Capitalmind CEO Deepak Shenoy has strongly disagreed with the prevalent notion that the surge in domestic mutual fund Systematic Investment Plan (SIP) inflows has inadvertently provided foreign institutional investors (FIIs) with an easy exit strategy from Indian equities. Shenoy contends that this perspective fundamentally misinterprets how capital markets operate.
Misunderstanding Market Dynamics
Shenoy dismissed the argument that domestic investors, particularly through SIPs, are responsible for foreign investors reducing their exposure to India. He emphasized that if FIIs were merely seeking liquidity, the Indian market provides that freedom to exit, which in turn attracts future inflows.
"I disagree with the notion that SIPs and domestic equity investors are what creates a negative in that foreign investors will leave. If all they were looking for is liquidity, then it's fine, they have it now, and they're leaving; but it's only a market that gives you the freedom and liquidity to leave that attracts future inflows," Shenoy stated on X (formerly Twitter).
He further criticized calls to reduce or halt SIP investments in response to FII selling, labeling them as misguided. "Stopping SIP is a weird way to say that we'll reverse the flows - it just almost ensures that new flows won't enter," he added.
FII Selling and Domestic Buying Trends
Shenoy's comments come amid persistent selling by foreign investors in Indian markets. FIIs have offloaded domestic equities worth Rs 2.22 lakh crore so far in 2026, marking a third consecutive month as net sellers. This month alone, they have sold shares worth Rs 30,374 crore.
On Friday, May 24, 2026, FIIs sold equities valued at Rs 4,440.47 crore. In contrast, domestic institutional investors (DIIs) demonstrated strong buying, purchasing shares worth Rs 6,003.53 crore on the same day.
The Positive Impact of Domestic Ownership
The Capitalmind founder argued that increased domestic ownership of Indian companies should be viewed as a beneficial development, not a risk. He highlighted that historically, foreign investors held a significant portion of non-promoter shares, meaning profits often flowed abroad.
"There's no reason why India shouldn't want that share too, especially as we get richer," Shenoy asserted. He suggested that greater domestic participation could gradually reduce valuation premiums in certain stocks that were previously driven by limited free float and low liquidity. This "illiquidity premium" is likely to diminish over time.
Broader Economic Benefits
Shenoy underscored that the economic advantages of equity investing extend beyond mere stock market returns. He explained that as Indians become wealthier through investments, their increased spending stimulates the domestic economy, aligning with India's growth model driven primarily by internal consumption and investment rather than exports.
Drawing parallels to other structural economic shifts, such as the adoption of GLP-1 drugs impacting sugar usage or electric vehicles reducing petrol consumption, Shenoy concluded that while increased SIP inflows might present challenges for some market participants, they ultimately bolster the national economy.
"More SIP isn't bad for us even if it allows more free outflows, in the longer term. It creates a richer India and already has, and the benefits of that will mean both greater longer-term inflows and more domestic participation in an environment that requires investment," Shenoy concluded.