FII/DII flows explained

Virdi Research · Learn

Nearly every market wrap in India mentions "FII and DII flows". These numbers show how two big groups of investors are positioned. They are easy to misread, though. This guide covers what the figures measure, where they come from, and how to read them without jumping to conclusions.

Who are FIIs/FPIs and DIIs?

FIIs, now called FPIs. "Foreign Institutional Investor" (FII) is the older term. Since 2014, SEBI has grouped foreign institutional investors, their sub-accounts and qualified foreign investors into one category: Foreign Portfolio Investors (FPIs). The current rules are the SEBI (Foreign Portfolio Investors) Regulations, 2019. Typical FPIs include overseas mutual funds and asset managers, sovereign wealth funds, foreign pension funds, foreign insurers, endowments and foundations, and other regulated funds that invest in Indian securities from outside India. Many reports still say "FII", and in practice the two terms mean the same thing.

DIIs (Domestic Institutional Investors). These are Indian institutions that invest in markets. They include domestic mutual funds, insurance companies, pension and provident funds, and banks and other financial institutions. In recent years, money from systematic investment plans (SIPs) has made domestic mutual funds an important part of DII activity.

Retail investors, high-net-worth individuals and proprietary traders do not appear in either group. The FII/DII split covers only part of what trades each day.

Where the daily numbers come from

Provisional exchange data (same evening). After each trading day, NSE publishes provisional figures for FII/FPI and DII trading activity in the capital market (cash) segment. These figures combine activity on NSE, BSE and MSEI. They are put together from information that trading members report on the day of the trade. Because they are provisional, they are fast but not final.

Final FPI data from the depositories. NSDL publishes "Daily Trends in FPI Investments". According to NSDL, these figures are compiled from reports that custodians submit to the depositories. They cover FPI trades that have been confirmed up to the previous trading day(s). In other words, they appear after custodial confirmation and usually cover the previous trading day, not today.

The NSDL data is also broader. It separates equity, debt and hybrid investments. It also shows the route used: stock exchange purchases versus primary market and other routes, such as IPOs, qualified institutional placements and block allotments. Because the two sources cover different things on different timelines, the provisional exchange figure and the NSDL figure for the "same" day often differ, sometimes by a lot. Treat the exchange number as an early estimate and the depository number as the confirmed record.

DII figures do not have a depository equivalent of this kind. For DIIs, the exchange provisional data is the standard daily reference.

Gross versus net

• Gross purchases is the total value of what a category bought.
• Gross sales is the total value of what it sold.
• Net is gross purchases minus gross sales. A positive net means net buying, and a negative net means net selling.

Headlines usually quote only the net figure. Gross figures still matter, because a small net number can hide very heavy two-way activity. Gross figures can differ between sources for several reasons:

• Coverage: some sources include primary market and other routes, while others include only exchange trades.
• Timing: trade date versus confirmation or settlement date.
• Scope: the NSE-only figure versus the combined NSE, BSE and MSEI figure.
• Classification: how certain block deals, or trades in instruments such as ETFs and hybrids, are tagged.

When comparing figures, always check which source and which definition you are using.

Cash versus derivatives

The headline FII/DII numbers refer to the cash (capital market) segment, meaning actual buying and selling of shares. Foreign investors are also very active in derivatives: index and stock futures and options, as well as currency, interest-rate and commodity contracts. NSDL publishes daily FPI derivatives activity, including contracts bought and sold and open interest at the end of the day.

Derivatives figures are not directly comparable with cash figures. Options turnover is usually measured in notional value, which can be very large without much actual money changing hands. A futures or options position may also be a hedge against cash holdings, not a separate view on the market. Reading derivatives data properly means looking at positions and open interest, not just headline turnover.

Why flows matter

• Liquidity: large, sustained institutional flows add to or take away from the money available to markets.
• The rupee: FPI money has to be converted into and out of rupees. Sustained foreign inflows or outflows can therefore affect demand for the currency.
• Sentiment: many market participants watch flows as a sign of institutional confidence. As a result, flows can influence how other investors behave.

DII and FII flows can move in opposite directions, which is one reason the two numbers are usually read together.

Common mistakes

1. Reading too much into a single day. One day's figure can be driven by index rebalancing, a large block deal, an IPO allotment or quarter-end adjustments. Trends over weeks and months tell you more.
2. Treating provisional data as final. The evening exchange figure can differ significantly from the later depository figure.
3. Mixing sources. Comparing an NSE-only figure with a combined figure, or an exchange figure with an NSDL figure, gives a misleading picture.
4. Ignoring primary market flows. Large IPO or placement allocations appear in the depository data but not in secondary-market exchange data.
5. Adding derivatives to cash. These are different measures and should not simply be combined.
6. Treating flows as forecasts. Flows describe what has already happened. They do not predict what comes next.

How Virdi's Pre-Market note reports flows

Our daily Pre-Market note includes a short flows section. It reports:

• The previous session's provisional FII/FPI and DII net figures for the cash market, as published by the exchanges and clearly labelled provisional.
• Sometimes the prior session's net figures, for context.
• A reminder that the figures can change after custodial confirmation, and that final FPI data comes from NSDL.

We use net figures only, because gross buy and sell values can differ between sources. We state the source and date for every figure. We do not turn flows into calls or views on any security.

Educational only, not investment advice. Virdi Research is not registered with SEBI or any other regulator as an investment adviser or research analyst. Nothing here is a recommendation to buy, sell or hold any security. Investments in securities markets are subject to market risks; read all related documents carefully. Trading in derivatives (F&O) carries substantial risk of loss.