The dynamics of economy in India are changing; it is becoming favourite destination throughout the world for the investments and especially investment by domestic institutional investors. First phase of the study examines the relationship between stock market and capitalisations of equity flows by DIIs. Study tries to capture the influential factor dominating between the flows of DIIs and stock market capitalisation and market trading volume. The study was conducted using monthly time series of Nifty, Sensex and DIIs activity for a period of five years ranging from January, 2014 to December, 2018. To check the non-stationary of the time series the Augmented Dickey-Fuller (ADF), KPSS and PP test were applied. The impact of DIIs (Buy/Sell/Net) capital flows on stock market capitalization and vice versa were established on the basis of Granger causality test. The study reveals that there is significant positive relationship between DIIs capital flows and stock market capitalization. Moreover, BSE and NSE market capitalization have significant bi-directional influence on DII flows.

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Keywords: Institutional Investors, DIIs, KPSS, PP Test, ADF, Capitalization .