Will routine investors in Indian stocks keep calm and carry on?

It's unclear how long equities can count on SIP-mutual-fund support if prices continue to weaken

- VIVEK KAUL

Stock markets like clean and crisp stories: This happened, so that happened. Like in early November, we were told that stock prices fell in October because foreign institutional investors (FIIs) sold Indian stocks worth ₹94,017 crore during the month. True, FIIs have been selling, but there was a lot more to it than just that.

Every seller needs a buyer. In October, to sell the volume of stocks FIIs wanted to, they were happy selling at prices lower than was the case in late September, when India's stock market peaked. This was done to incentivize more buyers to enter the market and thus be able to sell.

But that's a rather technical explanation. While FIIs sold stocks heavily in October, they have been less enthusiastic about investing in Indian equity for a while now. Since January 2022, they have net invested just $5.1 billion.

Now, January 2022 might seem like a random cut-off point, but it isn't. In the aftermath of the pandemic, the US Federal Reserve had begun a new edition of its quantitative easing (QE) programme. It printed money and pumped it into the financial system to drive down long-term interest rates and thus drive up economic growth. One impact was that large institutional investors, which FIIs basically are, began investing in stock markets across the world in search of higher returns.