It’s not recommended to copy DII (Domestic Institutional Investors) and FII (Foreign Institutional Investors) activities directly for your trades, even though it might seem like an easy strategy. There are several reasons for this, and understanding them can help you make better decisions.
The information about DII and FII activities is usually delayed. The data for their trades is published after the market closes for the day. By the time you act, the market might have already adjusted to their moves. You are essentially acting on yesterday’s information, which puts you at a disadvantage. Institutional investors, on the other hand, execute their trades in real time.
DIIs and FIIs have different objectives compared to retail investors. They manage large portfolios with a mix of short-term and long-term strategies. Their goals are often influenced by their fund mandates, such as diversification, risk management, or sector exposure. As an individual investor, your risk tolerance, financial goals, and time horizon are likely to differ significantly from theirs. Following their trades blindly may lead you into situations that don’t align with your financial needs.
The size of institutional trades also creates challenges. DIIs and FIIs buy and sell in huge volumes, which can impact stock prices directly. When they enter or exit a position, they often spread their trades over days or weeks to avoid sharp price changes. A retail investor cannot replicate this because your trades won’t have the same influence. Plus, if you try to follow them, you might end up buying at inflated prices or selling at lower prices due to their market impact.
Recent data shows how their activities can fluctuate. For example, in December 2024 (up to December 6), FIIs were net sellers, offloading ₹3,234 crore worth of equities, while DIIs were net buyers, purchasing ₹5,017 crore. This shows that even institutional investors can have opposite positions on the same day.
On December 6 alone, FIIs sold ₹1,830 crore in equities, while DIIs were buyers. Their actions often depend on factors like liquidity, global markets, and sector-specific opportunities, which might not match your investment strategy.
If you want to use DII and FII data, it’s better to treat it as a market sentiment indicator rather than copying trades. For instance, their collective buying or selling patterns can give you an idea of whether institutional money is flowing into or out of the market. You can also identify sectors that are receiving more attention from these large investors. However, this should only be a part of your broader analysis and not the sole reason for your decisions.