Balanced Flows, But Falling Markets - Why?

I am a regular reader of your magazine and find it highly informative. I couldn’t understand one aspect - if DII inflows were nearly equal to FII outflows from India, why did the markets experience a sharp decline? - Bhagirath J [EasyDNNnews:PaidContentStart]

Editor Responds: We appreciate your kind words of encouragement. When Foreign Institutional Investors (FIIs) sell large quantities of stocks, especially in the Large-Cap segment, it exerts significant downward pressure on benchmark indices like the BSE Sensex and Nifty 50. FIIs often execute bulk sell orders, leading to sharp declines in blue-chip stocks. Since large-cap stocks have a high weightage in indices, even a few key stocks witnessing heavy selling can drag down the entire market.

On the other hand, domestic institutional investors (DIIs) may not always buy the same stocks as those sold by FIIs. DIIs often follow a more diversified approach, investing across Mid-Cap and Small-Cap stocks rather than focusing solely on large-caps. This means that while their overall investment amount might equal FII outflows, their impact on the index is less pronounced. Moreover, FII exits create a negative sentiment in the market, prompting retail investors to panic-sell, amplifying the downturn despite strong domestic inflows.

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