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ani t a p Posted Date: Total Responses: 0 a Level: Silver Points/Cash: 10 t e CHAPTER I l ( INTRODUCTION 2

Impact of Foreign Institutional Investors on Indian Stock Market
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0 0 ) Yo g e s h V 1.1 INTRODUCTION a s a 1.1.1 FOREIGN INSTITUTIONAL INVESTORS v a FII is defined as an institution organized outside of India for the purpose ( of making investments into the Indian securities market under the 2 regulations prescribed by SEBI. 0 ‗FII‘ include ―Overseas pension funds, mutual funds, investment trust, 0 asset management company, nominee company, bank, institutional ) portfolio manager, university funds, endowments, foundations, charitable Ch trusts, charitable societies, a trustee or power of attorney holder it incorporated or established outside India proposing to make proprietary r investments or investments on behalf of a broad-based fund. FIIs can a invest their own funds as well as invest on behalf of their overseas clients ( registered as such with SEBI. These client accounts that the FII manages 4 are known as ‗sub-accounts‘. A domestic portfolio manager can also 4 register itself as an FII to manage the. funds of sub-accounts ) Foreign institutional investor means an entity established or incorporated outside India which proposes to make investment in India. Positive tidings about the Indian economy combined with a fast-growing market have made India an attractive destination for foreign institutional R investors. FII is defined as an institution organized outside of India for P the purpose of making investments into the Indian securities market r under the regulations prescribed by SEBI. a m Entry Options For FII o A foreign company planning to set up business operations in India has d the following options: ( Incorporated Entity 1 By incorporating a company under the Companies Act,1956 through 1 • Joint Ventures; or 1 • Wholly Owned Subsidiaries 6 Foreign equity in such Indian companies can be up to 100% depending ) on the requirements of the investor, subject to equity caps in respect of K the area of activities under the Foreign Direct Investment (FDI) policy. M 1.1.2 Important terms to know about FIIs:

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o Sub-account : h Sub-account includes those foreign corporations, foreign individuals, and a institutions, funds or portfolios established or incorporated outside India n on whose behalf investments are proposed to be made in India by a FII. ( Designated Bank: 6 Designated Bank means any bank in India which has been authorized by 2 the Reserve Bank of India to act as a banker to FII. 8 Domestic Custodian: ) Domestic Custodian means any entity registered with SEBI to carry on  Vi the activity of providing custodial services in respect of securities. k Broad Based Fund: a Broad Based Fund means a fund established or incorporated outside s India, which has at least twenty investors with no single individual G investor holding more than 10% shares or units of the fund. Provided that a if the fund has institutional investor(s) it shall not be necessary for the jj fund to have twenty investors. a If the fund has an institutional investor holding more than 10% of shares r or units in the fund, then the institutional investor must itself be broad ( based fund. 5 0 2 1.1.3 FOREIGN INSTITUTIONAL INVESTORS REGISTRATION ) Following entities / funds are eligible to get registered as FII: • Pension Funds • Mutual Funds • Investment Trust • Insurance or reinsurance companies • Investment Trusts • Banks • Endowments • University Funds • Foundations • Charitable Trusts or Charitable Societies Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs: • Asset Management Companies • Institutional Portfolio Managers • Trustees • Power of Attorney Holders. The eligibility criteria for applicant seeking FII registration As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors are required to fulfill the following conditions to qualify for grant of registration: • Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. • The applicant should be regulated by an appropriate foreign regulatory

The fee for registration as FII is US $ 5. In such cases.000. Besides it also has to appoint a designated bank to route its transactions. • A declaration by the applicant that it has entered into a custodian agreement with a domestic custodian together with particulatrs of the domestic custodian.00 "Form A" as prescribed in SEBI (FII) Regulations. The FII registration is valid for 5 years. • The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act.000. which are responsible for incorporation. • The applicant must be a "fit and proper" person. the . SEBI seeks comments from the Reserve Bank of India (RBI). Registration with authorities. • Payment of registration fee of US $ 5. 7 working days would be counted from the day no objection is received from RBI. • Certified copy of the relevant clauses or articles of the Memorandum and Articles of Association or the agreement authorizing the applicant to invest on behalf of its clients • Audited financial statements and annual reports for the last one year . 1999 from the Reserve Bank of India.authority in the same capacity/category where registration is sought from SEBI. SEBI generally takes 7 working days in granting FII registration. 1995 is to be filled before applying for FII registration. • Declaration regarding fit & proper entity. However. Supporting documents required are: • Application in Form A duly signed by the authorized signatory of the applicant. • A signed declaration statement that appears at the end of the Form. in cases where the information furnished by the applicants is incomplete. In cases where the applicant is bank and subsidiary of a bank. • The applicant has to appoint a local custodian and enter into an agreement with the custodian. After expiry of 5 years. • Applicant must be legally permitted to invest in securities outside the country or its in-corporation / establishment. • A declaration by the applicant with registration number and other particulars in support of its registration or regulation by a Securities Commission or Self Regulatory Organisation or any other appropriate regulatory authority with whom the applicant is registered in its home country. provided that the period covered shall not be less than twelve months. seven days shall be counted from the days when all necessary information sought. is not adequate to qualify as Foreign Institutional Investor. reaches SEBI. The mode of payment is Demand Draft in favour of "Securities and Exchange Board of India" payable at New York‖.

US $ 5. However.. The application for renewal should be submitted three months before expiry of the FII registration. The process of renewal of subaccount is same as initial registration.1.000. Renewal fee in this case is US $ 1. 1. SEBI generally takes three working days in granting FII registration. under 100% debt route is similar to that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub-account under 100% debt route. The FII registration application should be sent to: Securities and Exchange Board of India Division of FII & Custodian Mittal Court "B" Wing. OCBs / NRIs are not permitted to get registered as FII/subaccount. First Floor 224. c) Foreign Corporates d) Foreign Individuals. Along with "Form A" and all the relevant documents. "Annexure B" to "Form A" (FII application form) needs to be filled when applying for sub-account registration. Nariman Point Mumbai 400 021 India. The procedure for registration of FII/sub-account. 100 % debt FIIs are debt dedicated FIIs which invest in debt securities only. .5 POST-REGISTRATION PROCESSES: If a registered FII/sub-account undergoes name change. 1. No document is needed to be sent with annexure B.000 needs to be paid for renewal of FII registration. reaches SEBI. b) Proprietary fund of FII. whether incorporated or not. The fee is to be submitted at the time of submitting the application. Same as initial registration. three days shall be counted from the days when all necessary information sought. It should also mention the reasons for the name change and give an undertaking that there has been no change in beneficiary ownership. The mode of payment is Demand Draft in the name of "Securities and Exchange Board of India" payable at New York.registration needs to be renewed. Both the FII and the Sub-account are required to sign the Sub-account application form. the applicants are required to fill in additional form (Annexure 1) while applying for renewal. The validity of sub-account registration is co-terminus with the FII registration under which it is registered. then the FII need to promptly inform SEBI about the change. The FII should apply on the behalf of the Sub-account.1. The fee for sub-account registration is US$ 1. in cases where the information furnished by the applicants is incomplete.000.4 SUB-ACCOUNT REGISTRATION a) Institution or funds or portfolios established outside India.

