Liquidity Isn’t Everything

I really enjoyed your cover story on India’s market mood in the last issue. However, I am a bit confused. If FIIs have finally started channelling money back into the market, as mentioned in the story, why are markets still witnessing a significant decline? Could you please explain? - Ishita Pingale [EasyDNNnews:PaidContentStart]

Editor Responds: Thank you for writing to us. That’s a very valid question. While FII inflows are an important sentiment indicator, markets do not move on a single factor alone. Even if foreign investors have started allocating money to Indian equities, other forces often exert stronger downward pressure. For instance, domestic institutional investors or retail participants could be booking profits out of caution. Global cues such as rising geopolitical tensions, reduced expectations of Fed rate cuts, weakness in global IT stocks amid AI bubble fears, and declines in other major markets also drag sentiment lower. In addition, valuations have turned expensive in certain pockets, triggering corrections despite fresh inflows. It is also important to note that FII flows are often selective, concentrated in specific sectors or Large-Cap stocks, while the broader market declines. In short, liquidity helps, but earnings visibility, valuations, and global risk appetite ultimately determine market direction.

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