FII buying, when done at high velocity, causes a sudden market reset. Sentiment reverses swiftly. The market’s attention shifts to focus intensely on what the FII’s are buying. Selling slows down in the parts of the market seeing FII buying. Buying gathers momentum in FII favourites. Momentum gets induced in those stocks in which the FII’s are buying actively and aggressively. Momentum chasers show a willingness to liquidate their existing holdings to buy the FII favourites.

Everybody wants to align their investment with what the FII’s are wanting to do. This shifts the polarity of the market towards FII activity. The current market was largely domestic investor-driven until this trend changed. Everybody was buying smallcaps and midcaps. There was a broader aversion to large caps. Nobody wanted to buy largecaps, as they were seen as slow and winding investment bets.

But all this changed after the state election results and further seems to be consolidating post-the recent meeting of the US Federal Reserve. The market will now reset its expectations based on rate cuts, inflation, and emerging market allocations. With the visibility available on rate cuts, the markets decided to believe the Fed and start factoring in that we could see multiple rate cuts in 2024. This would mean that allocations to emerging markets are more likely to rise. This could potentially trigger a further market reset. Largecaps may be the sudden saviours of the markets. Retail investors may probably rush in with an increased fear of missing out. The indices could potentially see buoyancy, which will further draw in more money into the frontline index.

Overall, we are investing in very interesting times when everybody wants to participate and nobody wants to be left out. Capital will now flow to where the FOMO factor is the highest.

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