Domestic institutional investors are exiting Indian stocks at the highest rate in two-and-a-half years, signaling potential concerns about the sustainability of the market’s record rally, valued at $3.7 trillion.
In July alone, local funds, insurers, and banks have collectively sold a net worth of $1.1 billion in shares, marking the most significant outflow since February 2021. While these domestic institutions were substantial net buyers between December and March, they have mostly remained stagnant in their investments since then.
In contrast, foreign investors have emerged as the primary driving force in the world’s fifth-largest equity market, purchasing nearly $14 billion worth of Indian stocks throughout the year. Their interest has contributed to the NSE Nifty 50 Index’s impressive 17% rally from a recent low in March, propelling it to achieve a series of new all-time highs.
Despite global institutions remaining optimistic about India’s economic prospects and corporate earnings, the outflow of funds from local sources has raised caution among market participants. Technicals and options data are showing warning signs, and some small-cap stock funds have had to suspend accepting fresh investments due to record inflows.