THE ROLE OF FII AND DII FLOWS IN SHAPING NIFTY PERFORMANCE: AN EMPIRICAL STUDY USING TIME-SERIES DATA

Abstract

This study examines the role of Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) in shaping Nifty 50 performance using time-series data from 2016 to 2024. Given the increasing globalization of financial markets, understanding the influence of institutional flows on stock indices has become crucial for investors, policymakers, and financial analysts. The research employs statistical tools such as correlation analysis, the Augmented Dickey-Fuller (ADF) test for stationarity, and Granger Causality tests to determine the causal relationships between FII flows, DII flows, and Nifty returns. Findings indicate a strong negative correlation between FIIs and DIIs, highlighting their counterbalancing effect on the market. Granger causality analysis further reveals that while FII flows significantly influence Nifty 50 movements, DII flows also play a stabilizing role by countering extreme fluctuations caused by foreign capital movements. The study underscores that institutional investments act as a key driver of market trends, with FIIs contributing to liquidity and volatility, while DIIs provide resilience against external economic shocks.