How DXY currency momentum and US Treasury yield shifts dictate FII allocations and liquidity flows across Indian markets.
Global Liquidity Gravity and Domestic Equities
While domestic fundamentals dictate stock selection, global liquidity regimes dictate foreign institutional capital flows and currency volatility.
The Transmission Mechanism
- US Dollar Index (DXY) Inverse Correlation: A softening dollar historically triggers capital rotation into emerging market equities.
- 10-Year US Treasury Yields: Higher risk-free yields in the US reduce the foreign equity risk premium, impacting high-valuation growth names.
- The Domestic Cushion: Systematic domestic retail SIP inflows (surpassing ₹25,000+ Cr monthly) have structurally transformed Indian equities, dampening the impact of sudden foreign exits.