Flows decide sentiment. There are two components to flows – domestic and foreign. FIIs are always usually leaders in determining the direction of flows. They lead and domestic investors follow. So, the market takes cues from FII flow patterns. When foreigners decide to invest more money into a market, they impact flows significantly. The last few months have seen FII inflows. Domestic fund flows have been weakening and one senses the domestic investors may even cause outflows. The funds seem to fear that too and this explains matching of their selling against FII buying.

But, 2020 maybe a very different year. Flows may take a different path next year. This heavily depends on the budget’s ability to create global investor interest. Domestic retail investors are tiring and they have a track record of not being in equity beyond three years. We need their selling to be absorbed and further buying should help drive broader markets towards a better place. Investing now in the stock universe outside the nifty has to be thematic, smart and selective.

One thing remains absolutely certain – investing will become tougher in 2020 than it was in 2019.  Catching a winner is going to depend more heavily on conviction now. We don’t have too much time left to build conviction in the right themes. Once convinced, we need to ensure that we buy enough of them and rightly align our portfolios for 2020 and beyond.

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