When DIIs sold, FIIs bought and when FIIs sold, DIIs bought. This was almost mistaken for some kind of Yin and Yang phenomenon. Investors and analysts reduced it to a complementary system, where the two counterbalanced each other. This would work well for the overall market. But, the two aren’t complementary enough to create a more dynamic market.

Often, one tends to overwhelm the other and the net effect is to weaken the system. In this case, the system happens to be the Indian market ecosystem. We could soon find out that the DIIs overestimated their ability to provide market stability. To make matters worse, we might face a situation where their indiscretions and indiscipline on the buy side will hurt their own performance.

FIIs have held a steady and stable approach in the past month. They are not seeing value in our markets and are relentlessly selling. Indian investors – institutional, HNI and retail, are living under a fallacy. They believe that they can sidestep the challenges created by overvaluation by simply coming together and buying whatever FIIs offer for sale.

Experience shows that fallacies in stock markets rarely last long and inflict swift and heavy costs on those who are not disciplined enough. This time, Yang could well take Yin down.

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