India’s stock market has faced a significant challenge with Foreign Portfolio Investors (FPIs) pulling out funds amid global uncertainties. Since FPIs have a major influence on Indian equities, particularly large-cap stocks, their outflows can create considerable volatility. With global factors like interest rate hikes in the US, a strong dollar, and concerns over China’s economic slowdown, FPI activity has fluctuated, adding pressure on Indian markets.
Source:- news 18
However, domestic flows from Indian retail investors, mutual funds, and institutional investors have acted as a buffer against the FPI onslaught. Systematic Investment Plans (SIPs) are witnessing record inflows, consistently crossing ₹15,000 crore a month. This growing domestic participation is driven by the rising popularity of equity as an asset class among Indian retail investors, aided by greater financial literacy and digital access to markets.
Source:- bbc news
Furthermore, India’s economic resilience, reflected in steady GDP growth and a strong corporate earnings outlook, continues to attract long-term domestic investors. Domestic institutions are leveraging this optimism to accumulate shares, especially when FPIs exit during market corrections, thus preventing drastic falls in stock prices.
Still, while domestic flows are critical, they might not fully offset the volatility caused by large-scale FPI outflows. FPIs hold significant stakes in benchmark indices, and their decisions often sway market sentiment. The extent to which domestic inflows can counterbalance FPI exits depends on sustained domestic confidence and the continuity of robust SIP contributions.
In conclusion, while domestic investors provide a degree of stability to Indian markets, a coordinated balance between local and foreign inflows is vital to withstand global headwinds. The resilience of Indian retail and institutional participation will be crucial in mitigating the effects of FPI outflows in the near term.
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