Foreign Investors Sell With Stunning Speed But Domestic Investors Offset Impact

As the world navigates economic uncertainties triggered by the Covid-19 pandemic and sustained by the Russia-Ukraine war, foreign investors are moving out of India at breathtaking speed. 

While they invested about Rs 2.2 lakh crore in India between 2014 and 2020, they sold stocks worth Rs 2.5 lakh crore since October last year, according to the National Securities Depository Limited. 

There's also something else happening. 

Despite this selling pressure, the benchmark Nifty has fallen only 8 per cent in the past eight months. It has outperformed major markets in the US, China, and Europe. 

But what's resisting the pressure put forth by the offloading of stocks by foreign investors?

This unprecedented offloading by foreign buyers could have led to the collapse of Indian markets. Still, the emerging power of retail and domestic institutional investors has offset the impact of the exit of foreign investments.

India is not the only market that has seen the selling pressure from foreign investors. 

Rising global interest rates, inflation and the Ukraine conflict, have impacted several emerging markets, including Taiwan and South Korea. But the Indian markets have shown resilience to withstand the shock.

Finance Minister Nirmala Sitharaman has praised domestic retail investors for "standing up and becoming shock absorbers" over the past two years. She said more people are showing confidence in investing.

"From an average of 4 lakh new Demat accounts opened every month in 2019-20, it tripled to 12 lakh per month in 2020-21 and has further increased to around 26 lakh per month in 2021-22," Ms Sitharaman had said.

Indian retail investors invested Rs 2.1 lakh crore in 2021-22 to offset the Rs 2.2 lakh crore offloaded by foreign investors.

However, some experts believe that the support provided by domestic retail investors could soon end if the share market does not start offering meaningful returns to retail investors.