IUP Publications Online
Home About IUP Magazines Journals Books Archives
     
Recommend    |    Subscriber Services    |    Feedback    |     Subscribe Online
 
The IUP Journal of Applied Finance
Dynamic Relationship Between Institutional Investors and Indian Stock Market: An Empirical Analysis
:
:
:
:
:
:
:
:
:
 
 
 
 
 
 
 

Stock market consists of a variety of investors. Among these, Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) are key parts of investment influx. This paper examines the causal relationship that may exist between institutional investors and Indian stock market by using Granger causality test. The sample consists of 1,194 daily observations on FIIs, DIIs and Nifty returns for five years starting from 2011 to 2015. The individual component of gross purchase and gross sales of FIIs and DIIs are considered to analyze the trading behavior in Indian stock market. CNX Nifty is taken as market proxy of Indian stock market for analyzing with econometric tools. The results find that both institutional investors (FIIs and DIIs) are influenced by each otherís actions in the Indian stock market. The trading behavior of FIIs and DIIs are opposite to each other in Indian stock market. The estimated model also brings out the fact that a movement in market index does influence the FIIs and DIIsí investment pattern.

 
 
 

Stock markets worldwide are influenced by the volume of money that flows into it. Whenever more money is taken out, and poured in, the market shows volatility. Investments of institutional investors play a significant role in the emerging stock markets. Insurance companies, commercial banks, investment banks, mutual funds, etc. are some of the institutional investors who invest in the stock market. In most cases, investments come from institutions stationed in other foreign countries, which otherwise are known as Foreign Institutional Investors (FIIs). In India, particularly after the 1991 liberalization, FIIs were permitted to invest in Indian stock market along with Domestic Institutional Investors (DIIs). In 2014, the Securities Exchange Board of India (SEBI), the stock exchange regulatory body of India, had categorized Foreign Portfolio Investors (FPIs) into FIIs, Qualified Foreign Investors (QFIs), and sub-account of FIIs.

The total number of FPIs registered with SEBI was 8,717 in 2015-16 (SEBI Annual Report 2015-16). The advantage for FIIs is that they can move capital from one country to another. Due to this movement, fluctuation across stock market sometimes causes apprehensions amongst the DIIs. Investment decisions of these investors are influenced by different macroeconomic factors. Interest rate prevailing in one country, inflationary condition, exchange rate, manufacturing activity, etc. are some of the factors that have an impact on their decisions.

 
 
 

Applied Finance Journal