The funds have to seek further investment limit in case the limit allotted to them is exhausted and they wish to invest further. Circular No FITTC/CUST/09/2000 dated September 21. The FII should ensure that it / Sub-account has nil cash / securities holdings. along with no-objection certificate from existing domestic custodian. Procedure for change of local custodian: In case of change of the local custodian of the FII / sub-account.In case of name change of FII. one sub-account cannot be custodial with more than one custodian. However. the change of custodian would be approved . the change should be intimated to SEBI by the FII. The grant of investment limit for individual 100% debt funds is within this overall limit.by SEBI. the request should be accompanied with documents from home regulator and registrar of the company evidencing approval of name change. On receipt of no objection from the existing custodian and acceptance from the proposed custodian. Procedure if an existing sub-account wants to get registered as a Foreign Institutional Investor: In case if a registered sub-account wishes to get itself registered as a Foreign Institutional Investor. Procedure for registration as FII/sub account under 100% debt route: The procedure for registration of FII/sub account under 100% debt route is similar to that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub account under 100% debt route. A Foreign Institutional Investor having an account with one custodian can open accounts with different custodians for its different sub-accounts. The FII would be required to send a request for cancellation of its registration or registration of its Sub-account/s clearly mentioning the name and registration number of the entity. for change in domestic custodian. However. Government of India allocates the overall investment limit for 100% debt funds annually. If the FII does not renew its/sub-account‘s registration: . then it will have to apply in Form A to SEBI for the same and has to satisfy all the eligibility criteria norms mentioned in SEBI (Foreign Institutional Investor) Regulations. The transferor FII should also submit a Noobjection certificate. Procedure for transferring a sub-account from one FII to another: The FII to whom the Sub-account is proposed to be transferred has to send a request along with a declaration that it is authorized to invest on behalf of the Sub-account. 2000 may be referred. Procedure for renewal of FII/Sub-Account registration: They have to apply before 3 months of the expiry of registration in Form A. 1995. and the original FII registration certificate issued by SEBI should be sent back for necessary amendment. It should also submit a letter from the old FII indicating its 'No-objection' to such registration. The FII should send a request.

So long as FIIs execute purchases and sales on a recognized Indian stock exchange. FIIs are entitled to effect transactions in a broader category of securities than an investor relying on FDI regulations alone. it can apply for disinvestment in terms of Circular No. 1.accounts‘ investment in an Indian company can not exceed ten percent (10%) of the total issued share capital of the Indian company (five percent if the subaccount is a foreign corporation or individual). and repatriate capital. a foreign investor which registers as a FII would be allowed to buy and sell securities over Indian stock exchanges. . There is no limit on the amount that FIIs may invest in the Indian market. subject to deduction for applicable withholding taxes. freely transfer after-tax proceeds from Rupee accounts to foreign currency accounts.6 Scope of Investments under the Portfolio Investment Scheme. and no lock-up periods apply to investments made by FIIs. they are not required to obtain transaction specific approval from the Reserve Bank. FIIs. FIIs are permitted to purchase equity securities (both listed and unlisted). If it is not interested in renewal but has certain residual assets. are permitted to make both primary and secondary investments in the India capital markets. warrants.The registration of the FII / Sub-account would get expired at due date and it would not be allowed to trade in Indian securities markets. dividends interest income and other gains. In addition. Certain limitations apply to investments by FIIs into India. under the Portfolio Investment Scheme. Unlike an investor which relies solely on FDI regulations. In addition. debentures. FIIs are authorized to freely transfer funds from foreign currency accounts to Rupee accounts and vice versa. FIIs‘ and their sub. Exchange Controls FIIs are required to open up one or more bank accounts with certain designated banks and must also appoint a domestic custodian for custody of investment made by the FII. Investment Restrictions. governmental securities and derivative instruments which are traded on a recognized stock exchange. First. FITTC/CUST/12/2001 dated June 04. Through the designated accounts. bonds. 2001 and abides by the guidelines specified in this regard. units of schemes floated by the Unit Trust of India and other domestic municipal funds. capital gain. make Rupee denominated investments in Indian companies. FIIs are also entitled to effect transactions using their own proprietary funds.1. or the funds of their sub accounts. the aggregate investment of all FIIs in an Indian company may not exceed twenty four percent (24%) of its total issued share capital. without the express approval of its board of directors and shareholders.

• As per SEBI. India's exceptional growth story and its booming economy have made the country a favourite destination with foreign institutional investors (FIIs). Foreign corporations and individuals are not eligible subaccounts of a FII that is registered as a debt fund. and FII investments must also comply with the pricing requirements applicable to foreign direct investment. other than in respect of derivative securities traded over a recognized exchange. said FIIs are the largest institutional investors in India with holdings valued at over US$ 751. FII investments crossed $9 billion.5bn. A FII registered as a debt fund. Sector investment prohibitions and caps which apply to foreign direct investment also apply to investments by FIIs. FIIs are not permitted to invest in print media. ? Simplifying procedures and relaxing entry barriers for business activities and Providing investor friendly laws and tax system. • According to Mr Gautam Chand. are required to invest at least seventy percent (70%) of their funds in equity and equity-related securities. FIIs are not permitted to engage in short selling. and must effect transactions through a registered stock broker.1. India is the second highest populated country in the world after China. FIIs may register with SEBI as a debt fund or an equity fund.113 million in December. 2009. the highest in the history of Indian capital markets. 2003. must invest one hundred percent (100%) of its funds in debt instruments. the same sectoral limits which apply to foreign direct investment would continue to apply.Even with board of director and shareholder approval. FIIs which are registered as equity funds. ? Checking the growth of population.072 million while foreign investors pumped in about US$2. • They are also the most successful portfolio investors in India with 102 per cent appreciation since September 30.14 billion as on December 31. on the other hand. number of registered FIIs stood at 1626 and number of registered sub-accounts stood at 4972 as on March 17. It was only in 2004 that India managed to receive the second highest FII inflow at over $8. • On 9th March 2009. 1. • The total net investment for the year up to December 29 stood at US$9. In addition. 2008.7 Trend of FIIs with the help of economic figures: • In 2004. CEO of Instanex. It has continued to attract investment despite the Satyam non-governance issue and the global economic contagion impact on Indian markets. However in terms of density . • In 2005 FIIs invested more in Indian equities than in Korean or Taiwanese equities. Future Prospects of Foreign Institutional Investments: ? Sustaining the growth momentum and achieving an annual average growth of 9-10 % in the next five years. • Korea and Taiwan have always been the biggest recipients of FII money.

It was only $ 2880 in 2003 (World Bank figures). ? Boosting agricultural growth through diversification and development of agro processing. ? Effecting fiscal consolidation and eliminating the revenue deficit through revenue enhancement and expenditure management. GNI per capita remains very poor. telecom and insurance sector in the future. ? Global corporations are responsible for global warming. ? Empowering the population through universal education and health care. It should develop infrastructure with what Finance Minister P Chidambaram International Research Journal of Finance and Economics . by at least 10% per year to integrate not only the surplus labour in agriculture but also the unprecedented number of women and teenagers joining the labour force every year. Due to a high population growth. .India exceeds China.Issue 5 (2006) 171 of India called ―ruthless efficiency‖ and reduce bureaucracy by streamlining government procedures to make them more transparent and effective. the depletion of natural resources. the government is committed to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor and boost economic performance. ? Expanding industry fast. and the production of harmful chemicals and the destruction of organic agriculture. Government had reduced its controls on foreign trade and investment in some areas and has indicated more liberalization in civil aviation. as India's land area is almost half of China's total land. India must maximize the benefits of its youthful demographics and turn itself into the knowledge hub of the world through the application of information and communications technology (ICT) in all aspects of Indian life although. ? The government should reduce its budget deficit through proper pricing mechanisms and better direction of subsidies. ? Developing world-class infrastructure for sustaining growth in all the sectors of the economy ? Allowing foreign investment in more areas.

