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Primary Objective

:
To study the impact of FII on Indian stock market. To understand the concept of BSE sensitive index.

Secondary Objective:
To understand the concept of FIIs. To understand the relationship between the Sensex and FII. To know the sector which get affected more by activities of FIIs.

ResearchProblem: The project deals with the “Impact of Foreign Institutional Investors on Indian Stock Market”. This research project studies the relationship between FIIs investment and stock indices. For this purpose India’s two major indices i.e. Sensex and S&P CNX Nifty are selected. These two indices, in a way, represent the picture of India’s stock markets. Five indices of BSE i.e. BSE Auto, BSE Bankex, BSE IT, BSE FMCG, BSE Oil and Gas are also selected so as to further observe the effect of FII in particular industry . So this project reveals the impact of FII on the Indian capital market.

There may be many other factors on which a stock index may depend i.e. Government policies, budgets, bullion market, inflation, economic and political condition of the country, FDI, Re./Dollar exchange rate etc. But for this study I have selected only one independent variable i.e. FII. This study uses the concept of correlation, regression and hypothesis to study the relationship between FII and stock index. The FII started investing in Indian capital market from September 1992when the Indian economy was opened up in the same year. Their investments include equity only. The sample data of FIIs investments consists of daily basis from January 2001 to February 2011.

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RESEARCHDESIGN: Null Hypothesis (Ho): The various BSE indices and S&P CNX Nifty index does not rise with the increase in FIIs investment. Tolani Institute of Management Studies Page 2 . Alternate Hypothesis (Ha): The various BSE indices and S&P CNX Nifty index rises with the increase in FIIs investment.

• Sampling Unit: As this study revolves around the foreign institutional investment and Indian stock market. this study aims to find the new insights in terms of finding the relationship between FII’S and Indian Stock Indices. So for the sampling unit is confined to only the Indian stock market. magazines. web links are used. Data collection Method: Secondary data: For the secondary data various literatures. Tolani Institute of Management Studies Page 3 . books.Exploratory Research: As an exploratory study is conducted with an objective to gain familiarity with the phenomenon or to achieve new insight into it. SAMPLING DESIGN: • Universe In this study the universe is finite and will take into the consideration related news and events that have happened in last few year. As there are not possibilities of collecting data personally so no questionnaire is made. journals.

India’s capital markets also began to stage extensive changes. height. whether small values of one set are associated with large values of the other (negative correlation). We can use the Correlation tool to determine whether two ranges of data move together — that is. while the repeal of the Controller of Capital Issues (CCI) in the same year removed the administrative controls over the pricing of new equity issues. whether large values of one set are associated with large values of the other (positive correlation). leading to a significant rise in the Tolani Institute of Management Studies Page 4 . India’s financial markets also began to embrace technology. The banking sector witnessed sweeping changes. Correlation: This analysis tool and its formulas measure the relationship between two data sets that are scaled to be independent of the unit of measurement. 1. or whether values in both sets are unrelated (correlation near zero).RESEARCH ANALYSIS TOOLS: Regression analysis and Correlation analysis: Regression Analysis: We can analyze how a single dependent variable is affected by the values of one or more independent variables — for example. Around the same time. India’s financial market began its transformation path in the early 1990s. reductions in reserve and liquidity requirements and an overhaul in priority sector lending. and weight. The Securities and Exchange Board of India (SEBI) was established in 1992 with a mandate to protect investors and usher improvements into the microstructure of capital markets. Competition in the markets increased with the establishment of the National Stock Exchange (NSE) in 1994. Persistent efforts by the Reserve Bank of India (RBI) to put in place effective supervision and prudential norms since then have lifted the country closer to global standards. INTRODUCTION: Financial markets are the catalysts and engines of growth for any nation. how an athlete's performance is affected by such factors as age. including the elimination of interest rate controls.

