The debate around India’s booming SIP culture, foreign investor exits and the weakening rupee has sparked strong reactions across Dalal Street, with many questioning whether rising domestic equity inflows are indirectly enabling foreign institutional investors (FIIs) to cash out of Indian markets.
Amid this growing discussion, market veteran Deepak Shenoy pushed back sharply against the criticism of SIPs and domestic retail participation, arguing that deeper local ownership of Indian equities is ultimately positive for the economy.
“I disagree with the notion that SIPs and domestic equity investors are what creates a negative in that foreign investors will leave. If all they were looking for is liquidity, then it’s fine, they have it now, and they’re leaving; but it’s only a market that gives you the freedom and liquidity to leave that attracts future inflows,” said the Capitalmind Mutual fund CEO.
According to Shenoy, asking Indian investors to stop SIPs in order to discourage foreign selling would be counterproductive because liquidity itself is what makes markets attractive to global investors. He argued that restricting flows or reducing domestic participation would only discourage future capital inflows into India.
Shenoy also highlighted a broader structural issue in Indian markets — foreign investors historically owning a disproportionately large share of non-promoter holdings in listed Indian companies.
He argued that if domestic investors were discouraged from investing in equities, they would likely move money into overseas assets, gold, excessive consumption or low-yield bank deposits — none of which would necessarily help India’s economy or the rupee.
Gold, in particular, stands out in his argument. India remains one of the world’s largest gold importers, meaning higher gold demand directly increases import bills and forex outflows. Yet, Shenoy pointed out indirectly, gold buying is rarely criticised with the same intensity as SIP inflows.
The same logic applies to overseas investing. If Indian households increasingly move savings abroad instead of funding domestic companies, that would hardly strengthen India’s capital markets or currency stability.
He also dismissed the idea that spending excessively on discretionary consumption would somehow be economically superior to disciplined investing.
The great shift in ownership of India Inc.
Shenoy’s most powerful point, however, was not about liquidity. It was about ownership.
For decades, foreign investors owned a significant portion of non-promoter holdings in Indian companies. Which effectively meant that when Indian consumers spent money and Indian companies generated profits, a substantial share of those gains ultimately accrued to overseas investors.
Now, for perhaps the first time at scale, Indian households are beginning to claim a bigger slice of that wealth creation.
“Foreign investors owned most of the non-promoter shares of Indian companies this far. That means when we spend and our companies earn a profit, that profit goes mostly to investors from abroad – there’s no reason why India shouldn’t want that share too, especially as we get richer,” Shenoy said.
That single argument reframes the entire SIP debate.
The rise of domestic investing is not merely about mutual fund inflows or monthly SIP data. It is about Indian savers transitioning from passive consumers to owners of the economy itself.
Shenoy also challenged another deeply entrenched market phenomenon — the “illiquidity premium.” Several Indian stocks, especially multinational companies with low floating stock, historically traded at unusually expensive valuations because very few shares were available for trading. Promoters controlled most of the stock, while FPIs and a small institutional group tightly held the remainder.
As domestic participation deepens, Shenoy believes such distortions will gradually disappear.
In many ways, this is financial democratization playing out in real time. Markets that were once narrow and institutionally controlled are becoming broader, deeper and increasingly retail-driven.
Why progress always creates resistance
Shenoy’s thread went beyond markets and moved into something more philosophical — the idea that every form of economic progress threatens an older economic structure.
If Indians smoke less, tobacco companies suffer. Governments lose excise collections. Tobacco farmers face pressure.
If GLP-1 drugs reduce sugar consumption, sugar companies and politically influential sugar ecosystems lose demand.
If electric vehicles gain adoption, petrol and diesel tax collections decline.
Yet society broadly accepts these changes because the long-term gains outweigh the short-term disruption.
“More SIP isn’t bad for us even if it allows more free outflows, in the longer term. It creates a richer India and already has, and the benefits of that will mean both greater longer term inflows and more domestic participation in an environment that requires investment,” Shenoy wrote.
That may ultimately be the core of this entire debate.
SIPs are not just fueling stock markets. They are changing savings behaviour, ownership patterns and even the psychology of wealth creation in India.
A recent Jefferies report argued that the sharp fall in the rupee over the last two years was not primarily because of India’s current account deficit, but because of weak capital inflows as foreign investors steadily pulled money out of Indian equities. According to the brokerage, domestic mutual fund inflows through SIPs effectively provided foreign institutional investors (FIIs) with a smooth exit route from an expensive market.
The numbers were striking. Jefferies estimated that equity market-driven outflows totalled nearly $78 billion over the past two years, even as Indian markets remained remarkably resilient because domestic investors kept buying relentlessly through SIPs, EPFO, NPS and other institutional channels.
At the same time, the rupee weakened nearly 7% against the U.S. dollar in calendar year 2026, crossing the 96 mark and becoming one of the weakest-performing emerging market currencies during the period.
The brokerage also pointed out that equity mutual fund inflows remained near record highs. AMFI data showed net inflows into existing equity schemes hit ₹38,503 crore in March 2026 and stayed elevated at ₹38,410 crore in April, after the previous record of ₹37,840 crore in October 2024.
That triggered a larger debate on social media and among market participants: are Indian retail investors unintentionally helping foreign investors exit India?
But Shenoy’s argument is that focusing only on short-term currency pressure misses the much larger structural transformation underway: India is slowly becoming a market where Indians themselves own more of India’s future.
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