FPI outflow in May is the worst in more than two years

In May, the net DII inflow stood at Rs 50,835.5 crore, according to the data. In other words, domestic institutions have saved the market from deeper cuts.

“It's not that DIIs are doing something which is very unusual. It's just that we are continuously getting inflows. There has been a lot of domestic retail interest that is still continuing. As long as the money is coming in, which is for long term and based on asset allocation, I don't think there is a problem. And we are deploying that on a gradual basis," Harsha Upadhyaya, CIO-Equity at  Kotak Mutual Fund, told CNBC-TV18.

The correction in the Indian market comes at a time when the RBI and other major central banks around the globe have lined up aggressive hikes in pandemic-era interest rates to tackle inflation.

MK Ventures Founder Madhu Kela told CNBC-TV18 that the foreign institutional investor (FII) outflow in his view is not necessarily an India-specific problem and part of a global meltdown.

"However, while there has been such a significant outflow from the secondary market, FIIs have put roughly Rs 1 lakh crore in the primary markets, which is in the offerings that have happened in the same time... Given there is a significant selling that has happened, FIIs, which used to be roughly 22.5 percent of the overall marketcap, have now fallen to below 20.5 percent,” he pointed out.

He also said that the market is far more resilient this time compared to the 2008 financial crisis period. "This time, while the outflows are significant, the market is only down 15-16 percent from the peak,” he said.

As of May 31, the Nifty50 is down 4.5 percent for the year and 10.9 percent from its all-time high, and many experts have warned of overheated valuations in the market.

Upadhyaya sees a silver lining even in the current turmoil on the Street.

"If you look at India, from a 3-5-year perspective, clearly Indian earnings growth is likely to be in reasonable mid-teens. In line with that and if the valuations hold up, equities can still give you very handsome returns. That's what most retail investors are betting on,” he said. 

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