An interesting game of checkmate is unfolding in the Indian stock market these days. While foreign institutional investors (FIIs) are withdrawing their funds from the Indian markets, domestic institutional investors (DIIs) have created a shield to protect the market from further decline. This ongoing tug-of-war on Dalal Street has raised the question in the minds of investors, both large and small, as to who is in charge of the Indian stock market now?
The indifference of foreign investors and the U-turn of the Indian market
Historically, the direction of the Indian stock market has largely depended on the mood of foreign portfolio investors (FPIs). Whenever there was turmoil in global markets or the US Federal Reserve signaled a change in interest rates, FIIs would quickly withdraw funds from the Indian market, causing the market to collapse like a house of cards. In recent months, FIIs have also sold at record levels. Geopolitical tensions, rising global interest rates, and the expensive valuations of Indian stocks have been the main reasons for this. But this time, there’s a major twist in the story—despite this massive selling by FIIs, the Indian market did not crash, but instead set new records.
The Power of Domestic Investors (DII): The Maze of Mutual Funds and SIPs
The biggest drivers of this change are our own domestic institutional investors (DIIs) and the country’s retail investors. Today, the common citizen of India has become aware of the stock market. Thousands of crores of rupees are being invested in mutual funds every month through Systematic Investment Plans (SIPs). Riding on this domestic liquidity, DIIs are snapping up every stock that foreign investors are selling and fleeing. Together, domestic funds, insurance companies, and pension funds have created a strong floor under the market, completely challenging the dominance of FIIs.
Who holds the remote control of Dalal Street now?
Experts believe that a major structural shift has occurred in the Indian stock market. While foreign funds previously held the market’s remote control, domestic investors now hold the key. This could be described as the Indian stock market becoming “self-reliant.” However, this doesn’t mean that the importance of FIIs has diminished. Whenever the market experiences a significant bull run, FII support becomes crucial. However, FIIs can no longer control the market on their own. Today’s Indian market operates on a balanced balance between these two forces, with DIIs acting as a strong protective shield.