.Institutional investors are big players who invest in securities like stocks, bonds, futures, etc. They can be classified as foreign institutional investors (FIIs) and domestic institutional investors (DIIs). FIIs invest in Indian securities from outside India, while DIIs invest in Indian securities within India. Examples of institutional investors are mutual funds, pension funds, hedge funds, insurance companies, banks, and more.
Institutional investors can impact the stock market in India in many ways. They can cause demand and supply pressures on the securities they trade, which can affect the prices and volumes of those securities. If FIIs buy large quantities of Indian stocks, the demand for those stocks will increase, which can push up the prices. Conversely, if FIIs sell large quantities of Indian stocks, the supply of those stocks will increase, which can pull down the prices.
Institutional investors can act as information disseminators and price discoverers. By conducting extensive research and analysis on the securities they invest in, they can identify market mispricings and arbitrage opportunities, which can help improve market efficiency and reduce market anomalies. By buying or selling stocks accordingly, they can help correct price deviations.
Institutional investors can influence the companies they invest in. With a large voting stake, they can monitor management performance and policies, demand accountability and transparency, and advocate for the interests of the minority shareholders and stakeholders. By voting against proposals or initiating a proxy fight or takeover bid, they can take action against unsatisfactory management.
According to a recent study, FIIs have a significant impact on the Indian stock market. They play an essential role in information dissemination, which affects share prices. The study also found that demonetization negatively affected the Nifty 50 Index and various sectoral indices, but it did not affect FIIs and DIIs.
I hope this helps.