1. • To analyze the impact of FIIs equity investment on specific industrial sector (FMCG. study is only going to cover foreign investments in form of equity.1. The study will provide a very clear picture of the impact of foreign institutional investors on Indian stock indices. Consumer Durables. But. Banking. Real Estate) indices. • To find the relationship between the FIIs equity investment pattern and Indian stock indices. The study would be helpful for further descriptive studies on the ideas that will be explored. The time period is limited from January 2007 to December 2008 as it will give exact impact in both the bullish and bearish trend. their process of registration and their impact on Indian stock market. it would be beneficial to gain knowledge regarding foreign institutional investments.2 SCOPE AND NEED OF STUDY: Scope of the study is very broader and covers both the stock indices and its comparison with foreign institutional investments.3 RESEARCH METHODOLOGY: Research methodology is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the . 1.1 OBJECTIVES OF THE STUDY: Following are the objectives of the study: • To study the scope and trading mechanism of Foreign Instititutional investors in India.2. Moreover.2. It will also describe the market trends due to FIIs inflow and outflow. Auto.2.

RESEARCH DESIGN Null Hypothesis (Ho): The various BSE indices and S&P CNX Nifty index does not rise with the increase in FIIs investment. FII. But for this study I have selected only one independent variable i. BSE Auto.e. in a way. Their investments include equity only. Sensex and S&P CNX Nifty are selected. budgets. inflation. BSE FMCG. Re.e. economic and political condition of the country.e. This study uses the concept of correlation and regression to study the relationship between FII and stock index. BSE Realty are also selected so as to further observe the effect of FII in particular industry . The FII started investing in Indian capital market from September 1992when the Indian economy was opened up in the same year. These two indices. represent the picture of India‘s stock markets. For this purpose India‘s two major indices i.e. Alternate Hypothesis (Ha): The various BSE indices and S&P CNX Nifty index rises with the increase in FIIs investment. Research methodology is the conceptual structure within which research is conducted. The project deals with the ―Impact of Foreign Institutional Investors on Indian Stock Market‖. bullion market. It constitutes the blueprint for the collection measurement and analysis of the data./Dollar exchange rate etc.research purpose with economy in procedure. Government policies. There may be many other factors on which a stock index may depend i. The research methodology here includes: • Research problem • Research design • Sampling design • Sampling technique • Data collection method Research Problem An adage says ―a problem well defined is half solved‖. Five indices of BSE i. So this project reveals the impact of FII on the Indian capital market. The sample data of FIIs investments consists of monthly average from January 2007 to December 2008. BSE Bankex. FDI. Exploratory Research As an exploratory study is conducted with an objective to gain familiarity . BSE Consumer Durables. This research project studies the relationship between FIIs investment and stock indices.

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. 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. The population correlation calculation returns the covariance of two data sets divided by the product of their standard deviations. • Sampling Unit: As this study revolves around the foreign institutional investment and Indian stock market. journals. books. SAMPLING TECHNIQUE: Convenient Sampling: Study conducted on the basis of availability of the Data and requirement of the project. this study aims to find the new insights in terms of finding the relationship between FII‘S and Indian Stock Indices. untested athlete. magazines. how an athlete's performance is affected by such factors as age. based on a set of performance data.with the phenomenon or to achieve new insight into it. Study requires the events that have impact on the Indian stock market. and weight. We can use the Correlation tool to determine whether two . height. web links are used. We can apportion shares in the performance measure to each of these three factors. So for the sampling unit is confined to only the Indian stock market. 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. and then use the results to predict the performance of a new. As there are not possibilities of collecting data personally so no questionnaire is made. Data collection Method Secondary data: For the secondary data various literatures.

whether small values of one set are associated with large values of the other (negative correlation). whether large values of one set are associated with large values of the other (positive correlation). The history of Indian stock market is almost the same as the history of BSE. BSE and NSE represent themselves as synonyms of Indian stock market.ranges of data move together — that is. BSE is the oldest stock market in India. The 30 stock sensitive index or Sensex was first compiled in 1986.1 OVERVIEW OF INDIAN STOCK MARKET The working of stock exchanges in India started in 1875. The history of Indian stock trading starts with 318 persons taking membership in Native Share and Stock Brokers Association. BSE got permanent recognition from the Government of India. or whether values in both sets are unrelated (correlation near zero). National Stock Exchange comes second to BSE in terms of popularity. CHAPTER II INTRODUCTION TO INDIAN STOCK MARKET 2. In 1965. The . which we now know by the name Bombay Stock Exchange or BSE in short.

The up-beat mood of the market was suddenly lost with Harshad Mehta scam. says top officials of SEBI. It came to public knowledge that Mr. He played with 270 million shares of about 90 companies. This recent phenomenon is the result of opening up of online trading and diminished interest rates from banks. Many Indians working in foreign countries now divert their savings to stocks. Later prime minister Man Mohan Singh‘s assurance of ‗reforms with a human face‘ cast off the fears and market reacted sharply to touch the highest ever mark of 8500. Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. Mehta. the Government formed The Securities and Exchange Board of India. The 7000 mark was crossed in June and the 8000 mark on September 8 in 2005. Experts now believe the sensex can soar past 14000 mark before 2010. 3000 and 4000 figures in 1992. Many foreign institutional investors (FII) are investing in Indian stock markets on a very large scale. SEBI is the statutory body that controls and regulates the functioning of stock exchanges. The result of a cricket match between India and Pakistan also affected the movements in Indian stock market. portfolio managers investment advisors etc. India. The National Democratic Alliance led by BJP.‘ The factors that affected the market in the past were good monsoon. during 2004 public elections unsuccessfully tried to ride on the market sentiments to power. Millions of small-scale investors became victims to the fraud as the Sensex fell flat shedding 570 points. through an Act in 1992. brokers. The time factor also . Global investors now ardently seek India as their preferred location for investment. also known as the big-bull of Indian stock market diverted huge funds from banks through fraudulent means. Once viewed with skepticism. stock market now appeals to middle class Indians also. after United States hosts the largest number of listed companies. To prevent such frauds. Now with the inception of online trading and daily settlements the chances for a fraud is nil. The unpredictable behavior of the market gave it a tag – ‗a volatile market.Sensex is compiled based on the performance of the stocks of 30 financially sound benchmark companies. In 1990 the BSE crossed the 1000 mark for the first time. It crossed 2000. SEBI oblige several rigid measures to protect the interest of investors. Man Mohan Singh. The reason for such huge surge in the stock market was the liberal financial policies announced by the then financial minister Dr. NDA was voted out of power and the sensex recorded the biggest fall in a day amidst fears that the CongressCommunist coalition would stall economic reforms. The liberal economic policies pursued by successive Governments attracted foreign institutional investors to a large scale. The stockbrokers based in India are opening offices in different countries mainly to cater the needs of Non Resident Indians. Bharatiya Janatha Party‘s rise to power etc. sub-brokers.

18th Century East India Company was the dominant institution and by end of the century. ABC Co. enjoys high investor confidence and there is an anticipation of an upward movement in its stock price. Now investors don‘t have to gather at the Exchanges. education.e. Good monsoons always raise the market sentiments. ONGC and big names like that. demand and supply for a particular stock. high supply and low demand) for the stock of ABC Co. buyers will have to bid a higher price for this stock to match the ask price from the seller which will increase the stock price of ABC Co. One of the oldest stock markets in Asia. mass media.works for the NRIs.e. buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT. The bullish run of the stock market can be associated with a steady growth of around 6% in GDP. most of the operations are done electronically and the stock markets have become almost paperless. 2. On the contrary. and can trade freely from their home or office over the phone or through Internet.e. Ltd. its price will fall down. They can buy or sell stock online after returning from their work places. Ltd. large potential of growth in the fields of telecommunication. the Indian Stock Markets has a 200 years old history. The price at which each buying and selling transaction takes is determined by the market forces (i. In earlier times.The Origin Stock markets refer to a market place where investors can buy and sell stocks. More and more people would want to buy this stock (i. if there are more sellers than buyers (i.2 History of the Indian Stock Market . less supply). Therefore.e. Trading list by the end of 1839 got broader 1840's Recognition from banks and merchants to about half a dozen brokers 1850's Rapid development of commercial enterprise saw brokerage . Let us take an example for a better understanding of how market forces determine stock prices. Ltd. busuness in its loan securities gained full momentum 1830's Business on corporate stocks and shares in Bank and Cotton presses started in Bombay. The recent incidents that led to growing interest among Indian middle class are the initial public offers announced by Tata Consultancy Services. Maruti Udyog Limited. in the market. tourism and IT sectors backed by economic reforms ensure that Indian stock market continues its bull run. the growth of Indian companies to MNCs. high demand) and very few people will want to sell this stock at current market price (i. A good monsoon means improved agricultural produce and more spending capacity among rural folk.

