How Do Domestic Mutual Funds Shield the Indian Market by 20 to 30%?
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Synopsis
Discover how domestic mutual funds are playing a crucial role in stabilizing the Indian market amid foreign selling. Jefferies' Christopher Wood emphasizes the importance of these inflows in preventing significant declines and boosting investor confidence. Explore the factors that could influence market rallies in the near future.
Key Takeaways
- Domestic mutual funds shield Indian equities from significant declines.
- August marked 25 consecutive months of inflows.
- Foreign institutional investors have sold over Rs 1 lakh crore in stocks since July.
- Market sentiment is supported by consistent domestic investments.
- GDP growth and reforms are critical for future market trends.
New Delhi, Sep 16 (NationPress) Domestic mutual fund inflows have provided a buffer to Indian equities, preventing a drop of 20-30% this year, amid relentless selling by foreign portfolio investors (FPI), stated Christopher Wood, Jefferies' global head of equity strategy.
Wood noted that Indian stocks have lagged behind Asian counterparts due to higher valuations. In an interview with CNBC TV18, he characterized the current situation in the Indian market as a “healthy consolidation,” which may persist until 2025.
August marked the 25th consecutive month of net inflows from domestic investors, with $37.6 billion funneled into equities in the first five months of FY26, contrasted with $1.5 billion outflow from foreign institutional investors.
Wood mentioned that a resolution of US tariffs on India could spark a market rally, although more crucial would be indications of an uptick in India's nominal GDP next year.
Reforms such as rate cuts, GST changes, and income tax reductions announced in the Union Budget could serve as catalysts for economic activity and a potential market uptrend next year, he stated.
Foreign institutional investors (FIIs) have sold over Rs 1 lakh crore in Indian equities since July, affecting market sentiment, but steady domestic inflows have offered support, as per provisional stock exchange data.
The sell-off, driven by poor earnings, stretched valuations, and uncertainty regarding US tariffs, has led to range-bound indices. Between July 1 and September 8, foreign institutional investors sold equities totaling Rs 1.02 lakh crore, with Rs 7,800 crore sold in the initial six sessions of September.
India’s GDP growth rebounded robustly in Q1, with reforms such as budget tax cuts, MPC rate cuts, and GST rationalization poised to sustain growth momentum.
Analysts predict a strong likelihood of over 15% growth in corporate earnings by FY27, likely reversing FPI sentiments.
Point of View
We recognize the significant role domestic mutual funds play in stabilizing the Indian market amid turbulence. While foreign selling raises concerns, the resilience shown by domestic inflows is commendable. It is crucial for stakeholders to monitor evolving economic indicators that could shape the future landscape.
NationPress
20/09/2025
Frequently Asked Questions
How have domestic mutual funds affected the Indian market?
Domestic mutual funds have significantly supported the Indian market, preventing declines of 20-30% despite heavy foreign selling.
What could trigger a market rally in India?
A resolution of US tariffs on India and signs of increasing nominal GDP are key factors that could initiate a market rally.
What is the outlook for corporate earnings in FY27?
Analysts predict a potential growth of over 15% in corporate earnings for FY27, which could positively influence foreign portfolio investor sentiments.
