Domestic institutional investors’ integration with Nifty 50 in the Indian equity market

  • 9 Views
  • 3 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

Type of the article: Research Article

Abstract
Foreign institutional investors (FIIs) have traditionally dominated the Indian equity markets. However, since 2020, the landscape has significantly transformed as the registered investor base at the National Stock Exchange, India, has tripled. This phenomenon is driven by the COVID-19 pandemic and the rise of ‘influencers’ or easy access to financial knowledge. This study investigates the long-term and causative relationship between the Nifty 50 index and the net flows of domestic institutional investors (DIIs) in the Indian stock market, using daily data from April 2017 to March 2022. Employing the Augmented Dickey-Fuller (ADF) test, Johansen cointegration tests, and Granger causality analysis, the findings reveal a long-term cointegrated relationship between the Nifty 50 and DIIs’ daily flow, both before and after COVID-19. The results reveal a bidirectional Granger causality between the Nifty 50 and DIIs (p-value < 0.02) and NIFTY 50 and FIIs (p-value < 0.00) in the post-COVID era, a shift from the unidirectional pattern observed pre-COVID between NIFTY 50 and DIIs. This indicates that traders and analysts may use DII flows as a leading indicator for NIFTY 50 movements. Studying DII’s interaction with the Nifty 50 index helps assess whether their investment patterns drive market movements or are reactive to them and highlights the resilience of Indian markets to external shocks.

view full abstract hide full abstract
    • Table 1. Results of descriptive statistics (pre-COVID)
    • Table 2. Results of descriptive statistics (post-COVID)
    • Table 3. ADF test results
    • Table 4. Johansen cointegration test results
    • Table 5. Granger causality test results
    • Conceptualization
      Sushant Malik, Jeevan Nagarkar, Nisha Bharti
    • Investigation
      Sushant Malik, Jeevan Nagarkar, Nisha Bharti
    • Methodology
      Sushant Malik
    • Software
      Sushant Malik, Hrushikesh Padhi
    • Validation
      Sushant Malik, Jeevan Nagarkar, Nisha Bharti
    • Writing – review & editing
      Sushant Malik, Jeevan Nagarkar, Nisha Bharti
    • Data curation
      Jeevan Nagarkar, Hrushikesh Padhi
    • Formal Analysis
      Jeevan Nagarkar, Nisha Bharti, Hrushikesh Padhi
    • Project administration
      Jeevan Nagarkar
    • Supervision
      Jeevan Nagarkar, Nisha Bharti
    • Writing – original draft
      Jeevan Nagarkar, Hrushikesh Padhi