3 ACHIEVEMENTS AND MILESTONES Pre-Independance Scenario . 2850 could only be sold at Rs. marking the beginning of the "Share Mania" in India 1862-63 The number of brokers increased to about 200 to 250 1865 A disastrous slump began at the end of the American Civil War (as an example.business attracting more people into the business 1860's The number of brokers increased to 60 1860-61 The American Civil War broke out which caused a stoppage of cotton supply from United States of America. number of brokers came down to 3 and the Exchange was closed down 1934 Establishment of the Lahore Stock Exchange 1936 Merger of the Lahoe Stock Exchange with the Punjab Stock Exchange 1937 Re-organisation and set up of the Madras Stock Exchange Limited (Pvt. 87) 2. brokers used to gather at a street (now well known as "Dalal Street") for the purpose of transacting business. 1875 "The Native Share and Stock Brokers' Association" (also known as "The Bombay Stock Exchange") was established in Bombay 1880's Development of cotton mills industry and set up of many others 1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association" 1880 .) Limited led by improvement in stock market activities in South India with establishment of new textile mills and plantation companies 1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited was established 1944 Establishment of "The Hyderabad Stock Exchange Limited" 1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and Shares Exchange Limited" were established and later on merged into "The Delhi Stock Exchange Association Limited" Post Independance Scenario .Establishment of Different Stock Exchanges 1874 With the rapidly developing share trading business.90's Sharp increase in share prices of jute industries in 1870's was followed by a boom in tea stocks and coal 1908 "The Calcutta Stock Exchange Association" was formed 1920 Madras witnessed boom and business at "The Madras Stock Exchange" was transacted with 100 brokers. Bank of Bombay Share which had touched Rs. 1923 When recession followed.

The Exchanges that were recognized under the Act were: 1. Bangalore 8. Madras 4. Hyderabad 14. Bnagalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Delhi 6. Government policies during 1980's also played a vital role in the development of the Indian Stock Markets. Hyderabad 7. Indore Many more stock exchanges were established during 1980's. which is visible from the table: .The depression witnessed after the Independance led to closure of a lot of exchanges in the country. Ahmedabad 5. and later on merged with the Delhi Stock Exchange. Bombay 9. listed companies as well as their capital. 1986) • Jaipur Stock Exchange Limited (1989) • Bhubaneswar Stock Exchange Association Limited (1989) • Saurashtra Kutch Stock Exchange Limited (at Rajkot. 1982) • Pune Stock Exchange Limited (1982) • Ludhiana Stock Exchange Association Limited (1983) • Gauhati Stock Exchange Limited (1984) • Kanara Stock Exchange Limited (at Mangalore. Calcutta 10. 1990) • Coimbatore Stock Exchange • Meerut Stock Exchange 2. Calcutta 3. 1989) • Vadodara Stock Exchange Limited (at Baroda. Lahore Estock Exchange was closed down after the partition of India. namely: • Cochin Stock Exchange (1980) • Uttar Pradesh Stock Exchange Association Limited (at Kanpur. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act. Ahmedabad 12. There was a sharp increase in number of Exchanges. there are twenty one recognized stock exchanges in India which does not include the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL). Delhi 13. 1956. Madras 11. Bombay 2. Bangalore 15.4 PERFORMANCE OF INDIAN STOCK MARKET OVER FEW YEARS At present. 1985) • Magadh Stock Exchange Association (at Patna.

(Cr. of Stock Issues of Listed Cos.5 TRADING PATTERN OF THE INDIAN STOCK MARKET Indian Stock Exchanges allow trading of securities of only those public limited companies that are listed on the Exchange(s). OTCEI was incorporated in 1990 under the Companies Act 1956. No. OTCEI is the first screen based nationwide stock exchange in India created by Unit Trust of India. 1506 2111 2838 3230 3697 6174 8967 11784 4 Capital of Listed Cos. Industrial Credit and Investment Corporation of .1 2. • Buy and sell securities for his clients and charge commission for the same. Buy and sell securities on his own account and risk.) (5/2) 86 107 167 211 298 582 1770 5564 Figure 2. (Cr. (Lakh Rs.2 Indian stock exchange allows a member broker to perform following activities: • Act as an agent. In order to overcome these inefficiencies. Rs.) 24 63 113 168 175 224 514 693 7 Market Value of Capital per Listed Cos. They are divided into two categories: Types of Transactions The flowchart below describes the types of transactions that can be carried out on the Indian stock exchanges: Figure 2. long settlement periods and benami transactions are a few examples that adversely affected investors. As on 31st December 1946 1961 1971 1981 1991 1995 2001 2005 1 No.S. (4/2) (Lakh Rs. 1125 1203 1599 1552 2265 4344 6229 8593 3 No. Over The Counter Exchange of India (OTCEI) Traditionally. of Listed Cos. Rs. trading in Stock Exchanges in India followed a conventional style where people used to gather at the Exchange and bids and offers were made by open outcry. Lack of liquidity and transparency.) 971 1292 2675 3273 6750 25302 110279 478121 6 Capital per Listed Cos. of Stock Exchanges 7 7 8 8 9 14 20 23 2 No. • Act as a trader or dealer as a principal. This age-old trading mechanism in the Indian stock markets used to create many functional inefficiencies.) 270 753 1812 2614 3973 9723 32041 59583 5 Market value of Capital of Listed Cos.

all Insurance Corporations. • When the prices match the transaction will be completed . Advantages of trading at NSE • Integrated network for trading in stock market of India • Fully automated screen based system that provides higher degree of transparency • Investors can transact from any part of the country at uniform prices • Greater functional efficiency supported by totally computerized . Industrial Finance Corporation of India. Capital market Wholesale Debt Market . General Insurance Corporation and its subsidiaries and CanBank Financial Services. a confirmation slip will be printed at the office of the trading member. namely: 1. Industrial Development Bank of India. etc.Similar to money market operations. debt market operations involve institutional investors and corporate bodies entering into transactions of high value in financial instrumets like treasury bills. On the basis of the recommendations of high powered Pherwani Committee. government securities. Industrial Credit and Investment Corporation of India. Wholesale debt market 2.India. Advantages of OTCEI • Greater liquidity and lesser risk of intermediary charges due to widely spread trading mechanism across India • The screen-based scripless trading ensures transparency and accuracy of prices • Faster settlement and transfer process as compared to other exchanges • Shorter allotment procedure (in case of a new issue) than other exchanges National Stock Exchange In order to lift the Indian stock market trading system on par with the international standards. selected commercial banks and others. the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India. Industrial Finance Corporation of India. NSE provides exposure to investors in two types of markets. SBI Capital Markets. Trading at NSE • Fully automated screen-based trading mechanism • Strictly follows the principle of an order-driven market • Trading members are linked through a communication network • This network allows them to execute trade from their offices • The prices at which the buyer and seller are willing to transact will appear on the screen.

