Never mind the FII selling

Over the last decade, the Indian economy has grown much faster than most other large nations despite facing numerous global and local challenges. The Indian economy has emerged from many of these obstacles stronger than before. India's dominance in the previous decade is evident from its contribution to global market capitalisation, which increased from about 2.5 per cent in October 2014 to around 4.3 per cent in October 2024.

This also means that if you are a global fund manager actively seeking opportunities across the world's equity markets, it is now impossible to overlook India, given its approximate 8.5 per cent weight in world market cap excluding the United States. When a country has such a significant weight, you must take an active stance—whether overweight, underweight, or neutral.

Recent activities of DIIs and FIIs

FIIs (foreign institutional investors) have been net sellers in Indian equities over the last three years, particularly after the recent outflows observed in the past 45 days (from October 1, 2021 to November 14, 2024). DIIs (domestic institutional investors), on the other hand, have been consistent buyers, with retail participation growing multifold in the last three to four years, as reflected in the surge of new demat accounts and mutual fund SIP flows. As a result, FII ownership in the listed Indian equity market is at a near-decade low as of September 2024.

India: A dominant player in the Emerging Market basket

India receives approximately three-fourths of its FII/FPI flows via a 'non-dedicated route,' meaning that FIIs typically invest in a basket, such as Global Emerging Markets (GEM), with the Indian equity market receiving a proportional share of flows based on India's weight in that basket. India's weight in the MSCI EM (Emerging Market) Index has increased from 8.1 per cent in October 2020 to 18.8 per cent in October 2024. This significant rise reflects various factors, including the steep underperformance of China, the exclusion of Russia from the MSCI EM Index, favourable regulations, and India's resilient macroeconomic and corporate sector performance.

This shift implies that even if FIIs invest the same amount in the EM basket as they did four years ago, India will still receive double the inflows. Such increased allocations create a supportive environment for the relative performance of large-cap and larger mid-cap stocks in India.

To sum up

India is not only one of the fastest-growing nations but also one that is expanding with scale. Globally, we are in an environment marked by unfavourable inflation dynamics, a slowing Chinese economy, and persistently high geopolitical risks. In contrast, India's macroeconomic conditions are relatively healthier, supported by strong domestic consumption, a resilient financial system, and robust policy frameworks.

Beyond the near-term challenges, the fundamental case for investing in India remains as compelling as ever. The country's favourable demographics, ongoing structural reforms, and push for digital and infrastructure development provide a solid foundation for sustainable long-term growth. In an era when much of the global economy is grappling with a slowdown, India stands out as an oasis in the desert, offering a unique blend of growth and resilience for investors.

Manuj Jain, a CFA charterholder, is a Director and Head of Product and Strategies at WhiteOak Capital Asset Management Company. He has been with the company for three years and has over 16 years of experience in asset management. Part of the WhiteOak Capital Group, WhiteOak Capital Asset Management Company is the sponsoring entity of WhiteOak Capital Mutual Fund.

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