What FII Buy or Sell can mean on Nxt Day

Whenever FII's buy or sell in huge volumes (or rather values), the presumption that most people make is that the trend that exists on the day of the trade will continue the next day too. But is that really the case,

Today for example, FII's have sold a massive 1589.68 in Equities on the stock exchanges. They have even added another 1000 Crore of Nifty shorts. Theoretically (leaving aside all other chart patterns, US markets, etc), this should mean a move downward tomorrow too. But does that happen or has it happened earlier too.

To see how markets have behaved, I collated from NSE, FII Buy and Sell data from 01.01.2009 till date and tried to see how markets behaved the following day of either a 1000 Crore + Buy or 1000 Crore+ Sell and here are some interesting facts.

From 01.01.10 till date, FII's have sold (in Equities) a sum of more than 1000 Crore on 12 other occasions (leaving aside today's sale).

Of that 7 days following that day, we actually had a positive close varying from positive of 3.2% to a positive of 0.3% together averaging around 1.27%.

Markets closed in negative on five occasions with markets close varying from negative of -3.1% to a negative of -0.6% and averaging -1.42%

Now I look at days when FII's purchased stocks for 1000 Crores or more and see how the next day meant. Remember that since I am taking data only from 01.01.09, much of the time, market were going in just one direction - Up.

FII's purchased stocks worth 1K Crore or more on 18 occasions.

Of that, on 10 occasions, market closed in positive the next day as well, 2 days were days where the market did not move a inch and on 6 occasions, market closed in negative.

Average Positive Move = 0.88%

Average Negative Move = -0.54%

So what can we conclude using this data?

In my opinion, it just tells me that FII's as a factor in moving the market are over hyped. If a 1000 Crore Buy / Sell does not significantly alter the next day's move then I really have to wonder how small purchase / sales by FII's on a daily basis have any sanctity in trying to decipher the future.

Enough of this crappy post. Hopefully quality will improve in later posts ;). Do share your thoughts.