International Journal of Financial Management

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Relationship Between Foreign Portfolio Investments (FPI), Domestic Institutional Investors, and Stock Market Returns in India


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1 Centre for Economic Studies and Policy, Institute for Social and Economic Change (ISEC), Bangalore, India
     

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The present article attempts to understand the relationship between foreign portfolio investment (FPI), domestic institutional investors (DIIs), and stock market returns in India using high frequency data. The study analyses the trading strategies of FPIs, DIIs and its impact on the stock market return. We found that the trading strategies of FIIs and DIIs differ in Indian stock market. While FIIs follow positive feedback trading strategy, DIIs pursue the strategy of negative feedback trading which was more pronounced during the crisis. Further, there is negative relationship between FPI flows and DII flows. The results indicate the importance of developing strong domestic institutional investors to counteract the destabilising nature FIIs, particularly during turbulent times.

Keywords

Foreign Portfolio Investors, Foreign Institutional Investors, Domestic Institutional Investors and Market Return.
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  • Relationship Between Foreign Portfolio Investments (FPI), Domestic Institutional Investors, and Stock Market Returns in India

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Authors

Dhananjaya Kadanda
Centre for Economic Studies and Policy, Institute for Social and Economic Change (ISEC), Bangalore, India
Krishna Raj
Centre for Economic Studies and Policy, Institute for Social and Economic Change (ISEC), Bangalore, India

Abstract


The present article attempts to understand the relationship between foreign portfolio investment (FPI), domestic institutional investors (DIIs), and stock market returns in India using high frequency data. The study analyses the trading strategies of FPIs, DIIs and its impact on the stock market return. We found that the trading strategies of FIIs and DIIs differ in Indian stock market. While FIIs follow positive feedback trading strategy, DIIs pursue the strategy of negative feedback trading which was more pronounced during the crisis. Further, there is negative relationship between FPI flows and DII flows. The results indicate the importance of developing strong domestic institutional investors to counteract the destabilising nature FIIs, particularly during turbulent times.

Keywords


Foreign Portfolio Investors, Foreign Institutional Investors, Domestic Institutional Investors and Market Return.

References