October 12, 2025

Well, I can’t blame you for having any qualms on whether I have changed my profession! Hang on, I’m still the same one who makes a living by making money for others. The above title is borrowed from the dialogue played by Vidya Balan from the movie Dirty Picture based on the life of Vadlapati Vijayalakshmi, aka Silk Smitha. This is when she is asked what are the three things that make a movie successful, her apt reply being: Entertainment, entertainment and entertainment. You might be perplexed on the context of entertainment in the journey of wealth creation, as it is nothing close to entertainment, rather the journey of creating wealth lies in holding one’s nerve. Well, the devil always and will remain in the details.

?
Picture only for representation purpose

Off late, Indian equity markets have witnessed heavy selling from the Foreign Portfolio Investors (FPIs). FPIs have been net sellers in the Indian equity markets with a collective net outflow of Rs 1.58 Lakh Crores in CY 2025 (as on 30^th Sept’25). January 2025 alone witnessed an outflow of Rs 78,027 Crores. So, when one sees a net outflow of Rs 23,885 Crores in September, there is a feeling that the outflows have moderated. This feeling is akin to my school days, when you have secured a score of 33 when the passing marks were 35 and you feel better when your bestie has secured just 23!

The FPIs have been a dominant force in shaping the fortunes of the Indian equity market. As per the Mutual Industry veteran, Mr. Harshad Patwardhan, CIO of Union Asset Management Co, FPI inflows accounted for 4.2% of the total market cap in 2003. He also added that, the FPI investments in NSE-listed companies had touched 21% in FY20 and the DII (domestic institutional investors) share was just 13.4%, the latter is slowly catching up. In the first quarter of FY26, DIIs’ share of NSE-listed companies was 16.1%, a tad below FIIs’ share of 17.3%. Mr. Patwardhan also noted that between 1994 and 2009, there were seven instances when the Nifty fell by more than 20%. But, between 2009 and 2025, the index experienced declines of more than 20% only three times. This shift of balance innterms of inflows favouring the DIIs has been keeping the markets resilient in spite of the FPI outflows. A drawdown of 20% due to global shocks, which was witnessed once in 2 years is now becoming a once in five years phenomena.

Here, I will also share my personal experience of managing equities in the capacity of a fund manager in managing my own personal savings. I was once smitten by the power of Indian equities and embarked on a journey of mastering it. I was successful to some extent; and that gave me confidence. But in due course, I realised no one masters the market just like no one individual is greater than the organisation. You are just a transitory participant and what you need to invest time, loads of patience, humility and not just your money. My learnings from this interregnum like saga was that you may be fortunate enough to pick the right stock from the Universe of 5,647 stocks listed on the BSE and lucky enough if you can buy at the right price level. But, this is where your role ends. If and only if the market takes a liking to your chosen stocks, it will move up. The broader market needs to participate in it. You might have built the best engine, sourced the best body for the vehicle but it will not move only with the engine and body. It needs fuel. And the fuel for any equity market, the broader market’s midas touch is known as Liquidity.?

Domestic Institutional Investors (DIIs) comprise majorly of the Mutual Fund (MF) industry, Insurance companies, local pension funds, Banks and other institutions that invest in Indian equities. The collective inflows from the DIIs have been Rs 5.30 Lakh Crores in CY 2025 and the share of the MF industry has been close to 70% at Rs 3.65 Lakh Crores. The MF net inflows in the month of August’25 has been Rs 33,430 Crores, where the Systematic Investment plan (SIPs) has been at a steady Rs 28,265 Crores. The SIP book as it is referred to suggests that if the Mutual Fund Industry in India decides to go to sleep, the inflows of Rs 20,000 Crores+ will still continue pouring month on month. So, what is keeping the Indian equity markets buoyant in the current season is the new found liquidity in the form of DIIs.

This new found liquidity in the form of DIIs is probably the first time India is witnessing. It has not just risen out of the blue nor this concept of liquidity a birth right for any stock market. Dwindling bank rates on fixed deposits, rising cost of goods and services, aka inflation has made investors look for alternate sources of investment. The campaign from AMFI (Association of Mutual Fund Intermediaries) ‘Mutual Fund sahi hei’ has created awareness on Mutual Funds. The tax cuts introduced in the last budget, freshly refined GST slabs have also created more cash available in the hands of individuals. This surplus thus generated along with the need of inflation beating returns have propelled the MF flows which account for more than 60% of the total DIIs registered in India.

Here, the Government role is also crucial and we are indeed blessed to have a democratically elected system. Often, we take this for granted and we forget our founding fathers. Here, I would acknowledge our first Prime Minister, Shri. Jawaharlal Nehru, for guiding India in the early years of its Independence and laying the foundation of what we are reaping today. Nehru could have declared himself a Dictator and ruled India as per his whims & fancies but he chose the Democratic way of Governing rather than ruling. Pakistan also received Independence just one day before India, but instead of reaping, the citizens are weeping. The situation of our neighbouring countries like Bangladesh, Sri Lanka and Nepal is not very encouraging as well. Hence Liquidity is not a birth right for any stock market or for a nation, rather It has to be earned.

In some instances, stock markets can also rise due to artificial liquidity created by a few players. This has happened in India in the past when the market was very shallow and not vibrant as today. The Harshad Mehta era was the perfect example for this theory of artificial liquidity driven rise. Mehta created liquidity by generating fake Bank Receipts (BR) in liaison with a few corrupt bank officials. He in turn would pledge these BRs with other Banks and divert such obtained funds into the stock market. His vision on India was right but his means were unlawful. He was a genius to exploit the loopholes in the system and create liquidity (in this scenario an artificial one) in the system and propelled the stock markets to dizzy levels. So artificial or genuine, markets rise because of Liquidity.

In such a situation one needs to consult an experienced or what we term as professional in the field of investments to take the most rational call. There may be times where markets are driven by momentum based on few announcements which eventually will fizzle out in a short period, sometimes valuations may be expensive and yet the markets keep rising and so on. A veteran investment professional will have a better idea as he/she would have witnessed many cycles, bull & bear phases. I for sure will consult a doctor when I’m sick rather than self-medicate myself, well it might give temporary relief but a wrong diagnosis on your part can put your life in danger.

Equity markets develop on multiple parameters. Political stability, Government policies shape the macros of a country and provide firmness to the markets, global factors affect them, the earnings of the companies attract investors. But for the markets to propel, it needs the high-octane fuel called Liquidity. As of now the inflows from the DIIs are providing the cushion to neuter the outflows from the FPIs. So, we are not witnessing the 20% drawdowns like the past and the markets are oscillating between a certain range. So, for the next level of growth, we do need the FPIs to revisit India and provide the high-octane fuel. If I was asked what makes the equity markets boom consistently, my apt answer would be Liquidity, Liquidity and Liquidity!