It finally seems like the market is showing signs of forming a short-term top. There isn’t much positive news from the markets today, but let’s dig into it.

In today’s video, we’re discussing an analytics-based case. We’ll study historical FII (Foreign Institutional Investor) flows and evaluate whether they can predict market movements. Can FII flows cause the markets to skyrocket, or not? Let’s explore that.

Where is the market headed?

Market Overview

The market didn’t go anywhere today. Over the last 7–8 sessions, we’ve remained in a narrow range between 24,200 and 24,400. At this point, it seems the market is getting tired and may even give up some gains.

However, a good consolidation at this stage wouldn’t be unwelcome. We aren’t extremely bullish at the moment – the market seems to be hinting that it wants to form a base before the next big move. Whether that comes soon or later remains to be seen.

Nifty Next 50

The Nifty Next 50 is showing weakness on a short-term basis, closing at a 10–12 session low. This suggests more consolidation may be ahead. Whether we drop further is uncertain, but the recent bearish engulfing pattern is a sign that the market isn’t ready to move up just yet.

Nifty Mid and Small Cap

Midcaps were down 2%, showing a strong red candle. Smallcaps also dropped around 2%. In fact, smallcaps have fallen from 16,000 to nearly 15,100, a loss of 900 points. Hopefully, some support will emerge near these levels – but we’ll have to wait and see.

Bank Nifty

Bank Nifty ended the session with a decline of around 1%. PSU banks, including Bank of Baroda, Union Bank of India, and Central Bank, led the fall. It was a clear indication of weakness in the banking sector.

GOLD

Gold has taken off again. China was closed for the last four to six sessions, and their reopening seems to have triggered fresh buying. Yesterday also saw some preemptive action. Over just two sessions, gold has jumped from nearly ₹93,000 per 10 grams to ₹97,000 — a sharp 4% increase. On a weekly basis, we are again close to all-time highs. It wouldn’t be surprising if we start making new highs very soon.

Advance Decline Ratio

Market breadth was poor today, with only 78 advances against 422 declines. This marks the weakest market breadth in the last five sessions.

Heat Maps

The heat maps were dominated by red across the board. Major stocks like State Bank of India and Bajaj Finance fell around 2%. Zomato, Adani Enterprises, NTPC, and Tata Motors were all down. Reliance, Coal India, and Axis Bank also showed weakness. Other notable losers included Mindtree, Bharti Airtel, and Tata Consumer. There was very little green visible in the market today.

Sectoral Overview

The Nifty Next 50 also saw declines. Stocks like LIC were down 4%, IDFC First Bank by around 10%, and PNB fell nearly 5%. PSU banks were hit badly. Though Varun Beverages posted good results, the stock was down. Half of the paint sector, Tata Power, Adani Power, and JSW Energy—all energy stocks—were also down. ABB, CG Power, Indigo, IOC, BPCL, Naukri, Indian Hotels, and General Steel were all in the red. There were hardly any green sectors in the market.

In terms of sectoral trends, almost all were down. Auto held ground with just a 2% drop. Capital markets lost around 3.5%, tourism fell by 5.4%, energy was down 4.4%, PSU banks lost the most—4.8%, and real estate was down 3.6%. It was a day of heavy damage across sectors.

Sectors of the Day

PSU Bank Index

The PSU bank index was the worst-performing today. Major banking stocks like Bank of Baroda, Union Bank of India, and Central Bank saw significant declines, pulling the entire index down in a big way.

Story of the Day: The Role of FII in Driving Stock Market Trends

Let’s look at the FII (Foreign Institutional Investor) flow thesis and what the numbers indicate. From October to February 25th, Nifty dropped around 16%. During this period, FIIs sold ₹3 lakh crores worth of stock, and Nifty declined each month—by 6%, 0.5%, 2%, 0.5%, and again 6%. The last 6% drop happened with very little FII selling.

In contrast, from March to April 2025, Nifty went up nearly 10%. During this period, FIIs bought just ₹2,000 crores in March and ₹2,300 crores in April. This suggests that the market rose even without significant FII buying.

Historically, large FII inflows have aligned with big market rallies. For example, in March 2009 (post-GFC), FIIs pumped ₹13,000 crores—20x the three-month average—and the market surged 20%. Similarly, October 2007, just before the global crisis, saw FIIs buy ₹8,000 crores.

In periods like October 2021 to June 2022, despite a sell-off of ₹1 lakh crores over 12 months, the market still saw a rally. In March to July 2023, FIIs bought ₹76,000 crores.

Looking at monthly market moves (see the above image):

• When Nifty gained more than 10% in a month (9 instances in 25 years), 8 of those had FII buying and DIIs selling.
• In the 5–10% monthly gain bracket (37 instances), 35% had FII selling and DII buying.
• In the 0–5% gain range (78 instances), 41% had FII buying, 33% FII selling and DII buying, and 26% both FII and DII buying.

On the flip side:

• When Nifty dropped over 10% in a month (6 instances since 2007), FIIs were always selling and DIIs were buying (see the above image).
• In the 5–10% fall range (87% of instances), FIIs were selling and DIIs were buying.
• In 0–5% falls, 75% had FII selling and DII buying.

Key takeaways:

• All 10%+ monthly gains over 18 years had FII buying and DII selling.
• All 10%+ monthly falls saw FII selling and DII buying.
• Whenever FIIs are buying and DIIs are selling, there’s a strong chance of a market rally.
• FIIs were net buyers 66% of the time during positive months, and net sellers 77% of the time during negative months.

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