FIIs have been aggressively buying Indian stocks. How does FII inflow benefit Indian funds?
When FIIs invest more, markets go up and so does the NAV of Indian equity funds. But we don't know how temporary or permanent this is because the converse will also be as true. When FIIs sell more, the Indian markets fall sharply. Their action has a disproportionate impact on the Indian markets because domestic institutional investors like mutual funds and insurance companies don't have flows to support their buying. On the contrary, individual investors in India have been gradually withdrawing from mutual funds driving them to sell. Even domestic insurance companies have not been steady buyers of stocks. With the marginalisation of domestic investors, FIIs have a big influence on the direction of Indian stock markets.