The question is why the market is reacting so sharply if India’s underlying macroeconomic position is not as weak as the sell-off suggests.
In an interview with CNBC-TV18, Mistry pointed to three factors behind the recent pressure: rising US Treasury rates, crude and external-balance concerns, and uncertainty over whether domestic flows can continue to support the market in the same way.
His broader argument is that these factors are creating significant short-term pressure, but do not necessarily point to a long-term problem for India.
Why are Indian markets under pressure?
Mistry’s starting point is the rise in US Treasury rates, which he describes as the “mother curve”. In his view, other markets have to respond when US rates move higher, making India particularly vulnerable to the change in global rates.
The impact is not limited to interest rates. Mistry also pointed to crude and the situation that prevailed in March, which he said remains relevant. He also highlighted the upcoming Rabi sowing season and said investors need to consider what else may have to be factored in, apart from the balance-of-payments hole that has already been plugged.
The third factor is domestic flows.
Indian equities have benefited from domestic money, but Mistry believes the market may now be pricing in the possibility that those flows could change. The sectors and parts of the market that are reacting, he said, are reflecting that concern.
Together, these factors have created the conditions for the recent sell-off. But Mistry does not see them as evidence that India’s broader macroeconomic position has deteriorated sharply.
Why are higher US rates leading to FII selling?
The first link is valuation.
When US rates rise, investors can price in a higher cost of equity for Indian companies. That results in a lower valuation for the same businesses.
There is also a broader emerging-market versus developed-market allocation question. If investors reduce their exposure to emerging markets, India can become an easier market to sell because of the size and liquidity of its market.
“In the EM-DM debate, if the EM share is reducing, the easiest market to sell today is India,” Mistry said.
He also sees an element of investor behaviour in the current selling. Previous episodes of rising US rates, including around 2013 and 2018, resulted in sharp falls across emerging markets.
That can create a knee-jerk reaction among investors who see a similar trigger today and expect a similar outcome.
Mistry’s point, however, is that the India of 2026 is not the India of 2013.
Why Mistry says this isn’t another 2013
The 2013 comparison is important because India was among the markets badly affected during that period. But Mistry believes the country’s position today is substantially stronger.
He pointed to India’s external balances and import cover as key differences. He also compared India with the other countries that were part of the “fragile five” at the time.
According to Mistry, two of those countries are now worse off than they were in 2013. The other two are better than they were then, but still worse off than India.
For him, the current market reaction is therefore partly a case of investors drawing a historical parallel that does not fully fit today’s circumstances.
“It’s just that knee-jerk reaction of knowing that, you know, this happened in the past, so this will more likely happen,” he said.
Mistry also said that, apart from net FDI, almost every other number he looks at points to a reasonably decent picture.
That is why he does not see the current pressure as a long-term macroeconomic problem.
The size of the rate move is another reason for his relatively constructive view. Mistry has argued for some time that rates could move higher rather than lower, but does not expect the increase to be particularly large.
“I don’t think this is going to be even a 100-basis-point rate hike,” he said.
In other words, his concern is less about the existence of a rate hike and more about how investors are interpreting its implications for Indian assets.
Why Mistry prefers large caps over small caps
The market correction also raises a separate question: if FIIs are selling while domestic investors continue to provide support, should investors move away from large caps and towards smaller companies?
Mistry’s data suggests why that argument has gained traction.
Across nearly 3,000 companies tracked by his team, FII ownership is around 16.3%, while individual or domestic ownership, excluding mutual funds, life insurance and similar categories, is a little over 13%.
The picture changes further down the market-cap spectrum. Beyond the first 250 companies, Mistry said retail ownership is more than twice FII ownership.
That has led to the argument that FIIs can only sell what they own, while domestic investors are continuing to put money into smaller companies. On that basis, investors could favour small and mid caps, or even small and micro caps, over large caps.
Mistry’s view is different.
He believes earnings and EPS growth are more important over longer periods than the flow-driven narrative around a particular part of the market.
“Over longer periods of time, EPS and earnings growth has been a far better predictor of where share prices go,” he said.
The recent market performance is part of his argument. Mistry said FIIs sold around $75 billion during 2024-25 and the first half of 2026, while retail investors put in around $125 billion. Yet small caps underperformed large caps between September 2024 and March 2026, when the market made a high.
For Mistry, that weakens the argument that domestic flows alone can keep smaller companies outperforming over the long term.
As a result, Buoyant Capital has been favouring larger companies in recent months.
“Our allocation clearly has been to larger caps over the past few months,” Mistry said.
He also sees value in selected sectors, rather than making a broad allocation to smaller companies simply because domestic flows have remained strong.
What does Mistry’s view mean for the market?
Mistry’s argument is not that the sell-off is necessarily over. His point is that the market’s reaction needs to be viewed against the underlying fundamentals.
Higher US Treasury rates, FII selling and concerns around domestic flows are creating pressure, but he does not believe they amount to a repeat of India’s 2013 situation.
At the same time, his preference for large caps reflects a longer-term focus on earnings rather than the direction of investor flows in the short term.
That is why, even as the market goes through a period of significant pressure, Mistry sees the current phase as closer to “peak pain” than the beginning of a much deeper macroeconomic problem.