Arshanapalli Bala et al (1997) has examined the nature and extent of linkage between the U. but portfolio capital is associated more closely with volatility and its capacity to be triggered by both domestic as well as exogenous factors. . et al (1997) held that Steps are taken to gain extra mileage as regards the level of foreign investment receipts is concerned. and the Indian stock markets. The results also demonstrate that ownership statistics fail to accurately reflect institutional investors‘ importance in closed-end funds market. The results failed to provide the evidence that institutional investors offset the position of individual investors or that institutional investors face systematic ―noise trader risk‖. 3. 2.Sias (1996) has found that a trader-intensified transactions database is employed to investigate: (1) the relation between order-flow imbalance closed-end funds share prices and discounts (2) the role of institutional investors in closed-end funds. D. Ilangovan Prof. Foreign direct investment is proven to have well-known positive effect through technology spillovers and stable investments tied to plant and equipment. Empirical results are consistent with the hypothesis that buyers (sellers) of closed-end funds face upward (downward) sloping supply (demand) curves.network CHAPTER III SURVEY OF LITERATURE REVIEW OF LITERATURE 1. making it extremely difficult to manage and control.S. The study uses the theory of co-integration to study interdependence between the BSE. Richard W.

has marked a regime shift in the determinants of FII after Asian crisis. An error correction model (ECM) of two variables employed to simultaneously estimate short-run and long-run dynamics of variables. Specifically. as the effect of economic liberalizations started to take place. it does not influence the NASDAQ and NYSE markets.NYSE and NASDAQ. The study found that in the preAsian crisis period any change in FII found to have a positive impact on the equity returns. 4. 6. particularly after 1998. However. On the other hand currency depreciation has negative short-run and long-run effects on stock market. Their findings indicate that the US equity market appears to be rationally adjusting to a structural change in the behaviour of the US investing public. It should be noted that stock markets of many countries became increasingly interdependent with the US stock markets during the same time period. In the long-run. India was late in effecting the liberalization policy and when it implanted these policies it did so in a careful and slow manner. But in the post-Asian crisis period it was found the reverse relation that change in FII is mainly due to change in equity returns. inflation. The sample data consisted of daily closing prices for the three indices from January 1991 to December 1998 with 2338 observations. But there was not much effect on the equity returns. the results show that increase in aggregate stock prices has negative short-run effect on domestic currency value. Hence. any empirical exercise on FII has to take care of this fact. The ECM result revealed significant short-run and long-run relationship between two financial markets. .Ajayi et al (2001) have studied recent advances in the timeseries analysis to examine the inter-temporal relation between stock indices and exchange rates for a sample of eight advanced economies. stock prices have positive effect on domestic currency value. however. It must be noted that though BSE stock market is integrated with US stock markets. The results were in support of the intuitive hypothesis that the Indian stock market was not interrelated to the US stock markets for the entire sample period. Richard A. Chakrabarti (2001) has examined in his research that following the Asian crisis and the bust of info-tech bubble internationally in 1998-99 the net FII has declined by US$ 61 million. This negative investment would possibly disturb the long-term relationship between FII and the other variables like equity returns. Applying the Engel and Granger correction methodology followed by a state space procedure. etc. 5. the BSE became more integrated with the NASDAQ and the NYSE. we find that the levels of the stock market are influenced by the net flow of funds into equity MFs. Michael Mosebach et al (2000) have examined the long run equilibrium relation between the net flow of funds into equity MF and the S&P 500 index.

7. Stanley Morgan (2002) has examined that FIIs have played a very important role in building up India‘s forex reserves, which have enabled a host of economic reforms. Secondly, FIIs are now important investors in the country‘s economic growth despite sluggish domestic sentiment. The Morgan Stanley report notes that FII strongly influence short-term market movements during bear markets. However, the correlation between returns and flows reduces during bull markets as other market participants raise their involvement reducing the influence of FIIs. Research by Morgan Stanley shows that the correlation between foreign inflows and market returns is high during bear and weakens with strengthening equity prices due to increased participation by other players. 8. Sivakumar S (2003) has analysed the net flows of foreign institutional investment over the years, it also briefly analyses the nature of FII flows based on research, explores some determinants of FII flows and examines if the overall experience has been stabilising or destabilising for the Indian capital market. 9. Rai Kulwant et al (2003) heldf that the present study tries to examine the determinants of Foreign Institutional Investments in India, which have crossed almost US$ 12 billions by the end of 2002. Given the huge volume of these flows and its impact on the other domestic financial markets understanding the behavior of these flows becomes very important at the time of liberalizing capital account. In this study, by using monthly data, we found that FII inflow depends on stock market returns, inflation rate (both domestic and foreign) and ex-ante risk. In terms of magnitude, the impact of stock market returns and the ex-ante risk turned out to be major determinants of FII inflow. This study did not find any causation running from FII inflow to stock returns as it was found by some studies. Stabilizing the stock market volatility and minimizing the ex-ante risk would help in attracting more FII inflow that has positive impact on the real economy. 10. Agarwal, Chakrabarti et al (2003) have found in their research that the equity return has a significant and positive impact on the FII. But given the huge volume of investments, foreign investors could play a role of market makers and book their profits, i.e., they can buy financial assets when the prices are declining thereby jacking-up the asset prices and sell when the asset prices are increasing. Hence, there is a possibility of bidirectional relationship between FII and the equity returns. 11. Raju M.T, Ghosh Anirban (2004) held that volatility estimation is important for several reasons and for different people in the market. Pricing of securities is supposed to be dependent on volatility of each

asset. In this paper we not only extend the study period of the earlier paper but also expand coverage in terms of number of countries and statistical techniques. Mature markets / Developed markets continue to provide over long period of time high return with low volatility. Amongst emerging markets except India and China, all other countries exhibited low returns (sometimes negative returns with high volatility). India with long history and China with short history, both provide as high a return as the US and the UK market could provide but the volatility in both countries is higher. The third and fourth order moments exhibit large asymmetry in some of the developed markets. Comparatively, Indian market show less of skewness and Kurtosis. Indian markets have started becoming informationaly more efficient. Contrary to the popular perception in the recent past, volatility has not gone up. Intra day volatility is also very much under control and has came down compared to past years. 12. Sandhya Ananthanarayanan (2004) held that as part of its initiative to liberalize its financial markets, India opened her doors to foreign institutional investors in September, 1992. This event represents a landmark event since it resulted in effectively globalizing its financial services industry. We study the impact of trading of Foreign Institutional Investors on the major stock indices of India. Our major findings are as follows. First, we find that unexpected flows have a greater impact than expected flows on stock indices. Second, we find strong evidence consistent with the base broadening hypothesis. Third, we do not detect any evidence regarding momentum or contrarian strategies being employed by foreign institutional investors. Fourth, our findings support the price pressure hypothesis. Finally, we do not find any substantiation to the claim that foreigners‘ destabilize the market. 13. Kwangsoo Ko et al (2004) have examined the characteristics of institutional and foreign investor stock ownership, and the stock price performance according to their ownership for two major Asian markets, Japan and Korea. The differences in abnormal returns are more evident for foreign ownership portfolios than for institutional ownership portfolios, especially in Korea. If we consider either institutional or foreign investors, the differences in abnormal returns remain still significant in Korea, but not in Japan. Both institutional investors‘ incentive for stock holding and the extent of stock market efficiency would be the possible explanations for the different results between Japan and Korea. 14. David A. Carpenter et al (2005) has examined that the Indian government has established a regulatory framework for three separate investment avenues: foreign direct investment; investment by foreign institutional investors; and investment by foreign venture capital

