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Impact of Foreign Institutional Investors On Indian Stock Market

This document analyzes the impact of foreign institutional investors (FIIs) on the Indian stock market. It finds that FIIs began investing in India in 1992 and their investments have grown since then. The study uses regression analysis to examine the relationship between FII equity investments, stock indices, exchange rates, and the number of registered FIIs. The analysis finds that FII equity investments are not significantly influenced by exchange rates or the number of registered FIIs, and that investments do not have a major impact on stock market indices.

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109 views18 pages

Impact of Foreign Institutional Investors On Indian Stock Market

This document analyzes the impact of foreign institutional investors (FIIs) on the Indian stock market. It finds that FIIs began investing in India in 1992 and their investments have grown since then. The study uses regression analysis to examine the relationship between FII equity investments, stock indices, exchange rates, and the number of registered FIIs. The analysis finds that FII equity investments are not significantly influenced by exchange rates or the number of registered FIIs, and that investments do not have a major impact on stock market indices.

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© Attribution Non-Commercial (BY-NC)
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Impact of Foreign Institutional Investors on Indian Stock Market

Presented by N.Ramesh Kumar.,MBA.,(Ph.D) Research Scholar

How FII started in India?


India opened its stock market to foreign investors in September 1992 Since 1993, received portfolio investment from foreigners in the form of foreign institutional investment in equities. This has become one of the main channels of FII in India for foreigners. In order to trade in Indian equity market foreign corporations need to register with SEBI as Foreign Institutional Investor (FII).

Introduction
Foreign institutional investor means an entity established or incorporated outside India which proposes to make investment in India.

Registration process

Entry Options For FII


Incorporated Entity By incorporating a company under the Companies Act,1956 through Joint Ventures; or

Wholly Owned Subsidiaries

Important terms to know about FIIs:


Sub-account
Designated Bank Domestic Custodian Broad Based Fund

OBJECTIVES OF THE STUDY


To study the scope and trading mechanism of Foreign Instititutional investors in India. To find the relationship between the FIIs equity investment pattern and Indian stock indices. To analyze the impact of FIIs equity investment on specific industrial sector.

REVIEW OF LITERATURE
Ilangovan Prof. D.(1997) held that Steps are taken to gain extra mileage as regards the level of foreign investment receipts is concerned. Foreign direct investment is proven to have well-known positive effect through technology spillovers and stable investments tied to plant and equipment, but portfolio capital is associated more closely with volatility and its capacity to be triggered by both domestic as well as exogenous factors, making it extremely difficult to manage and control.

Analysis
Regression- Net investment, Number of FII, Exchange Rate, BSE, NSE: Table 1: RegressionNet investment, Number of FII, Exchange Rate, BSE, NSE.

Table No.1
Std. Error

Adjusted R
Model 1 R .883a R Square .780 Square .701

of the
Estimate

DurbinWatson

14214.3949 1.194 0

a. Predictors: (Constant), NSE NIFTY, exchange rate, no. of FIIs, BSE SENSEX b. Dependent Variable: net investment From the above table it is found that the r square value is

0.780, which means the linear regression has 78% variation in the dependant variable. The Durbin Watson statistical value is 1.194 which is less than du= 1.83 with a sample size taken n= 16, and no. of predictors k= 4. So there exists positive autocorrelation. Du obtained from the table Critical Values of the Durbin Watson statistics.

Table-2
Regression- Net investment, Number of FII, Exchange Rate: Table 2: Regression- Net investment, Number of FII, Exchange Rate.

Table No.2
Adjusted Model R R Square Square R Std. Error of the DurbinEstimate Watson

.510a

.260

.146

24009.04228

1.677

a. Predictors: (Constant), exchange rate, no. of FIIs b. Dependent Variable: net investment From the above table it is found that the r square value is 0.260, which means the linear regression has 26% variance in the data. The Durbin Watson statistical value is 1.677 which is more than du= 1.54 with a sample size taken n= 16, and no. of predictors k= 2. So there exists no positive autocorrelation.

Table No.3 Correlation for FII investment in equity market, exchange rate, and number of FII.

equity market equity market Pearson Correlation 1

no. of FIIs -.203

exchange rate .584

Sig. (2-tailed)
N no. of FIIs Pearson Correlation Sig. (2-tailed) .550 11 -.203

.550
11 1

.059
11 -.158

.642

N
exchange rate Pearson Correlation

11
.584

11
-.158

11
1

Sig. (2-tailed)
N

.059
11

.642
11 11

From the above table it is clearly understood that


The exchange rate is not influenced by the FII investment in equity market. Since the significance level is 0.059 which is greater than 0.05. The significance level of correlation between FII investment in equity market and the number of FII investors is 0.550 which is greater than 0.05. it means that the number of FIIs registered with SEBI do not influence the FII investment in Indian equity market. So null hypothesis cannot be rejected.

CONCLUSION
To conclude, from the above study, the investments made by Foreign institutional investors do not impact much on both the Indian stock markets BSE SENSEX and NSE NIFTY during the period under study. The investment made by FII in Indian equity market is not influenced by number of FIIs registered with SEBI and the exchange rate. The investment made by FII in Indian debt market does not influence the net investment made by FII in Indian stock market and the number of FIIs registered with SEBI. The investment made by FII in Indian debt market does not influence on exchange rate whereas, it influences both the indices BSE and NSE.

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