FII and DII are two influential participants in the Indian share market. FII are foreign investors who are not located in India whereas DII constitute domestic investors who are housed within India. These investors consist of Mutual Funds, Pension Funds, and other investors who determine the direction of the Indian stock market in the short term.
‘Foreign Institutional Investors’ or FIIs are international investors who deploy their capital into the Indian capital markets. FIIs can be in the form of independent investors, hedge funds, mutual funds, or any other investment funds that are associated with our Indian stock markets.
These investors invest in the Indian equity and debt instruments but multiple regulations restrict them to a certain percentage of the total market capitalization. This is done to ensure that the markets are not shocked whenever FIIs decide to withdraw a sizeable chunk of money out, at the time of a crisis.
Domestic Institutional Investors or DIIs are Indian institutional investors in the form of Mutual Fund houses, Banking institutions, Pension Funds, etc who invest in the domestic markets. The money that you invest through your mutual fund companies is also considered as DII investments. Therefore, Indian retail investors are also indirectly included under the DII category. Lately, with the increasing financial literacy and mass reach of the stock markets, the investments from the DIIs have grown multifold.
In the Fiscal year 2020-2021, which was until March 2021, FIIs had invested a total of Rs 2.74 trillion or $37 billion in our Indian stocks markets. This kind of investment was the highest in the last 20 years.
The total DIIs investments were also at par with the FIIs, around Rs 20.4 lakh crore, in April 2020.
With such massive buying and selling power of these two bodies, the markets can be highly affected by them. Whenever the FIIs or DIIs purchase or dispose of a particular stock, it is typically with massive volumes. This can affect the stock positively or negatively.
FIIs and DIIs also have advanced research and analysis teams, which are responsible for picking the next best sector or security for investment. Therefore, if you are able to figure out the next target of these giants, you can benefit from investing in those companies.
The everyday buying and selling activity of the FIIs and DIIs is published by the NSE (National Stock Exchange), which can be gauged to determine the side they are on. FIIs buy and sell mostly for the short to medium term, whereas the DIIs typically invest slightly for the longer term. By analyzing the trend of FIIs and DIIs, we can paint a picture of the market condition and utilize it to our advantage.