FII DII strange trading activities

General
1

Hi, since last few weeks, I see that DII are buying and buying in the cash market, and FII are exiting at high prices.

The below link from Moneycontrol website clearly shows that DII are buying at ATH and thereby giving good exit points to the FII who are continually selling.

Earlier, it used to be opposite, that DII would buy at low, sell at high; and it was the FII who would buy at high and keep buying and take the market even higher.

But it seems that DII are happy to buy at ATH and give the FII good price exit.

Can someone explain? Does anyone here have had any personal or professional relationship to these institutional players? Why are DII buying at ATH, means they expect market to go higher, but in interviews SBI and HDFC MF bigshots keep warning that market is too overbought, be careful, but on the other hand it is them who are doing most of the buying.

Seems so misleading.

Does anyone have any clue?

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2

No body can be 100% sure but my 2 cents:

  1. DIIs may be buying stocks which are not overbought and as economies are opening they might be eyeing for the stocks which can unlock value in future, in NSE+BSE there are around 6000 stocks listed , so Cash market is huge .
  2. DII might be getting money from retailers in form of MF investment so in that case they have to buy the stock .
  3. If you see last few weeks nifty rally only Large caps heavy weights are rising overall broader market is bearish.So Index management is happening.
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3

Whenever we put money into SIP, does it become mandatory for the Mutual Funds to immediately buy using the SIP money?

Are MFs not allowed to have cash in their portfolio? Is it compulsory for them to buy stocks and not hold cash?

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4

What is meant by index management? Do you mean FIIs DIIs are manipulating the market to take the nifty index wherever they want? Is it possible?

5

@nithin @siva Can you also please share your insights if possible?

6

Only less than 5% can be hold as cash , but see market was consolidating from last 6 months , so for any fund manager its very hard to sit on cash too long as they would find there buying levels in some weeks or months!

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7

Wow, the link you shared shows that some mutual funds were holding as much as 60% cash last year in Aug 2020.

8

Due to heavy trading in index futures and options ,in short term to manage positions ,Index are managed buying /selling only certain stocks which has highest index weightage. In india ‘HRITHIK’ stocks ( just like in US ‘FAANG’) ie: HDFC ,Reliance,ICICI,TCS,INFOSYS,Kotak,HDFC Bank Stocks have more than 50% weightage in NIFTY/BankNifty. Sometimes Rotation happens and market becomes frothy . Off-course no one knows the trends. But looking at the consolidation the market is quite stable as participation of retailers have increased making market very rigid/solid.

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9

Smart money like FIIs and Diis deals with a huge position and they always hedge their positions in the future market.
Like in DIIs are buying at the ATH it definitely shows that they have a positive outlook about the market but they also need a huge supply for their huge demand to get consumed…if not then their buying pressure will increase the price and they have to buy at higher prices. So they are creating their long positions when the FIIs are selling which leads them to accumulate at comparatively lower prices. And as they hedge their positions so even if the market falls they will be in profit.

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10

do FIIs pay taxes in India ? They pay capital gain tax (short term , long term ) or as per their tax slab ?

@Quicko

11

Hi @HSL, in almost all the cases FII’s pay taxes in India. Both types of taxes are applicable and paid by FIIs, Long Term and Short Term Capital Gains under section 115AD