Are You A SIP Investor? Exit For FIIs Before The Next Crash!
Flows from India’s domestic retail / SIP investors have been growing robustly over the last few years and currently stands at a staggering level of nearly Rs. 21,000 Cr. per month ($2.5 Billion per month) as of May-24. Thanks to the sheer scale of these flows, many investors and analysts in India now believe that these robust domestic flows offer Indian markets strong protection from the adverse impact of any large bout of selling by FIIs, and also potentially insulate Indian markets from any external shock (resulting from a sell-off in global equity markets). I explain in this video how that’s a completely erroneous assumption!
Markets are bound to correct at the end of a business cycle, once it becomes clear that an economy in distress can no longer provide any justification for lofty stocks market valuations! There is nothing extraordinary in that! This is part of market cycle that has been on for decades (in fact for over a century in case of the US). And this will happen irrespective of how strong domestic flows are! If flows alone could prevent large stock market corrections, then markets like US would never see downturns of the sort that were witnessed in 2008 or 2020, given the scale of flows the US markets attract NOT just from domestic US based investors, but from investors around the world.
In case of India though, what is unique is that the sheer scale of our monthly SIP flows has now started to pose a very grave risk, ironically to our small / retail investors – something that is grossly under-appreciated by India’s retail investor community. During the course of notable market crashes in the past, such as the market crash of 2008, we had FIIs selling a whopping Rs. 48,000 Cr. worth of Indian shares in a single financial year, which in turn resulted in absolute mayhem on NIFTY. The NIFTY corrected by 60% back then within a span of just 10 months! However, FIIs themselves had to face the full brunt of the pain caused to investors as a result of their own selling. Back then, FIIs used to account for the largest share of NIFTY’s market-cap after “Promoters”, and hence there was no other category/class of investors back then to whom FIIs could off-load their huge stockpiles of stock holdings before the onset of a market crash, and in the process sidestep the pain caused by the market correction. However that’s not the case any longer! Thanks to India’s robust domestic flows, FIIs can potentially very easily off-load their over-valued stock holdings to relatively less sophisticated retail / SIP investors before the next market sell-off in equity markets kick-in. And that, in turn could well mean that it will ultimately be the small retail investors who would potentially end up holding the garbage bag full of over-valued stocks dumped by FIIs and other institutional investors once the actual sell-off starts.