investors. While these investment alternatives have created clear avenues for foreign investment in India, they remain subject to many conditions and restrictions which continue to hamper foreign investment in India. 15. Bose Suchismita et al (2005) has examined the impact of reforms of the foreign institutional investors' (FIIs) investment policy, on FII portfolio flows to the Indian stock markets, an aspect, studies on determinants of FII flows to India so far have not taken into consideration. FIIs have been allowed to invest in the domestic financial market since 1992; the decision to open up the Indian financial market to FII portfolio flows was influenced by several factors such as the disarray in India's external finances in 1991 and a disorder in the country's capital market. Aimed primarily at ensuring non-debt creating capital inflows at a time of an extreme balance of payment crisis and at developing and disciplining the nascent capital market, foreign investment funds were welcomed to the country. Analysis also helps to evaluate the impact of liberalization policies as well as measures for strengthening of policy framework for FII flows, in the post-Asian crisis period 16. Samy Dr. P. Chella et al (2006) held that Investors can pick up stocks at these levels for a growth story for long term i.e. for equities a 5 years holding period is reasonable to give a very above average return. Caution may be exercised to buy only good, well established market movers and never, to buy on margins or play intraday or dabble in derivatives market, which is high risk. 17. Sikdar Soumyen (2006) held that the surge in inflows has not been matched by a corresponding growth in the absorptive capacity of the Indian economy. The major reason is the persistent slowdown of industrial activity since 1997. At the same time, the Reserve Bank of India (RBI) has been reluctant to let the rupee find its market-clearing level under the circumstances. This has resulted in steady accretion to our foreign exchange reserves (FER) over the last few years. Problems of Foreign Capital are widening of current account deficit, monetization, appreciation of real exchange, etc. 18. Andy Lin Chih-Yuan Chen (2006) has explored the relationship between qualified foreign institutional investors (QFIIs) and Taiwan‘s stock market and evaluates the effect of QFIIs‘ investment transactions on Taiwan‘s stock market. By taking the date of easing regulatory restrictions on foreigners‘ stock investment holdings as a cutoff point, the research uses the highest and lowest 10 stocks of QFII holdings in three industry sectors as sample portfolios to study the prior- and post-event returns. 19. Dhamija Nidhi (2007) held that the increase in the volume of foreign

The promoters‘ holdings and the foreign investments are inversely related. The determinants and destinations of these flows and how are they influencing economic development in the country have also been debated. P. regulatory policies have changed to keep up with changed domestic scenarios. The scope and the trading mechanism of Foreign Institutional investors in India is discussed as follow: . threat of capital flight. This paper examines the role of various factors relating to individual firm-level characteristics and macroeconomic-level conditions influencing FII investment. Among the financial performance variables the share returns and earnings per share are significant factors influencing their investment decision. CHAPTER IV ISSUE STUDIED 4. financial performance and stock performance. The regulatory environment of the host country has an important impact on FII inflows.institutional investment (FII) inflows in recent years has led to concerns regarding the volatility of these flows. Also examined is the relationship between foreign institutional investment and firm specific characteristics in terms of ownership structure. As the pace of foreign investment began to accelerate. It is observed that foreign investors invested more in companies with a higher volume of shares owned by the general public. The paper also provides a review of these changes. its impact on the stock markets and influence of changes in regulatory regimes. 20.1 To study the scope and trading mechanism of Foreign Instititutional Investors in India. Foreign investors choose the companies where family shareholding of promoters is not substantial. Krishna Prasanna (2008) has examined the contribution of foreign institutional investment particularly among companies included in sensitivity index (Sensex) of Bombay Stock Exchange.

Registration with authorities. 1995 is to be filled before applying for FII registration.000. • The applicant has to appoint a local custodian and enter into an agreement with the custodian. • Certified copy of the relevant clauses or articles of the Memorandum and Articles of Association or the agreement authorizing the applicant to invest on behalf of its clients • Audited financial statements and annual reports for the last one year . general reputation of fairness and integrity. • A declaration by the applicant that it has entered into a custodian agreement with a domestic custodian together with particulatrs of the domestic custodian. financial soundness. • The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act. • The applicant must be a "fit and proper" person. provided that the period covered shall not be less than twelve months. SEBI generally takes 7 working days in granting FII registration. • A declaration by the applicant with registration number and other particulars in support of its registration or regulation by a Securities Commission or Self Regulatory Organisation or any other appropriate regulatory authority with whom the applicant is registered in its home country.The eligibility criteria for applicant seeking FII registration As per Regulation 6 of SEBI (FII) Regulations. experience. • The applicant should be regulated by an appropriate foreign regulatory authority in the same capacity/category where registration is sought from SEBI. Supporting documents required are: • Application in Form A duly signed by the authorized signatory of the applicant. • Payment of registration fee of US $ 5.1995. professional competence. 1999 from the Reserve Bank of India.000. . Foreign Institutional Investors are required to fulfill the following conditions to qualify for grant of registration: • Applicant should have track record. which are responsible for incorporation. • Applicant must be legally permitted to invest in securities outside the country or its in-corporation / establishment.00 "Form A" as prescribed in SEBI (FII) Regulations. Besides it also has to appoint a designated bank to route its transactions. The mode of payment is Demand Draft in favour of "Securities and Exchange Board of India" payable at New York‖. • A signed declaration statement that appears at the end of the Form. • Declaration regarding fit & proper entity. The fee for registration as FII is US $ 5. is not adequate to qualify as Foreign Institutional Investor.

seven days shall be counted from the days when all necessary information sought. US $ 5. In cases where the applicant is bank and subsidiary of a bank.However. Same as initial registration. The application for renewal should be submitted three months before expiry of the FII registration. OCBs / NRIs are not permitted to get registered as FII/subaccount. whether incorporated or not. under 100% debt route is similar to that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub-account under 100% debt route. the registration needs to be renewed. SEBI generally takes three working days in granting FII registration.000. However. 7 working days would be counted from the day no objection is received from RBI.000. in cases where the information furnished by the applicants is incomplete. reaches SEBI. In such cases. The process of renewal of subaccount is same as initial registration. The FII should apply on the behalf of the Sub-account. Renewal fee in this case is US $ 1. f) Proprietary fund of FII. It should also mention the reasons for the name change and give an undertaking that there has been no change in beneficiary ownership. Both the FII and the Sub-account are required to sign the Sub-account application form. The mode of payment is Demand Draft in the name of "Securities and Exchange Board of India" payable at New York. The procedure for registration of FII/sub-account. After expiry of 5 years. The fee is to be submitted at the time of submitting the application. The FII registration is valid for 5 years. SUB-ACCOUNT REGISTRATION e) Institution or funds or portfolios established outside India. 100 % debt FIIs are debt dedicated FIIs which invest in debt securities only. SEBI seeks comments from the Reserve Bank of India (RBI). g) Foreign Corporates h) Foreign Individuals. Along with "Form A" and all the relevant documents. "Annexure B" to "Form A" (FII application form) needs to be filled when applying for sub-account registration. reaches SEBI.000 needs to be paid for renewal of FII registration. . No document is needed to be sent with annexure B. then the FII need to promptly inform SEBI about the change. The validity of sub-account registration is co-terminus with the FII registration under which it is registered. POST-REGISTRATION PROCESSES: If a registered FII/sub-account undergoes name change. the applicants are required to fill in additional form (Annexure 1) while applying for renewal. The fee for sub-account registration is US$ 1. in cases where the information furnished by the applicants is incomplete. three days shall be counted from the days when all necessary information sought.

