FIIs Investments and DIIs Investments in India – A Causality Study

There has been a dramatic increase of portfolio flows from institutional investors into Indian stock market, with professionally managed investment funds taking the lead. Foreign institutional investors have played an important catalyst role in the improvement of the institutional infrastructure of Indian capital market. This has undoubtedly contributed to the most recent development in which domestic institutional investors have started playing an increasingly important role. There have been many instances where DIIs pouring money into Indian stock markets at a time when FIIs are rushing for the exit and such startling calls of DIIs have been highly accurate under many circumstances. The present study aims at analyzing the co-integration and consequently to find both long run and short run causal relationship i.e., unilateral or bilateral between foreign institutional investors’ investments and domestic institutional investors’ investments in India.