The Indian stock markets have continued their upward momentum over the past seven months, gaining over 10,000 points on the benchmark Sensex index. This sustained bull run can be largely attributed to robust buying from domestic institutional investors like mutual funds, despite foreign portfolio investors taking the exit route.
Mutual funds in particular emerged as the major drivers, investing a massive Rs. 2.4 lakh crore in domestic equities since January 2022. This helped absorb the selling pressure from FPIs who withdrew Rs. 1.21 lakh crore over the same period. Domestic fund inflows into equities have also been growing month-on-month, bolstering further market support.
In contrast, FPI selling persisted through most trading sessions as valuations in India appeared expensive compared to other markets like China. Their selling peaked in May ahead of the general elections. However, healthy business activity and expectations of easing inflation have boosted sentiments, with more upside expected on a good monsoon.
Going forward, market participants will be eyeing cues from the upcoming Union Budget and first quarter earnings. A rate cut by the US Fed could also attract more foreign capital inflows. For now, domestic institutional buying is more than offsetting the intermittent FPI exits to keep the bull run chugging along.