then it will have to apply in Form A to SEBI for the same and has to satisfy all the eligibility criteria norms mentioned in SEBI (Foreign Institutional Investor) Regulations. However.by SEBI. Procedure for registration as FII/sub account under 100% debt route: The procedure for registration of FII/sub account under 100% debt route is similar to that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub account under 100% debt route. The FII should send a request. the change of custodian would be approved . The funds have to seek further investment limit in case the limit allotted to them is exhausted and they wish to invest further. the request should be accompanied with documents from home regulator and registrar of the company evidencing approval of name change. and the original FII registration certificate issued by SEBI should be sent back for necessary amendment. A Foreign Institutional Investor having an account with one custodian can open accounts with different custodians for its different sub-accounts. for change in domestic custodian. The transferor FII should also submit a Noobjection certificate. However. 2000 may be . On receipt of no objection from the existing custodian and acceptance from the proposed custodian. the change should be intimated to SEBI by the FII. The FII should ensure that it / Sub-account has nil cash / securities holdings. The grant of investment limit for individual 100% debt funds is within this overall limit. Procedure for transferring a sub-account from one FII to another: The FII to whom the Sub-account is proposed to be transferred has to send a request along with a declaration that it is authorized to invest on behalf of the Sub-account. Government of India allocates the overall investment limit for 100% debt funds annually. Procedure for change of local custodian: In case of change of the local custodian of the FII / sub-account. It should also submit a letter from the old FII indicating its 'No-objection' to such registration. 1995. Circular No FITTC/CUST/09/2000 dated September 21. Procedure for renewal of FII/Sub-Account registration: They have to apply before 3 months of the expiry of registration in Form A. The FII would be required to send a request for cancellation of its registration or registration of its Sub-account/s clearly mentioning the name and registration number of the entity. along with no-objection certificate from existing domestic custodian. one sub-account cannot be custodial with more than one custodian.In case of name change of FII. Procedure if an existing sub-account wants to get registered as a Foreign Institutional Investor: In case if a registered sub-account wishes to get itself registered as a Foreign Institutional Investor.

If it is not interested in renewal but has certain residual assets. For the sub-account registered under Foreign Companies/Individual category. 100% investment shall be made in debt security only. Investment limits on equity investments by FII/sub-account: a. d. In the name of sub-account when making investments on behalf of Sub-account DERIVATIVES POSITION LIMITS a. The FII position limits in a derivative contracts (Individual Stocks) The FII position limits in a derivative contract on a particular underlying . c. Investment on behalf of each sub-account shall not exceed 10% of total issued capital of an India company. the investment limit is fixed at 5% of issued capital.referred. Securities to be registered in name of : a. listed or to be listed on a recognized stock exchange in India. Other investment limits: Normal FII (70:30 Route) 100% Debt FII Total investment in equity and equity related instruments shall not be less than 70% of aggregate of all investments. it can apply for disinvestment in terms of Circular No. e. Investment limits on debt investments by FII/sub-account: The FII investments in debt securities are governed by the policy if the Government for FII investments in Government debt. b. currently of India. on its own behalf. 2001 and abide by the guidelines specified in this regard. Units of mutual funds. INVESTMENT OPPORTUNITIES Financial instruments are available for FII investments: a. Dated Government Securities.55 billion 70 : 30 Route US $ 200 million Total Limit US $ 1. Currently following limits are in effect: 100 % Debt Route US $ 1. debentures and warrants of companies. Derivatives traded on a recognized stock exchange. In the name of FII when making investments on its own behalf b. FII. These limits are within overall limit of 24% / 49 % / or the sectoral caps prescribed by Government of India / Reserve Bank of India. shall not invest in equity more than 10% of total issued capital of an Indian company. c. Securities in primary and secondary markets including shares. unlisted.75 billion o For corporate debt the investment limit is fixed at US $ 500 million. If the FII does not renew its/sub-account‘s registration: The registration of the FII / Sub-account would get expired at due date and it would not be allowed to trade in Indian securities markets. Commercial papers. b. FITTC/CUST/12/2001 dated June 04.

stock option contracts and single stock futures contracts are: o For stocks in which the market wide position limit is less than or equal to Rs. This limit would be applicable on open positions in all futures contracts on a particular underlying index. ii. d. In addition to the above. per exchange. 250 Cr. This limit would be applicable on open positions in all option contracts on a particular underlying index. o For stocks in which the market wide position limit is greater than Rs.e. At the level of the sub-account The position limits for a Sub-account in near month exchange traded interest rate derivative contracts shall be higher of: ? Rs. 100 Cr or ? 15% of total open interest in the market in exchange traded interest rate derivative contracts. US $ 100 million. c. 250 Crores or 15 % of the total open interest of the market in index options. FII Position limits in Index futures contracts: FII position limit in all index futures contracts on a particular underlying index shall be Rs. Long positions in index derivatives (long futures. per exchange. T-Bills and similar instruments. 250 Crore or 15 % of the total open interest of the market in index futures. FII Position limits in Index options contracts FII position limit in all index options contracts on a particular underlying index shall be Rs. FIIs shall take exposure in equity index derivatives subject to the following limits: i. whichever is higher. 50 Cr. . the FII position limit in such stock shall be 20% of the market wide limit. the FII position limit in such stock shall be Rs. long calls and short puts) not exceeding (in notional value) the FII‘s holding of cash. short calls and long puts) not exceeding (in notional value) the FII‘s holding of stocks. government securities. ii. In addition to the above. FII Position Limits in Interest rate derivative contracts At the level of the FII The notional value of gross open position of a FII in exchange traded interest rate derivative contracts shall be: i.stock i. whichever is higher. the FII may take exposure in exchange traded in interest rate derivative contracts to the extent of the book value of their cash market exposure in Government Securities. b. 250 Cr. Short positions in index derivatives (short futures.

067 2727. The sample data consists of 24 observations for FII. (2-tailed) .590a Residual 7. Error of the Estimate 1 .030 -.580 Total 7. Predictors: (Constant).439E7 10 7439278. The relationship between the FII‘s equity investment pattern and Indian stock indices is studied for the year 2007 & 2008 with the help of correlation and regression analysis.1: Correlation between the FII‘s equity investment pattern and Sensex for the year 2007 Model Summary Model R R Square Adjusted R Square Std. Average index of all the indices and monthly average of net investments made by FII is taken into consideration in the study.50409 a. FII Model Sum of Squares df Mean Square F Sig. FII .590 N 12 12 Fig 4.126 . Stock indices were taken as dependent variable.126 1 2302261. Predictors: (Constant). The results and the analysis are shown below: Correlations(2007) FIIs Sensex FIIs Pearson Correlation 1 .309 . Sensex and S&P CNX Nifty starting from January 2007 to December 2008.2 To find the relationship between the FIIs equity investment pattern and Indian stock indices.173 Sig. The data was taken from various financial sites. FII was taken as independent variable.670E7 11 a. (2-tailed) .590 N 12 12 Sensex Pearson Correlation . 1 Regression 2302261.4.173a .173 1 Sig.

? The regression coefficient is 0.3 Correlation between the FII‘s equity investment pattern and Sensex for the year 2008 Model Summary Model R R Square Adjusted R Square Std. (2-tailed) . ? The standard error comes out to be 2727.2 Regression between the FII‘s equity investment pattern and Sensex for the year 2007 Analysis for the year 2007 on the basis of the above results obtained: The data includes 12 observations of monthly Sensex and FIIs in year 2007.688a Residual 1. Correlations FII Sensex FII Pearson Correlation 1 . Error of the Estimate 1 .590 which reflects 59.083E8 11 Fig 4.54183 a.926 1 1815662. (2-tailed) . This does not mean the relation is false but we can say that the error in linear relation is high.064E8 10 1.b.171 . FII Model Sum of Squares df Mean Square F Sig.173 and regression = 0.130 1 Sig.130 Sig.017 -.0 % variability in Sensex with the independent variable i. The correlation and regression is calculated with the help of SPSS.590 ? There is positive effect of FII on Sensex but the correlation coefficient is low.082 3262.926 . Predictors: (Constant).50409 which is very high and so it means that the deviation from the mean value is very high.688 N 12 12 Fig 4.4 Regression between the FII‘s equity investment pattern and Sensex for the year 2008 .688 N 12 12 Sensex Pearson Correlation .e FII and how much the FII affects the Sensex in 2007. 1 Regression 1815662.130a .064E7 Total 1. Number of Observations = 12 Correlation = 0. This means that Sensex has a relation with FII but the FII is not influencing the Sensex much. Dependent Variable: sensex Fig 4.

