It's commonly believed that the stock market goes up when FPI's, FII's and DII's pump in their investment and it goes down when they book profits. Among the two, FPI and DII, investors give more weight age to how FPI's or FII's are behaving in the market. A positive net investment by FPI is considered a bullish signal and a negative net investment by FII is considered bearish. Stock researchers, stock analysts and broking houses watch FPI trading data or FII trading data very keenly. While it's true that FPI investment data or FII investment data in India influences the stock market, the correlation is not one to one. The amount of influence FPI investment in equity or FII investment in equity has on the stock market is debatable, but one cannot ignore the financial muscle of these players for sure. Keeping their financial power in mind, it does make sense to follow the footsteps of FPI's and FII's. As we all know, FIIs are not interested in managing the company and they only seek the part of profit the company makes. This is possible only in one condition i.e. they invest in fundamentally good companies and hence their investment decisions are backed by deep analysis. As a smart investor, one can analyse the net investment data of FPI or FII on a daily (for short term traders) and monthly (for investors) basis to gauge overall FPI sentiment or FII sentiment about Indian stock market. Please see the FPI investment chart below which presents FPI net investment data or FII net investment data on a daily basis together with Nifty levels. The data source is NSDL website (https://www.fpi.nsdl.co.in/web/Reports/Latest.aspx) which publishes the consolidated data using inputs from http://nseindia.com/ and SEBI. We encourage the investors to track this data as it will help them in taking more informed investment decisions.
We have talked a lot about the FPI investment in NSE companies above, but we should not ignore the DII investment activities as they are the one who absorb the shock of relentless selling and buying of FPI's/FII's in Indian equities. DII investments in Indian equities are equally important as the investment decisions they take are also backed by quality research and sometimes they beat the FII's at analysis game. Please use the chart below to track DII investments on a daily basis in Indian equities together with nifty levels. We recommend investors to use the DII daily activity chart or DII daily investment chart along with the FPI daily activity chart or FII daily investment chart presented above.
When we talk about FPI investment/FII investment/DII investment, we can safely assume that the financial muscle they possess has the potential to drive the overall market trend (either up or down). Most of the time, the FII market activity and DII market activity are in the opposite direction where in one is the net buyer and the other is the net seller. But on some days or some months FPI activity and DII activity can be of same nature i.e. both of them are net buyers or net sellers. The period (either in days or months) for which both of them are either net buyers or net sellers is more significant while deciding the overall market trend. When both are buyers, it’s more likely that the market will go up in the near term and when both are net sellers, chances of down trending market is more likely. So it's better to study FPI/FII data and DII data together in order to draw inferences about market trends. Please see the chart below, wherein we present the combined FPI market activity data and FII market activity data. This chart can enable investors in taking more informed decisions about the overall market trend.
Investors with a long term perspective should focus more on FPI monthly market activity data or FII monthly activity data. If the FPI investment or FII investment is growing month on month, it’s a very bullish sign and if it’s decreasing on a monthly basis, it’s a very bearish sign. Please find below the FPI monthly investment chart which investors can study to take long term investment decisions.
Investors with a long term perspective should also focus on DII monthly market activity data. As with FPI data, if the DII investment is growing month on month, it’s a very bullish sign and if it’s decreasing on a monthly basis, it’s a very bearish sign. Please find below the DII monthly investment chart which investors can study to take long term investment decisions. It’s advisable to use DII monthly investment chart along with the FII monthly investment chart.
If you want to read more about this topic, you can read our article How to benefit from FII activity in stock Market
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