Domestic Investors Offset Sharp Decline in Foreign Funds
Despite heightened volatility in the domestic markets over the past few trading sessions, domestic institutional investors have stepped up as strong counterbalances against the sizable withdrawals by foreign portfolio investors. Data shows that in the last 3 days alone, as FPIs pulled out nearly Rs. 17,000 crore from Indian equities, DIIs including mutual funds and insurance firms pumped in a substantial Rs. 16,313 crore to offset much of the impact.
Funds from individual investors have been steadily pouring into the local mutual fund space in recent months. Net inflows into equity schemes reached an all-time high of over Rs. 40,000 crore in June, a significant jump compared to the previous month. With cash reserves on the rise, mutual funds have emerged as dependable buyers of stocks in the current turbulent environment. Similarly, robust premium collections of nearly Rs. 90,000 crore by life insurers in the opening quarter provided further ammunition for DIIs.
On the other hand, foreign flows slowed due to concerns around economic slowdowns abroad and upcoming global events. Despite India's relative insulation, exports and portfolio investments remain sensitive to shifts in risk sentiment overseas. Experts point to the US elections later this year and key state polls at home as potential triggers to monitor. Some also feel risk-averse offshore money may retreat further should uncertainties in major markets persist.
Overall, with DIIs underpinning domestic demand, short-term volatility induced by foreign withdrawals seems manageable. Going ahead, stability in global macros will be a key determinant for sustainable upside, while downside supports are enhanced within the country. Investors are advised to remain cautiously optimistic but take profits if large corrections emerge.
