Foreign Portfolio Investor (FPI) outflows from Indian equities have once again sparked debate on Dalal Street, with market veteran Shankar Sharma offering a contrarian take: the answer, he says, lies in the relentless rise of domestic SIP flows.
In a post on X, the founder of GQuant Investech argued that the wealth management industry is misreading the reasons behind foreign investor exits. “I don't understand why the entire wealth & money management industry is unable to understand why FIIs are exiting,” Sharma said, before pointing to systematic investment plan (SIP) inflows as the key driver.
According to Sharma, the mechanics of the market itself explain the trend. “They are exiting because SIP money is entering. Selling equals buying,” he noted, emphasising that for every buyer in the market, there must be a seller. In his view, the steady and large inflows from domestic investors via SIPs are effectively providing liquidity for FPIs to offload their holdings.
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India has seen record monthly SIP contributions in recent years, reflecting growing retail participation in equities through mutual funds. This domestic liquidity has acted as a cushion for markets even during phases of sustained FPI selling. Benchmark indices have remained relatively resilient despite intermittent foreign outflows, a trend that has puzzled many analysts.
Sharma's argument flips the conventional narrative. Typically, FPI outflows are attributed to global factors such as rising US bond yields, a strong dollar, or risk-off sentiment in emerging markets. However, he suggests that structural domestic flows are equally, if not more, influential in shaping market dynamics.
He further remarked that both SIP inflows and FPI buying cannot dominate simultaneously. “Even in utopia, you can't have SIP and FIIs both buying together. Somebody's got to sell for them to buy,” he said, using a colloquial analogy to underline his point.
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