SENTIMENT
A good way to measure sentiment is use FII, DII and MF Flows into Indian equities.
Foreign investors have been structurally positive on India. So while there are short term instances where they took out money, they have always returned back. So whenever FII flows were negative, it was a great time to invest in Indian equities.
Now currently the FII flows for the last 12 months are negative!
Pointing and Calling on FII Flows: Negative FII flows usually indicate strong 2 year returns.
DII flows have been very strong in the past few years which is also supporting the higher valuations. But a large chunk of the money came during 2017, which means for those investors the returns would be dismal (more dismal if it went to mid and small cap segment). So we need to monitor the DII flows very carefully.
It is currently supported by strong equity MF flows and SIP culture.
Pointing and Calling on DII Flows: Strong DII flows (primarily from MFs + SIP culture) were supporting higher equity valuations. However, early signs of fatigue visible. Needs to be monitored.
