If you’ve been watching Indian markets closely, something feels different. Bad news does not hit the way it used to. Global sell-offs, foreign exits, macro uncertainty – earlier, these would lead to sharp corrections. Today, markets dip, but they recover quickly.
That change is not accidental. It comes from a shift in who is supporting the market.
For years, foreign institutional investors (FIIs) drove market direction. Now, domestic institutional investors (DIIs), backed by mutual fund and SIP inflows, have taken that role. This shift has quietly changed how markets behave.
Stability Is Coming From a Steady Buyer
What sets domestic money apart is that it keeps coming in steadily.
Foreign flows move with global factors – interest rates, risk sentiment, currency moves. Domestic inflows don’t react the same way. They continue regardless of whether markets look expensive or global conditions turn negative.
That creates a steady layer of demand. When selling comes in, there is someone on the other side to absorb it. That’s why corrections don’t extend the way they used to.
But it’s important to be clear about what this means. The market feels stable not because everything underneath is strong, but because there is continuous buying supporting prices.
What Data Tells Us
If you look at performance data, you can see this stability showing up.
PMS strategies have delivered around 60–62 basis points of excess return per month, with nearly 70% of them outperforming benchmarks. What’s more important is that this has happened without taking much higher risk.
At the same time, AIFs show a wider spread of outcomes. Their average excess returns are closer to 50–52 basis points, and performance varies a lot depending on the strategy. Put simply, outcomes across the market are not uniform – but prices have remained relatively steady. That’s usually a sign that liquidity is playing a strong role.
Where the Discomfort Starts
This is where things get slightly uncomfortable.
Even when performance varies across strategies and external conditions are not ideal, markets continue to hold up. That suggests prices are being supported by flows more than by underlying earnings strength. This doesn’t mean markets are mispriced. But it does mean that liquidity is doing more of the work than fundamentals right now.
The Limits of This Support
There’s also a practical side to this.
Domestic money is not sitting idle – it is being actively invested. That means there isn’t a large buffer waiting on the sidelines to step in if selling increases.
So the system works as long as inflows keep coming in steadily. But it becomes more sensitive if those inflows slow down, because there isn’t excess liquidity to absorb shocks. That’s an important shift. Stability is now tied to continuity of flows, not surplus capital.
A Market Supported From One Side
Another way to look at it is balance.
Right now, domestic investors are consistently buying. Foreign investors, on the other hand, are more cautious and not always present.
This creates a one-sided structure. And one-sided structures work well – until the dominant side weakens. If domestic inflows slow, there isn’t an immediate second buyer to step in. That’s when markets can start reacting more sharply again.
The Human Element Behind the Flows
A large part of these domestic inflows comes from retail investors investing through SIPs.
These flows are steady, but they are not mechanical forever. They are influenced by how investors feel about markets.
As long as returns are reasonable and markets are stable, money keeps coming in. But if returns stay muted for a while, or if there is a sharp correction, behaviour can change. Not suddenly, but gradually. And even small changes matter, because markets are currently supported at the margin by these flows.
So, Is This Stability Misleading?
Not really. Domestic inflows have genuinely made Indian markets more resilient. They’ve reduced dependence on foreign capital and softened volatility.
But the stability is not unconditional.
It depends on the flows continuing at the same pace. It can also mask underlying gaps between valuations and earnings. So what you’re seeing is real – but it’s also flow-driven stability.
The author is Co-founder & Executive Director, Prime Wealth Finserv. Views expressed are personal.