1) These 2 months received 2nd highest FII inflow around Rs 47kcr (approx $8.6bn). Highest inflow months were Sep-Oct 2010, right at the time of announcement of QE2 (Rs 53k cr).
2) With 2nd highest FII inflow (on 2 month basis), Dec 2012 and Jan 2013 were the most compressed months in Nifty's history as measured by High-Low range and number of days with 1% Nifty move. There were ONLY 2 DAYS with 1% move in Dec 2012 and Jan 2013.
3) During last 2 months Nifty moved by 2.6% vs 12% during Sep-Oct 2010 (highest ever FII inflow months)
I am in no way trying to establish any kind of relationship between FII inflows and Nifty returns. Cause-Effect relationship is applied for intellectual satisfaction. Only thing constant is nature of price move and CLUSTERING. There are times when FII inflows are negative and Nifty return is positive and vice-versa. Though reasoning will be ready for both scenario by Fundamental Analysts. The reason I have put down above 3 points is to show how compression is getting clustered which should lead to clustering of volatility. For me Volatility is bigger move in prices. I will later show, that last 3 years (2010, 2011 and 2012) have been extremely compressed for Nifty (they can be termed range-bound...but even within range moves have been very small). So even on yearly basis there has been clustering of compression which should lead to higher moves over coming years.
Measuring Volatility in Nifty Through Daily Moves
No days with % move in Nifty
2) Last 3 years have been extremely compressed in terms of daily moves in Nifty. Such Compressed period will certainly be followed by big daily moves.
Chart Presentation of the above data
Number of Days with >1% Move in Nifty
Net FII Inflow (Rs cr)
Will comment on Clustering of FII Flows in next post...It will be purely on nature of clustering of flows...nothing on cause effect relationship.
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