🐃 Positional Stock View 🐻

Forwarded message.👇🏼 Worth reading. Domestic MF Assets Surpass FII Holdings for the First Time (1) SIP inflows suppress nominal volatility, sustain high PEs, and crowd out value buyers & FIIs (2) “Stability is destabilizing” when redemptions come, and the collapse can be swift. Historic Asset Crossover NSDL data shows that for the first time ever, domestic MF assets (debt + equity) surpassed FII holdings. With sustained SIP inflows, from Sept 2024 to June 2026, MF equity assets have increased 23%, while FII equity holdings have dropped 12%. How SIP Flows Distort Markets a. Monthly SIP inflows simply reinforce whatever the last market price was, and provide an additional bid over that price. The SIP investor does not care whether a stock’s PE is 15 or 150. b. This “perpetual” additional bid expands PE multiples. Value buyers and smart money (FIIs) are thrown out of the game because market gives them no chance of value buying. FIIs eventually exit in search of value elsewhere. c. Domestic MFs are forced to buy at any price because they have a mandate to invest SIP money. This ensures artificial price stability, even when the FIIs exit at high valuations. d. Economists say this “stability is destabilizing” because it hides underlying macro risks and lures people to invest at any price. e. Passive SIP inflows do not eliminate risk; they only change the nature of risk. Market loses depth because value-conscious buyers and FIIs are crowded out of the market. f. When sudden trend reversals come due to any internal or external factors, the suppressed volatility turns violent like a pressure cooker blast. Since no buyers have been left below the artificial floor, the collapse occurs incredibly fast when the floor breaks. Mathematical Proof of Risk a. If you put ₹10,000 as monthly SIP into a mutual fund, the MF manager has to deploy that new inflow into the market. To do that, he must convince someone else to sell. He can only convince if he offers to buy at a higher price. b. Now when the MF manager has raised the bid for a particular stock (to deploy ₹10,000), this price increase has a contagion effect on the market sentiment. Prices of other similar stocks also go up in similar proportion. c. This is known in economics as the multiplier effect. Economists have mathematically shown that stock market has a multiplier effect of 3x to 5x. (Several studies are available on this subject, including the famous “Inelastic Market Hypothesis” developed by Harvard & UChicago economists.) d. 3x multiplier means: For every ₹100 of SIP money that flows into the market, the total market capitalization of all stocks combined increases by ₹300. One-sided monthly buying inflates the market like a balloon. e. The balloon eventually stops inflating when smart money starts exiting at peak valuations. At that point, SIPs serve as exit liquidity for FIIs. f. The same math of 3x multiplier also applies to the downside. If at some point, global or domestic factors cause a crash, and SIP investors make panic redemptions of ₹100, the stock market capitalization plunges by ₹300. Same contagion effect in reverse. Endpiece: Retail Strategy a. While SIP money is flowing in, get rid of any high-beta, story-driven stocks whose valuations don’t match with fundamentals. In a downturn, these stocks will knock 30-50% off the price. Munger’s Rule: “Do not own things you’ll be forced to sell when volatility arrives.” b. If you own genuine stocks that are down 30-50% from your buying price, don't worry. The stock will recover. Buffett says: “The true test is what happens if stock market shuts down for 5 years? Will it affect the business you own?” If your stock passes that test, then don't check its price every day; just enjoy life. c. If you own a wrong stock where the thesis has changed, sell it even if it is down 30-50%. Your stock does not care what price you paid. A loser stock will never give returns except death by a thousand cuts. Simply exchange it for a winner, get on track to recover losses, and reclaim your joyful life. Fwded