As the stock market keeps moving up, there seems to be an undercurrent of confidence that adds to the optimism. This undercurrent probably emanates from the fact that the two key players in the market, the foreign institutional investors (FIIs) and domestic institutional investors (DIIs) have contrasting styles of investing.

This means that the buying in the market becomes broader. Moreover, contrasting styles also mean that when one party is selling, there is somebody who is ready to buy.

This supports the markets from spinning into a downward spiral. A recent study by CLSA Asia Pacific Research on the monthly net data from FIIs and DIIs shows that there is a clear difference in thinking by the two market participants.

Analysis since April 2007 shows that over the 28-month time frame, FIIs net sold $22bn worth equities on the exchanges and DIIs bought $26.7bn. The report notes that the flows have been in opposite directions for 26 of those 28 months.

Now, it could be said that the data was skewed as due to the global uncertainty, the overseas investors were forced to pull out of the markets and the domestic institutions were investing as they had sufficient inflows and even doubt that they stepped in to support the market from going under. However, in the five of the seven months that FIIs were net buyers in the market, DIIs were net sellers.

Another observation is that, overall, DIIs? holding in the Indian equity markets has moved up from 8% in March 2007 to 10.4% by June 2009. The DII share of the cash institutional businesses has risen from 18% levels in April 2007 to 35% in July 2009. The report estimates that around 82% of the sell-off caused by the FIIs during FY09 was offset by DII inflows. And, DII inflows in the past six years are 93% of the FII inflow since 1993. Interestingly, the stock selection, after valuation considerations, is also contrasting.

While the DIIs prefer stability and look for strong track record and tend to invest in public sector undertakings and multinationals, FIIs prefer growth.

akash.joshi@expressindia.com