Sensex Rally Continues to Reach New Peaks: FPIs Vs DIIs – Who is Driving the Market?

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Foreign portfolio investors (FPIs) and domestic institutions (DIIs) have driven the stock markets to new peaks, with the benchmark Sensex spurting 2.38 per cent in July. Factors driving the rally include the return of FPIs, global buoyancy, strong macro-economy, and easing of inflation in India. However, retail investors should not go overboard as they risk losses in any subsequent correction and fast exits of FPIs. DIIs’ contrarian strategy, steering clear of overvaluations, should be used as a guide. With FPI inflows continuing, the key indices may reach new peaks, yet occasional corrections are likely. Carefully follow the FPI Vs DII battle, and make an educated decision.

Key Reasons

• The major drivers of the rally in the markets are the return of FPIs, buoyancy in global markets, strong macroeconomic fundamentals and the easing of inflation in India

• FPIs have pumped Rs 30,660 crore into stocks in July so far with average daily inflows of over Rs 2,000 crore

• Domestic institutions are selling due to high valuations and making profits from investments • There is no room for exuberance or going overboard with the market rally

• Domestic institutions are already sellers in the markets and graffiti retail investors should not go overboard

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