FPIs are irrelevant.

"After a steep fall of over 23% in March 2020, the Sensex and Nifty recorded their best monthly gain of 2020 in April. As indices recovered 15%, the FPIs turned net sellers, to the tune of Rs 6,884 crore (Rs 68.84 billion) during the month," wrote Aprajita Sharma. In 2021, net foreign portfolio investor (FPI) inflow was around Rs 26,000 crore (Rs 260 billion), down 84% compared to 2020, but "The Sensex and Nifty rallied over 24%, the best gains in four years." FPI ownership of Indian equities has slipped from above 20% since "the fourth quarter of 2012-13 to 18.4% as of 31 December 2021. The reason for the exuberance of our stock markets is, "An army of retail investors - led by savvier 20- and 30- somethings - bought and sold shares frantically during the year as the bull run gave them an opportunity to make money in stocks at a faster pace than traditional asset classes," ET. The number of demat accounts, which hold shares in 'dematerialized', or electronic form, instead of physical certificates, more than doubled from 36 million in 2018-19 to 74 million by the end of November 2021, ET. The problem is that "Several newcomers in the market who want to speculate are buying options because they think it's cheaper," said B Gopakumar, MD, Axis Securities. "When they lose their capital, 95% of them do not come back." The Sensex hit its highest ever level of 62,245.43 on 19 October 2021, BS. "As of 17 December, the Sensex has given a return of 19% during 2021," wrote Vivek Kaul. But "Much of the action happened beyond Sensex stocks. Take the case of the BSE Small Cap Index, which has gone up 57% this year (after going up by 32% in 2020)." A similar story is playing out elsewhere too. "Sri Lanka is facing a debt crisis, and yet its stock market is up more than 60% in the last year," wrote Alison Schrager. "The US Federal Reserve will tighten policy at a much faster pace than thought a month ago to tame persistently high inflation," Reuters. Higher rates in the US are supposed to be bad for emerging markets and, "Yet, emerging market funds are up 25% from before the pandemic. Yields for low-quality BBB-rated bonds are less than inflation." Government bonds are taken to be risk-free because one is certain to get one's investment back. Central banks have been buying bonds to drive up prices so that "Since 2008 financial crisis, the real (inflation-adjusted) risk-free rate has been consistently negative, and now it's even more so." "But if interest rates do suddenly rise either from persistent inflation, Fed policy or concerns about debt, markets could get shocked back to reality." So, are FPIs irrelevant to our markets because of the euphoria of domestic investors? What happens to the rupee if FPIs are significant sellers? With foreign exchange reserves of $632.73 billion, ANI, there should be no anxiety. Why then did the government borrow $17.86 billion from the IMF to meet balance of payments (BOP) obligations in August 2021? Mint. A record $256 billion foreign debt will come up for repayment in the next 12 months, ET. Non-resident Indians deposited $2.6 billion for April-November 2021, down 62% from $7 billion in the corresponding period a year ago, ET. If crude oil breaches $100 per barrel, HT, and the rupee weakens, retail prices of fuel, already at record levels, could skyrocket. Foreign exchange comes from foreign countries. So, FPIs matter.