After all the sound and fury in the equity markets, all the ups and downs, all the tall talk about economic recovery, the fact remains that the S&P BSE Sensex is still lower now than where it was at the beginning of September 2014, which is more than two years ago. The Sensex ended Friday’s session at 26,759.23 points. As the chart shows, on 1 September 2014, it was at 26,867.55.

Put differently, the equity market has undergone a significant time correction—a correction where prices don’t go down too much, but the markets yo-yo around a level for an extended period of time.

That is perhaps why the market has been able to take in its stride two significantly negative events late last year—Donald Trump’s election win and the black swan event of the demonetisation of high denomination currency notes—without losing too much ground. Also, the impact of demonetisation on the formal sector, which is what the market is bothered about, is not expected to be much in the medium term.

While foreign institutional investors (FIIs) were on a selling spree towards the end of 2016, thanks to funds going back to the US on expectations of tax cuts and more fiscal stimulus, the gloom didn’t deter domestic institutional investors (DIIs) from betting their chips on the market.

DIIs pumped in more than Rs35,000 crore in calendar year 2016. Mutual fund (MF) houses invested Rs47,954 crore in 2016. DIIs still remain buyers.

According to some market analysts, the beating that most stocks got post demonetization may have been used as an opportunity by DIIs, especially MFs, to buy, since many large-cap stocks were available at reasonable valuations.

“DIIs were buyers in the equity market for most part of year. But retail investments, which typically come through systematic investment plans (SIPs), have shot up quite significantly in the past two months," said Sanjiv Bhasin, executive vice-president, market and corporate affairs, IIFL. Expectations are that this trend—of funds flowing into the market via the SIP route—is likely to continue.

On the other hand, FIIs offloaded stocks worth Rs8,494.77 crore in December 2016. FIIs are still sellers of Indian equities, and may continue to be so for some time. How long can the FII selling continue? “Yes, in the December F&O series, FIIs were sellers and they remain so in January series, too; but the pace of selling has declined. Market is poised to recover," said Chandan Taparia, a technical analyst at Anand Rathi Share and Stock Broking.

All eyes are now on the Union budget and there are expectations of significant tax sops by the finance minister to soothe the nerves of market participants. If such announcements come through, FII outflows could be curbed. Until then, this divergence between FIIs and DIIs is likely to continue. “Though FIIs were sellers, aggressive buying by DIIs acted as a cushion. We expect DIIs to continue to buy and that, too, via SIPs," said Mayuresh Joshi, fund manager, Angel Broking.

Meanwhile, the market has moved beyond demonetisation and has more or less priced in its impact on the gross domestic product (GDP). Apart from that, a delay in goods and services tax (GST) implementation and weak Q3FY17 corporate earnings is also not new and most analysts expect the market be range-bound with a limited downside.

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