The staple information which you will hear is that the stock market rose because foreign institutional investors put in more money or that the same investors by selling are taking out money from the market.
Nothing could be further away from the truth. Why?
Because whenever someone puts money in the market that is they buy stocks someone sells it. Therefore the net outflow is always zero. If you buy Rs. 100 Crs of share someone sells you shares worth exactly Rs. 100 Crs. Money Flow= ZERO.
What though matters and is far more important is at what price is any money will to enter. This perception which a buyer or seller has allows the price to go up or down.
In the above example itself if a stock is trading at Rs.1000 and a mutual fund wants to buy Rs. 100 Crs worth of it and thinks that till the stock reaches Rs. 1500 its cheap to buy. Then irrespective of the prices quoted by the seller they will keep buying to hit this allocation. That is what pushes the price up to and not the fact that they have put more money into the system.
Similarly, when someone is selling they have a perception is that if a stock goes above Rs. 1000 it’s expensive and they start selling.
The stock market is not a function of only money flow but its a function of view both sides of the table had.
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