FIIs are movers of the markets. Is there going to be a time when domestic institutional investors are on par with FIIs?
If you know that someone is a seller of a stock at Rs 100, what will be your price for bidding? My guess is Rs 96 or 97, but not 100. And certainly not 101. So, if I know that sovereign funds have to sell, why will I give them an exit?
But do FIIs dominate the Indian market? In August and September, FIIs sold more than what they sold in October and November 2008. In those days you see how much percentage markets corrected and vis-à-vis see how much percentage markets have corrected. By absorbing more selling there is a much smaller correction in the market. It just shows the ability of domestic investors. The market is a congruence of factors where the domestic and FII investors are one and the same. If prices go up, both benefit. If prices go down, both lose. When the Satyam mis-governance issue erupted, the domestic investor was on no different terms than the foreign investor.
As long as these 86 lakh Indians, which I mentioned earlier, keep doing their SIP and it increases, our ability to take on foreigners also increases. But that doesn't mean that they will get a cheap exit. If they are selling something which is worth Rs 100 at Rs 10, I will probably bid Rs 9 rather than Rs 11. So, that's why the markets will be volatile, but we need not be unduly worried about foreigners. Their interests and our interests are aligned and as long as you bring more SIP into equity mutual funds, our ability to fight them keeps increasing.
