11.12 FII/DII flows and the Nifty

Definitions

A foreign institutional investor (FII; the regulatory term is foreign portfolio investor, FPI) is a non-resident fund buying listed Indian securities. A domestic institutional investor (DII) is an Indian mutual fund, insurer, pension fund or bank. NSE publishes provisional daily FII/DII net cash-market purchases after the close. NSDL publishes FPI flows by asset class (fpi.nsdl.co.in).

11.12.1Currency arithmetic of FPI returns#

The currency arithmetic of a foreign investor With the Nifty return $R_{\text{INR}}$ and the rupee moving from $S_0$ to $S_1$ INR per USD, the USD return is

1+R_{\text{USD}} = (1+R_{\text{INR}})\frac{S_0}{S_1}. \tag{11.24}

A 10% Nifty fall plus a 5% rise in USDINR gives $0.9/1.05-1 = -14.3\%$ in dollars. A foreign investor who expects rupee weakness therefore demands a higher rupee return. That is the link between oil, the rupee and FPI equity selling.

11.12.2What flow data can show#

Flows and prices: what the data can and cannot show

Contemporaneous correlation between daily FPI net buying and Nifty returns is positive and large. That is partly price impact and partly feedback trading: FPIs buy after prices rise. OLS of returns on same-day flows cannot separate the two (simultaneity).
DII offset. Since about 2020, monthly SIP (systematic investment plan) inflows into domestic mutual funds have given DIIs a steady bid. When DIIs absorb FPI selling, the price impact of a given outflow is smaller. This is visible in 2026: FPIs sold ₹7,536 cr on 27 Feb and for 10 straight sessions in March, while DIIs bought¹.
Inelastic markets. If aggregate equity demand is price-inelastic, a flow of 1% of market cap moves prices by several percent (Gabaix and Koijen, "In Search of the Origins of Financial Fluctuations: The Inelastic Markets Hypothesis", NBER WP 28967, 2021; citation not re-verified this session). This view gives flows a causal role that the efficient-markets view denies.

2026 numbers (all [S]: NSDL was unreachable this session, so these are press reports quoting NSDL):

March 2026 was the largest monthly FPI equity outflow on record. Reported totals conflict: ₹1.12 lakh cr, ₹1.14 lakh cr and ₹1.18 lakh cr. The previous record was ₹94,017 cr in Oct 2024.
January–September 2026 net FPI equity outflow was about ₹3.05 lakh cr. October saw a further ₹48,056 cr out by 25 Oct (newsonair.gov.in).
The Nifty fell from about 25,178 on 27 Feb toward a March closing low of 22,331.40 on 30 Mar². It was at 24,536.6 on 5 Nov [V].

Practitioner notes

Daily provisional FII numbers are noisy and often revised. Use NSDL's custodial data for analysis. Separate primary-market flows (IPOs, QIPs) from secondary selling. Large IPO participation can show FPIs as net buyers on NSDL while they sell in the secondary market.