Institutional Investors and the Indian Stock Market

Abstract

An attempt is made in this paper to analyze and compare the different institutional investors’ investments in the Indian stock market. The chief categories of institutional investors considered in the study are Foreign Portfolio Investors (FIIs), Domestic institutional investors (DIIs) and Participatory Note investors (PNIs). The results of the study indicate that DIIs are negatively correlated with both PNIs and FIIs while there is a positive correlation between FIIs and PNIs. Further both FII and P-Note investors’ behavior is alike and they are predominantly short-term return seeking investors and fundamental factors are not found to be significantly explaining the changes in these inflows. The INR-USD exchange rate appeared to be the chief determinant of the PNIs and PNIs Granger causes FIIs. However in the case of domestic institutional investments are not influenced by the exchange rate. Further DIIs are not Granger caused by P-Note investments and FII investments. Therefore, it can be concluded that not all institutional investors act alike and the presence of DIIs in Indian market appears to be providing a kind of stability that is much needed in case of a sudden flight of foreign investments triggered by global events.