FII Fund Flow

Everybody is looking towards SEBI data on how much inflow and outflow of funds have been there from FII side. As they are the single biggest institutional player in our markets a positive flow from FII's have always got a corresponding movement in stock prices. 

As per my calculation of SEBI data (FII net buy/net sale) FII fund flow had a 70% probability of bringing about a positive correlation with the movement of the Nifty. In simple words if FII's were net buyers for the day the Sensex/Nifty would be up and if they are net sellers for the day the Sensex/Nifty would be down. 

So like many Investors/speculators I have always been trying to gauge the Fund Flow of these foreign institutional investors who can sway the markets in their favor because of their sheer size. But then I soon realized SEBI data is pertaining to only actual sale or purchase of stocks. SEBI collates the data submitted by the custodians on the primary and secondary market transactions of these investors. I wanted to know the amount of money entering our country and the amount of money lying in accounts of these investors looking for opportunities.

It is then I started looking for information on FII funds held by custodian banks as portfolio investments, as margin requirements and funds from proceeds of net sale of shares which has not left the country. The only report which I could lay my hands on which had the kind of information I needed was the International Investment Position (IIP) report, published by RBI every quarter. This report shows FII funds held by custodian banks, and also captures the money as it enters and leaves the country. The only problem with this report is that it comes with a time lag of one quarter hence as such it cannot be used for any speculative trading positions but then it can be used to gauge the seriousness of FII’s towards Indian securities.

According to this report, FII investment with custodians at the end of March 2010 was ₹ 400,000 Cr while FII investment in stocks, according to SEBI, was $40,000 Cr. FII portfolio investments, according to the RBI, are always higher than that shown by SEBI since it also accounts for derivative margins. Again, idle un-invested funds and profits booked and not re-invested are reflected only in RBI data.

According to this report the actual balances of FII’s is a huge number, which is waiting for favorable opportunities to enter our market. When this amount enters our market the BSE SENSEX and the NIFTY could touch New a high.