The Nature and Determinants of Investments by Institutional Investors in the Indian Stock Market

Abstract

In India, the recent unprecedented rise in the capital market index is attributed to institutional investors like foreign institutional investors (FIIs) and domestic mutual funds. The nature of investments by FIIs has been examined in the literature, but that of mutual funds remains unexplored. This article tries to identify the possible determinants of the investment decision of mutual funds and compares the nature and determinants of their investment decisions to that of the FIIs. One of the most interesting findings is that mutual funds influence the decision of FIIs when they invest in equity and FIIs do exactly opposite to what mutual funds do. However, they both track international interest rates. Another remarkable finding suggests that mutual funds are more cautious when they invest in debt compared to equity. They look at so many factors in case of debt investment, but do not even look at the market return when they invest in equity.