The SIP Flywheel: What Happens to Nifty Multiples When Inflows Reverse

The Steady Buyer Nobody Expected

For most of India's market history, foreign investors were the swing buyer. When they bought, prices rose. When they sold, prices fell. That has changed.

Monthly SIPs (systematic investment plans) have become a huge, steady source of money. In September 2026, SIP contributions reached a record ₹32,490 crore in a single month, and assets held through SIPs stood at ₹17.86 lakh crore, according to AMFI data. In 2025, domestic institutions bought more than ₹7 lakh crore of shares on the exchanges while foreign investors were net sellers. In the March 2025 quarter, domestic institutions came to own more of NSE-listed companies than foreign investors for the first time in over two decades.

That support has an obvious benefit. It also raises a harder question: what happens if it slows?

The Flywheel in Four Steps

1. Investors start SIPs and money flows into equity funds every month.
2. Funds must invest that money, so they buy shares regardless of price.
3. Steady buying supports prices and multiples, which produces good returns.
4. Good returns attract more investors and bigger SIPs, and the cycle repeats.

Each step feeds the next. The same loop can run in reverse: weak returns, stopped SIPs, less buying, lower prices, weaker returns.

Flows Can Move Prices, Not Just Follow Them

Textbook finance says flows should not matter much. If prices rise above fair value, other investors should sell and bring them back. In practice, many investors cannot or will not do this. Index funds and most mutual funds must stay fully invested.

Research on the US market by economists Xavier Gabaix and Ralph Koijen, known as the inelastic markets hypothesis, estimates that each extra dollar flowing into equities raises total market value by about five dollars. India's market structure is different, but the idea carries over: when a large group of buyers is price-insensitive, flows can push multiples well above what earnings alone would support.

The Size of the Flow in Context

At September 2026's pace, SIPs alone bring in about ₹3.9 lakh crore a year (₹32,490 crore × 12). That is more than twice the roughly ₹1.6 lakh crore that foreign investors pulled out of Indian equities in all of 2025, by NSDL's count.

This explains a pattern that confused many observers in 2025: foreign investors sold heavily, yet the market did not collapse. Domestic money was large enough to absorb the selling. The same arithmetic also shows the risk. If SIP flows fell by a third while foreign selling continued, the gap would be large, and prices would have to fall far enough to attract new buyers.

A Worked Example: Same Earnings, Lower Multiple

Illustrative example. An index trades at a P/E of 22. Company earnings grow 12% a year for three years.

• If the P/E stays at 22, the index rises about 40% over three years, or 12% a year.
• If the P/E falls to 18, the index rises only about 15% over three years, or under 5% a year.

Nothing went wrong with the businesses. Earnings grew just as fast in both cases. The only difference is the multiple. An SIP investor who expected 12% a year would get less than 5%, and some would stop their SIPs. That is how a slowing flywheel feeds on itself.

The 2026 Test So Far

2026 has been a real test. After a record high in January, the Nifty fell sharply as crude oil prices surged and global interest rates rose. Foreign investors kept selling. Yet SIP inflows kept rising, reaching their record in September, and net inflows into equity funds rose that month too.

So far, the flywheel has held. SIP investors have behaved more patiently than many expected. The harder test is a long period of flat or negative returns, not a sharp fall followed by a recovery.

Signs That the Flywheel Is Slowing

• The SIP stoppage ratio: SIPs stopped or completed in a month compared with new SIPs registered. A sustained rise is an early signal.
• Net equity fund flows: money coming in minus money going out, excluding new fund launches, which can make inflows look bigger.
• Small-cap and mid-cap fund flows: these categories attract the most return-chasing money and would likely slow first. In September 2026, small-cap funds still drew the largest inflows of any equity category.
• Lumpsum investments: these are more sensitive to mood than SIPs.

All of these are published monthly by AMFI.

Limits of the Argument

• SIPs are sticky. Many investors set them up for years and do not watch the market.
• Other domestic money is growing too. Insurance, EPFO and NPS flows add steady demand.
• Earnings can catch up. If profits grow fast enough, multiples can fall while prices still rise.
• Lower prices help those who keep going. An SIP buys more units when prices are low. Investors who continue through a weak market lower their average cost, which improves their later returns. If enough investors understand this, falling prices could slow stoppages rather than speed them up.

Habits for Tracking Domestic Flows

1. Read AMFI's monthly data for SIP flows, stoppages and category flows.
2. Compare domestic buying with foreign selling using NSDL and exchange data.
3. Split index returns into earnings growth and change in P/E.
4. Ask what multiple earnings alone would support, without flow support.

The Reframe

Steady domestic flows have changed who sets prices in Indian markets. That is a strength, as long as investors remember that a multiple supported by flows is only as stable as the patience of the people behind them.