The net fund inflow from the Foreign Institutional Investors (FII) as well as from the Domestic Institutional Investors (DII) in equity and debt segment is one of the leading fundamental indicators of market movement in India. Being a part of BRICS countries, India is always been one of the favorite market to invest for the FIIs. Until USA & China market recovers properly from the recession affect, India is going to be the one of the favorable hunting ground for these investors.
This paper is an attempt to show the relation between FII & DII inflows and change in Nifty for the year ended 2010-11.
· Correlation between Nifty & FII net inflow in the year 2010-11
Month | FII investment(in cr) | Nifty( As on 31st) | Change in Nifty(MoM%) | |
2010 | Apr | 2667.37 | 5278 | 0.552486188 |
May | -12071.1 | 5086 | -3.637741569 | |
June | 7713.95 | 5312.5 | 4.453401494 | |
July | 8541.06 | 5367.6 | 1.037176471 | |
Aug | 7537.3 | 5402.4 | 0.648334451 | |
Sep | 22475.64 | 6029.95 | 11.61613357 | |
Oct | 14388 | 6017.7 | -0.203152597 | |
Nov | 5350.87 | 5830 | -3.119131894 | |
Dec | -722.19 | 6134.5 | 5.222984563 | |
2011 | Jan | -8903.6 | 5505.9 | -10.24696389 |
Feb | -7213.39 | 5333.25 | -3.135727129 | |
Mar | 7976.89 | 5833.75 | 9.384521633 |
Data Source: www.moneycontrol.com
Correlation(FII,Nifty) | 0.715183 |
Inference: The degree of correlation between net FII inflow & change in NIFTY is around 71% which is a fairly high degree of correlation.
· Correlation between Nifty & DII net inflow in the year 2010-11
Month | DII investment(In cr) | Nifty( As on 31st) | Change in Nifty(MoM%) | |
2010 | Apr | 2190.66 | 5278 | 0.552486188 |
May | 6361.19 | 5086 | -3.637741569 | |
June | -4777.05 | 5312.5 | 4.453401494 | |
July | -6271.92 | 5367.6 | 1.037176471 | |
Aug | -4552.68 | 5402.4 | 0.648334451 | |
Sep | -11886.63 | 6029.95 | 11.61613357 | |
Oct | -11812.9 | 6017.7 | -0.203152597 | |
Nov | 2468.82 | 5830 | -3.119131894 | |
Dec | 634.99 | 6134.5 | 5.222984563 | |
2011 | Jan | 5237.14 | 5505.9 | -10.24696389 |
Feb | 6030.9 | 5333.25 | -3.135727129 | |
Mar | -37.93 | 5833.75 | 9.384521633 |
Data Source: www.moneycontrol.com
Correlation(DII,Nifty) | -0.58372 |
Inference: As shown above, the correlation between DII net inflow & change in NIFTY is - 58%. The correlation is fairly significant and it shows nonetheless, an inverse relation between DII buying-selling and market movement.
· Correlation between FII & DII investment in the year 2010-11
Month | FII investment (In cr) | DII investment(In cr) | |
2010 | Apr | 2667.37 | 2190.66 |
May | -12071.12 | 6361.19 | |
June | 7713.95 | -4777.05 | |
July | 8541.06 | -6271.92 | |
Aug | 7537.3 | -4552.68 | |
Sep | 22475.64 | -11886.63 | |
Oct | 14388 | -11812.9 | |
Nov | 5350.87 | 2468.82 | |
Dec | -722.19 | 634.99 | |
2011 | Jan | -8903.6 | 5237.14 |
Feb | -7213.39 | 6030.9 | |
Mar | 7976.89 | -37.93 |
Data Source: www.moneycontrol.com
Correlation(FII,DII) | -0.914964334 |
Inference: As shown above, the correlation between FII & DII investment is - 91%. The correlation is highly significant and it shows nonetheless, an strictly inverse relation between FII & DII cashflow.
The study reveals the fact that India is still a safe market to invest because of the highly negative correlation in between FII & DII movements which reduces panic in market. At the same point of time, it is to be noticed that retail investors are more biased towards FII movements than that of DIIs because of the volume and effectiveness & global valuation of the FII investment.
