The Emergence of DIIs as a Strong Counterforce to FIIs in Changing Indian Securities Market - An Empirical Study

Abstract

The Indian stock market is one of the most dynamic and promising in emerging markets. Domestic institutional investors (DIIs) and foreign institutional investors (FIIs) are the two major players in the Indian capital market. Foreign institutional investors (FIIs) have always been regarded as the primary drivers of the Indian securities market. The growing presence of domestic institutional investors (DIIs) in the Indian securities market is rarely discussed. Meanwhile, FIIs’ stake has consistently declined in recent years, owing to the emergence of domestic institutional investors (DIIs) as a potent counterforce to FIIs with opposing investing and trading strategies in India. The study attempts to investigate the investing behaviour of DIIs and FIIs and their impact on the Indian security market, as well as shed light on the direction of causality between FIIs, DIIs, and BSE Sensex returns. For this purpose, the study employs correlation analysis, the Granger causality test, and the vector autoregression (VAR) model. Our findings show that, at present, FIIs are not the sole drivers anymore; domestic investors can also make the Indian stock market resilient amidst global uncertainties.

Keywords: FIIs, DIIs, Indian Securities Market, Emergence, Counterforce, Causality, BSE Sensex

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