Last week, my friend asked me if he should stop his SIPs because "the foreigners are leaving." He sounded like someone whose partner just threatened to move out. I told him what I’m telling you: in the relationship between India and global capital, we are the ones finally paying the rent.
For decades, if foreign investors sneezed, our markets caught a cold. But yesterday, something quietly remarkable happened that shows the power dynamic is shifting.
Here is what happened on Friday. The Sensex jumped 843 points, recovering most of the losses from earlier in the week.
The trigger was simple: India’s retail inflation (CPI) cooled to 5.48%. That is basically the economy taking a deep breath and unclenching its jaw.
But the real plot twist is this: while the market was climbing, Foreign Institutional Investors (FIIs) were still selling. In the old days, that would have dragged the index down.
Instead, the market shrugged and rallied because Domestic Institutional Investors (DIIs) bought what FIIs dumped. In plain language, your mutual funds and SIPs absorbed the punch.
Think of FIIs like tourists. They bring money, enjoy the view, and leave the moment the weather turns. DIIs are the locals. We live here. When it rains, we open an umbrella and keep going. For the first time, the locals are starting to matter more than the tourists.
The inflation number is the key. At 5.48%, CPI is drifting closer to a zone where the RBI feels less pressured to keep rates tight.
Managing inflation is like adjusting an old shower knob.
Turn it too far toward growth and the water becomes scalding. Prices shoot up. Your salary feels smaller overnight.
Turn it too far toward control and the water turns icy. Growth slows. Jobs feel shakier. Borrowing becomes painful.
For a while, the water was uncomfortably hot. This data suggests we might finally be near that lukewarm setting where the RBI can breathe and maybe consider a rate cut in the coming policy meetings. If that happens, EMIs eventually get lighter.
Now the boring, important part. Is this sustainable. It depends on the tomato factor.
A big chunk of CPI swings in India comes from food. And food prices have the emotional stability of a Whats App group during wedding season. One supply shock and inflation jumps again.
Also, FIIs selling for weeks is not a healthy sign. It usually means global money thinks India is pricey, or they are de risking for reasons unrelated to us.
This is what foreign investors sold in Indian equities just yesterday. And yet the market still closed higher. That is the financial equivalent of getting dumped and immediately getting a promotion.
Keep your SIPs running. Right now, domestic flows are acting like the shock absorber that prevents every foreign sell off from becoming a full blown crash.
Fun fact: In the past, heavy FII selling could slice the index in half. Today, we are seeing a market that can sometimes stay surprisingly stable even when foreigners are net sellers, because domestic money has become a serious counterweight.
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Subscribe to First ScrollSources: Times of India | Moneycontrol
