Foreign Institutional Investors (FIIs) are entities like mutual funds, hedge funds, and pension funds that invest in financial markets of other countries.
FIIs primarily focus on buying stocks, bonds, and other securities.
How is FII different from Foreign Direct Investment (FDI)?
- FII: Focuses on investments in stocks and bonds, which are easily tradable and more short-term in nature
- FDI: Involves direct investment in physical assets like factories or companies, usually with long-term involvement
What instruments does FII money get invested into?
- FIIs mainly invest in stocks, bonds, exchange-traded funds (ETFs), and derivatives
- FII investments are usually short- to medium-term, aiming to take advantage of favorable market conditions
How does FII money impact the market?
- Upside: Large inflows from FIIs can push stock prices up due to increased demand, creating a bullish market
- Downside: If FIIs pull out large amounts, it can cause market volatility, leading to a bearish market
Factors FIIs consider before investing:
- Economic stability: Countries with stable economies attract more FII investments
- Market liquidity: FIIs prefer markets where they can easily enter or exit positions
- Currency stability: Currency risks are assessed to avoid devaluation losses
- Government policies: Investor-friendly policies and regulations boost confidence
- Market Valuation: The value at which stocks are trading in the stock market is an important consideration. High stock prices discourages FIIs and leads to rerouting of money into other markets & vice versa
This concept elucidation should help individuals evaluate the influence of FIIs on markets before investing.
All the best for your investment journey
God Bless!
Lateral Thinking 
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