Domestic Investments Drive Indian Markets Forward Amidst FII Withdrawals, Says Gautam Trivedi

The Indian equity market is experiencing a significant divergence between domestic and foreign investment trends, as highlighted by market veteran Gautam Trivedi from Nepean Capital. While foreign institutional investors (FIIs) continue to withdraw capital, creating a challenging environment, domestic investors have emerged as a stabilizing force for benchmark indices. With approximately $35 billion invested by domestic institutional investors this year, they have offset roughly $22 billion in FII outflows. Trivedi notes that despite foreign investors’ negative perspective on India’s attractiveness—particularly in comparison to AI-focused markets like Korea and Taiwan—domestic participation remains robust, reflecting growing confidence in longer-term prospects amid global economic uncertainty.

The strong inflow of funds into the equity market can be attributed to several factors, including the lack of appealing returns from traditional savings instruments such as fixed deposits and savings accounts. As domestic retail investors increasingly turn to equities, the number of unique investors in India has risen to about 130 million. However, Trivedi underscores that this participation is concentrated in a few states, with over 73% of investors coming from just ten states. This presents a substantial opportunity for equity penetration across the country, as demonstrated by consistent net inflows into mutual funds, even during volatile periods—indicating that domestic investors remain optimistic about future returns despite ongoing economic challenges.

Looking forward, Trivedi identifies promising sectors for investment, including power, hospitality, and exporters. The hospitality sector, in particular, is witnessing significant growth, bolstered by rising domestic travel trends and escalating costs of international vacations. Trivedi also expresses optimism regarding India’s potential competitiveness in global markets, especially as trade agreements with major economies strengthen. Conversely, he cautions against complacency in the IT sector, where traditional firms must quickly adapt to the AI landscape to maintain their relevance and capitalize on emerging opportunities. While current valuations appear attractive, Trivedi emphasizes that the lack of a clear AI strategy among key players could lead to further declines unless they reposition themselves effectively for the evolving market conditions.

Source: The Economic Times

(Expert Note: This report was prepared by the Wealthova team.)