The current market context is very interestingly poised. On one hand, FIIs have relentlessly sold nearly Rs. 23,000 Crores of Indian equities in this financial year. On the other hand, domestic investors, specifically retail, have absorbed this selling and moved into a more bullish stance on midcaps, small caps, and microcaps.

Market watchers who were cautious about this trend’s sustainability, are now quite puzzled by the strength of the buying. For some, this seems like a momentum trade. Others believe this will last as long as the liquidity supports. Recency bias heavily influences most of these perspectives. Most people tend to see the markets from what they want it to do for them.

This tendency is also reflecting in the popular narratives. We find a very different setting where retail investors are completely drawn into these narratives and are even more optimistic than institutional investors.

We will see narratives turn, investor expectations change, and market preferences change. When such change happens, it is very much possible that the positions of FII’s and retail investors will change places. We are clearly investing in very interesting times.

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