FMCG, banking, chemicals, are ready for profit on fair assessment in other fields, Vinod Nair of Jiojit Fin Seva says

It was widely expected that domestic flows in India would play a more important role than foreign investments, and it has actually come in fruiting. In the last three to four years, it has increased at a faster speed than domestic investment FIIPowered by a strong financial culture. Today, equity has emerged as an important investment for domestic investors, which is bringing diversity in their portfolio beyond traditional assets like bank deposits, SleepAnd real estate, looking at the stock market as an opportunity for long-term wealth.

In 2024, mutual funds Pure investment of 4.3 lakh crores, while retail reached direct investment 1.2 lakh crores – The highest figures have been seen in India so far. Meanwhile, FII performed silent activity, with a pure outflow, 9,600 crores during the year. The increase in domestic flows in the last 3-4 years has contributed significantly to the strong performance of a preferred investment section, middle and small-cap stocks for retail investors.

This is why the middle and small cap premium, after 2020, flourished. For example, by 2024, the premium valuation ratio of mid-capte had increased from a large cap to 60%, which was three times the long-term average of 20%. This growth was mainly given fuel by strong domestic InvestmentEspecially through mutual fund schemes, targeting the middle and small cap, with direct retail participation.

Despite strong investment in these sections, mid and small-cap stocks have faced a significant decline in the last five months. Retail investors are often most affected when the global market conditions are unstable. So far this year, in the last two months, India’s large-cap stocks have declined by an average of 7.5% on an average, while small-cap and micro-cap stocks have seen a rapid decline of 23–25% on an average.

It was widely believed that strong domestic flows would reduce the historical effect of selling FIIs Indian stock marketThis is correct to some extent for large-cap shares, where improvement by DIIS has become relatively furious compared to the comprehensive market due to strong absorption. Since Fiis has limited performance for middle and small-cap shares, their direct sales pressure in these sections may be forced. However, unprecedented FIIs sell-off-off In the last five months, 2.2 lakh crores, the largest ever, about 20%of the largest market reform has been run.

In 2025, the middle and small cap have been deeply affected due to a decrease in domestic net inflow (table). FIIs continue to sell in India with the same negative power and domestic procurement has signed a contract. Net inflow from MF and retail has decreased in the last 2 months, which has increased the negative side of the sale and reduction of FIIs in stock prices due to lack of demand.

This is because the trust of retail investors is contracting due to the sale issued by FII under the leadership of the frequent consolidation of the global market. Recently, the global risk has increased due to the difference between the US and European ideas about international geopolitics and trade. In Mexico and Canada, 25% tariff uncertainty and an additional 10% ChinaTo be deployed on 4 March, is adding ambiguity to the short term.

Between September and December 2024, despite the sale of heavy FIIs, the Indian market was flexible, supported by strong purchases from mutual funds and retail investors. However, the ongoing global headwind continued pressure on the domestic market, creating uncertainty among retail investors with constant instability.

From a long -term perspective, India has been the best performing emerging market in the last five years, with MSCI India given 17% CAGR. However, in the short term, it has been one of the weakest artists as FIIs continue to book profits. The current effect is more pronounced in areas and shares where income increases lower than a long -term average due to short -term disruption. This has created an opportunity for long -term investors. Given further, it is expected to reduce the speed of earnings, supported by increase in government spending, low interest rates and tax deduction. These factors are likely to promote areas such as FMCG, consumer discretionary, Banking And chemicals, which are trading in fair assessment today.

The author, Vinod Nair is the head of research in Georgit Financial Services.

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