indian equities for many reasons. Therefore it can be said there's nothing wrong with the Indian economy. The global situation is such that FIIs are bound to sell to conserve cash. This phase will continue until there's a global recovery. London-based financial advisory firm Elara Capital believes, "In the past, Indian markets have always underperformed EMs after big FII selling since they influenced the prices. However, this time India’s outperformance remains at a historic high. This also results in incremental foreign liquidity moving into other underperforming EMs (largely China)."
Should This Concern You?
Like I said earlier, all stock markets worldwide are going through volatility. It’s not unique to India, so there’s nothing to be worried about. For some, markets are a risk now, and for some, it’s an opportunity.
What Lies Ahead?
Foreign investors, at some point in the future, will return to Indian equities. Looking at the current market mood, it’s better to remain cautious and invest depending on your risk horizon and goal. Right now, it seems to be the phase of pain before bigger gains.