It used be that news about increasing FII flows brought cheer to the markets. However, in spite of them bringing in close to $10.3 billion dollars since the beginning of this year, the market has been in an interminable funk.
Market action doesn’t seem to concur with FII bullishness. Are FII faith misplaced? At first, the market expected a whiz-bang budget and capitulated once that turned out to be a damp squib. And now it appears that investors have latched on to the political goings on to feel depressed about.
Underneath it all is the exodus of domestic investors out of Equities. Since July 2012, Indian mutual funds pulled out more than $3.6 billion out of equities and piled into debt.
For every single month since July 2012, domestic investors have rotated out of equities and into debt to a grand total of $58.2 billion. Given the recent volatility in the stock market, it would be no surprise if domestic investors continue to herd into debt funds. The big question on my mind is how long will FII flows continue into equities if domestic investors continue to sell into them?
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