An arm’s length relationship is required between the fund sponsor. foreign corporations need to register with the SEBI as Foreign Institutional Investor (FII). and asset Management Company. The 1993 Regulations have been revised on the basis of the recommendations of the Mutual Funds 2000 Report prepared by SEBI. transactions by schemes of mutual funds with sponsors or affiliates of sponsors. Indian investors have been able to invest through mutual funds since 1964. SEBI’s Tolani Institute of Management Studies Page 5 . were often performed by one body. This is in contrast to the previous practice where all three functions. Mutual funds are now required to obtain the consent of investors for any change in the “fundamental attributes” of a scheme. This has become one of the main channels of portfolio investment in India for foreigners. permitted the entry of private sector mutual funds. which brought competition to the mutual fund industry. The notification of the SEBI (Mutual Fund) Regulations of 1993 brought about a restructuring of the mutual fund industry. The regulations prescribed disclosure and advertisement norms for mutual funds. and. with the asset Management Company and trustees. Between 1987 and 1992. custodianship. and also with respect to personal transactions of key personnel of asset management companies and of trustees. on the basis of which unit holders have invested. under which they have enjoyed certain tax benefits. private sector mutual funds have been allowed. since 1993. for the first time. namely trusteeship.volume of transactions and to the emergence of new important instruments in financial intermediation. The revised regulations require disclosures in terms of portfolio composition. FIIs registered with SEBI may invest in domestic mutual funds. trustees. Since 1993. India opened its stock markets to foreign investors in September 1992 and has. In order to trade in Indian equity markets. when UTI was established. received considerable amount of portfolio investment from foreigners in the form of Foreign Institutional Investor’s (FII) investment in equities. public sector banks and insurance companies set up mutual funds. The revised regulations strongly emphasize the governance of mutual funds and increase the responsibility of the trustees in overseeing the functions of the asset management company. Indian mutual funds have been organized through the Indian Trust Acts. whether listed or unlisted. Usually the fund sponsor or its subsidiary. This has resulted in the introduction of new products and improvement of services. custodian. and asset management.

International capital flows and capital controls have emerged as an important policy issues in the Indian context as well. The financial market in India have expanded and deepened rapidly over the last ten years. In India the institutionalization of the capital markets has increased with FII’s becoming the dominant owner of the free float of most blue chip Indian stocks. Investors are known to pull back portfolio investments at the slightest hint of trouble in the host country often leading to disastrous consequences to its economy.K constitute about 20% with other Western European countries hosting another 17% of the FIIs.The FIIs registered with SEBI come from as many as 28 countries(including money management companies operating in India on behalf of foreign investors). Institutions often trade large blocks of shares Tolani Institute of Management Studies Page 6 . A significant part of these portfolio flows to India comes in the form of FII’s investments. The Indian capital markets have witnessed a dramatic increase in institutional activity and more specifically that of FII’s. Portfolio flows often referred as “hot money”-are notoriously volatile compared to other types of capital inflows. They have also been responsible for spreading financial crisis –causing contagion in international financial markets. FII investments have steadily grow from about Rs. policy makers worldwide have been more than a little uneasy about such investments. They have been blamed for exacerbating small economic problems in a country by making large and concerted withdrawals at the first sign of economic weakness. This change in market environment has made the market more innovative and competitive enabling the issuers of securities and intermediaries to grow.US based institutions accounted for slightly over 41% those from the U. as well as asset management companies and other money managers operating on their behalf The sources of these FII flows are varied . mutual funds.2600 crores in 1993 to over Rs. The danger of “abrupt and sudden outflows” inherent with FII flows and their destabilizing effect on equity and foreign exchange markets have been stressed. mostly in equities. The Indian situation has been no different. Ever since the opening of the Indian equity markets to foreigners. charitable/endowment/university fund’s etc. While it is generally held that portfolio flows benefit the economies of recipient countries. Portfolio investment flows from industrial countries have become increasingly important for developing countries in recent years.definition of FIIs presently includes foreign pension funds.272165 crores till the end of Feb 2008.

institutions also have to design and time their trading strategies carefully so that their trades have maximum possible returns and minimum possible impact costs. Moreover. institutional trades can potentially destabilize the markets.and institutional order’s can have a major impact on market volatility. In smaller markets. Tolani Institute of Management Studies Page 7 .

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