If you are not 'INSIDE' you are 'OUTSIDE'

Jan 25, 2023

In the stock market, if you are not inside, you are outside.

I expect all those reading this article wants to be inside the market.
So, if you want to participate in the market then you must develop a deep insight into
the key market players i.e. your competitors who drive day to day movement of the market.

Key Market Players:-

The following are the three types of market participants.

->Retail - general public also called clients
->High Net Worth Investors - commonly known as HNI clients.
->Proprietary Trading - also called 'Pro' are firms.
->Institutions - referred to as trading organizations.

Let's dive into the details of each of them listed above.

Retail Investors:- They are the general public who invest or trade in the market individually with very
small capital as compared to other participants. They are at the bottom of the market food chain when considered individually
but in recent few years, the retail participants as a whole have seen a significant rise in numbers.

High Net Worth Investors:- They are also an individual but with big sums in their pockets. They have a deeper access to
the markets, inside news, and all. They don't participate in day-to-day trading.

Proprietary Traders:- Also known as 'Pro 'are those firms/banks which also trade in the daily market with the firm's funds.
They are at the middle of the market food chain i.e. above retail but below institutions. Actively participate
in daily market movements.

Institutional Investors:- They are organizations taking part actively in market movements. They are at the top of the market food chain.
They can be further divided into two groups:

->FII (Foreign Institutional Investors): Institutions whose origin is outside India but still they invest in Indian markets. Actively participate
in daily market movements.
->DII (Domestic Institutional Investors): Institutions whose origin is India. They are inactive in the derivatives segment.


Among the participants listed above Retail, Pro & FII are actively involved in the daily market trading and encourage
derivatives segment.

We all have seen everyone in markets talking about FIIs that are bearish/bullish on markets but why?



The above figure is of FII+Pro & Client correlation with nifty, this describes the reason why the positions of FII are significant.
We can draw the following conclusion:-

1. Majority of the time FII is correct to predict the market movement.
2. Clients generally build position against FII and max times have an opposite correlation with market movements.

Now, have a look at how the FII and client positions affect the market movement



The above figure justifies the correlation.
We can draw the following conclusions:-

1. Maximum time FII are net short in nifty whereas clients are net long in nifty.
2. When FII cover their shorts and deploys the longs we see an uptrend but at the same time, the client unwinds long
and deploys shorts which are generally against the trend i.e. client likes to drive in opposite direction.
3. And when FII positions converge with the Client there is previous trend exhaustion and the arrival of a sideways market or
sometimes a new trend.

As of now the index is clearly explained but what about stocks how much significant is FII in stocks?

To answer the above question let's take an example of a very famous stock ITC:-



The above figure says that FII has increased holding in the interval of Jun2022 - Sep2022 from 12.7% to 44.5%
and by the time client has decreased the holding from 44.5% to 14.8%.

Does the change in position affect the stock price of ITC? let's have a look



Now it's clear that FII have ultimate power because when they started to increase their holding in ITC
the price shoot up during this time Public who were holding it for the last 2yrs exited when ITC has just begun to move.


Hope the readers had understood the mightiness of FII and the oppositeness of the Public and also have got a deep insight
about their competitors.

Also, thanks to biswapatra for requesting me to write an article on this topic. You can also suggest an topic on which you
want to have analysis.