How have institutions been doing in this fall? The answer comes in a chart of the day – the Nifty with the cumulative purchases of FIIs and DIIs in 2011. Note that I have inverted the data for FIIs – who have actually SOLD that much.

More than 21,000 cr. worth has been sold by foreign institutions while domestic institutions bought over 24,000 cr. The Nifty is down about 20% for the year.

Foreign Institutional Investor (FII) data for 2011 is deeply negative – over 11,000 crores have left our cash markets.

Domestic institutions have done the exact opposite, as you can see from a plot of the daily net values:

If you look at cumulatives, and invert the FII numbers (that is, negative numbers are positive), here’s the graph:

Our fall has been cushioned by domestic institutions. For all the screaming about lack of volumes, more than 19,000 cr. has been invested by domestic institutions. Despite a net institutional buy of 8,000 cr. (positive) we have seen the indexes fall about 18% for the year. Does this mean that everyone else – Retail, prop accounts, HNIs – are running for the hills?

However, not everyone agrees to this argument. “FII’s have invested around 50,000 crores in Indian markets from the point when Nifty was around 5,400 last time, which was around Aug 2010,  However FII’s have sold taken out just 15% of what they invested, and right now we are at the same levels , so still lot of FII’s money is lying around.

So, the biggest reason for the fall is the fear of rising inflation and interest rates and the way it will affect our markets and economy in coming days”- says Deepak Shenoy of Capitalmind.in .

I thought I would clarify - and perhaps the best way I know is through video at MarketVision's Short Takes. Here's a five minute short take on the subject - Is FII Selling Responsible for the Market Crash.

Let me even embed this video:

Would love your comments!

This post is written by Deepak Shenoy, at Capital Mind.

I've plotted 20 day and 120 day cumulative totals of the "net" investment by FIIs (right axis) and the Nifty (left axis). There's not much correlation on the upside - in fact the FIIs seem to flatten out as the moves get really strong. But on the downside it's apparent that FIIs yank out money. They invest when things are "stable".

In a few cases above - Jan 2008 and Oct 2008 - it has been seen that FIIs have pulled out money before the crashes, as evidenced by the fall in the cumulatives just before the crashes. But that hasn't happened in the mini-crashes of March 2007 and Oct 2007 (their taking out money coincided with the market crash, but did not precede it).

It's too little data to make a prediction but it appears that FIIs 20 day cumulative figures don't usually stay above zero for too long. The last two months though, it has stayed above zero, as is at 10000 cr. now. Let's see where it goes.

This post is written by Deepak Shenoy, at The Indian Investor's Blog.