This does not mean that the relation is false but the error in linear relation is high. This means that Sensex has a relation with FII but the FII is not influencing the Sensex much. Correlations FII nifty FII Pearson Correlation 1 .099 491.54183 ? The effect of FII on Sensex if positive. Error of the Estimate 1 .097 1 3183.642 N 12 12 Fig 4. The correlation and regression is calculated with the help of SPSS. ? In 2008. (2-tailed) 0.957 Total 2420192.Analysis for the year 2008 on the basis of the above results obtained: The data includes 12 observations of monthly Sensex and FIIs in year 2008.642 N 12 12 nifty Pearson Correlation . Correlation = 0. FII Model Sum of Squares df Mean Square F Sig. Predictors: (Constant). Standard Error = 3262. 1 Regression 3183.013 0.688.63092 a.036a .8% variability in BSE Sensex due to independent variable FII which is much higher than during 2007 in the bullish run.6 Regression between the FII‘s equity investment pattern and Nifty for the year 2007 Analysis for the year 2007 on the basis of the above results obtained: .672 11 Fig 4.5 Correlation between the FII‘s equity investment pattern and Nifty for the year 2007 Model Summary Model R R Square Adjusted R Square Std. of Observations = 12.036 1 Sig. Regression = 0.001 -. (2-tailed) 0.642 Residual 2417009. ? The standard error comes out to be 3262.097 .036 Sig. the regression coefficient is 0.130.575 10 241700.130.688 which means 68.54183 which is high. But the correlation coefficient is very low and it is only 0. No.

267 N 12 12 nifty Pearson Correlation -.348 1 Sig.121 . ? The regression coefficient is 0.386 1 703762. Predictors: (Constant). of Observations = 12. ? The coefficient of determination = Explained Variance/Total Variance Explained Variance = FIIs impact on overall fluctuation in Nifty Unexplained Variance = impact of other factors R square is 0.63092 ? The nifty is positively correlated with FIIs. (2-tailed) 0.7 Correlation between the FII‘s equity investment pattern and Nifty for the year 2008 Model Summary Model R R Square Adjusted R Square Std.8 Regression between the FII‘s equity investment pattern and Nifty for the year 2008 Analysis for the year 2008 on the basis of the above results obtained: The data includes 12 observations of monthly Nifty and FIIs in year 2008. Dependent Variable: nifty Fig 4.348a .2% variability in Nifty due to a single factor FII.828 Total 5801170.96136 Model Sum of Squares df Mean Square F Sig.036 which is almost near to zero and so we can say that FII are almost unrelated to nifty in 2007. ? The standard error is 491. Correlations FII nifty FII Pearson Correlation 1 . Correlation = 0.381 0. The correlation and regression is calculated with the help of SPSS.63092 which is high. This does not mean that the relation is false but the error in linear relation is high.348 Sig. FII b.668 11 a.282 10 509740.36.267 Residual 5097408.The data includes 12 observations of monthly Nifty and FIIs in year 2007.642. 1 Regression 703762. No. Regression = 0. Standard Error = 491. The correlation and regression is calculated with the help of SPSS.033 713.642 which means 64. . (2-tailed) 0. Error of the Estimate 1 .267 N 12 12 Fig 4. The correlation coefficient is 0.386 1.001 which means 1% change in nifty due to explained variance and all other volatility is due to other factors.

097 326. FII. The correlation coefficient is 0.3 To analyze the impact of FIIs equity investment on specific industrial sector (FMCG. (2-tailed) .No. It can be interpreted that with the fall in market in 2008 the FII have started withdrawing from the NSE.807 N 11 11 Fig 4. Standard Error = 713.121 which is 12. 4. Auto.348. The relationship between the FII‘s equity investment pattern and specific industrial stock indices is studied for the year 2007 & 2008 with the help of correlation and regression analysis.348 which is much higher than 0. ? The regression coefficient is 0. (2-tailed) . Real Estate) indices. Consumer Durables.003 -. Error of the Estimate 1 . Regression = 0.807 N 12 11 auto Pearson Correlation .e.053a . It interprets that Nifty is more correlated to FII in 2008 as comparable to the 2007. The results and the analysis is shown below: Correlations FII auto FII Pearson Correlation 1 . ? The coefficient of determination is 0. Predictors: (Constant).96136 ? The nifty in 2008 is positively correlated to FII.267. of Observations = 12.036 of last year. By regression it is analyzed how a single dependent variable is affected by an independent variable.1% change in Nifty due to explained variance i.267 in 2008. . ? But the correlation is high due to withdrawing of money by FIIs in 2008 which reflects the relationship between the two.084 1 Sig.084 Sig.9 Correlation between the FII‘s equity investment pattern and Auto sector for the year 2007 Model Summary Model R R Square Adjusted R Square Std. FII Model Sum of Squares df Mean Square F Sig. Correlation = 0. Banking.82145 a.

085 957. It shows the absence of linear relation between the two variables but not a lack of relationship altogether. This does not mean that the relation is false but the error in linear relation is high. The correlation and regression is calculated with the help of SPSS.7 % impact of FII on BSE automobiles. Predictors: (Constant). (2-tailed) .719 N 12 12 auto Pearson Correlation .10 Regression between the FII‘s equity investment pattern and Auto sector for the year 2007 Analysis for the year 2007 on the basis of the above results obtained: The data includes 12 observations of monthly Auto sector indices and FIIs in year 2007. Correlation = 0.632 10 106812. Standard Error = 326. ? The regression coefficient is 0. ? The standard error comes out to be 326.206 11 Fig 4.028 .11 Correlation between the FII‘s equity investment pattern and Auto sector for the year 2008.807a Residual 1068122. of Observations = 12.807.719 N 12 12 Fig 4.82145 which is high.116a . No.1 Regression 3009.46389 a. as the value of correlation is 0. It reflects how the market is going up with the increase in FIIs.263 Total 1071132. Error of the Estimate 1 . Model Summary Model R R Square Adjusted R Square Std. This does not mean that there is no relation at all between them.084. Regression = 0.82145 ? FII has no significant relation with BSE Automobiles.116 1 Sig. Correlations FII auto FII Pearson Correlation 1 .574 1 3009.084. FII .116 Sig. (2-tailed) .574 .807 which means 80.013 -.

This can easily be seen as the reduction in regression coefficient from 0. Regression = 0. This does not mean the relation is false but we can say that the error in linear relation is high.50409 which is very high and so it means that the deviation from the mean value is very high. (2-tailed) .116 which means there is no significant correlation between Automobiles sector and FIIs in 2008.017 10 916737. Dependent Variable: auto Fig 4. The correlation and regression is calculated with the help of SPSS.Model Sum of Squares df Mean Square F Sig. Predictors: (Constant).999 1 125352.807 to 0.82145 ? The correlation coefficient is 0. Standard Error = 326.719a Residual 9167371.166 1 Sig. FII are affecting BSE Auto index.102 Total 9292724. Correlation = 0. ? The standard error comes out to be 2727.12 Regression between the FII‘s equity investment pattern and Auto sector for the year 2008 Analysis for the year 2008 on the basis of the above results obtained: The data includes 12 observations of monthly Automobiles sector indices and FIIs in year 2008.166 Sig. FII b.13 Correlation between the FII‘s equity investment pattern and .116.137 . 1 Regression 125352.e.719.999 .606 N 12 12 Fig 4. ? The coefficient of determination which is 13% also reflects more clear picture that how explained variance i.016 11 a. No. But as comparable to 2007 there is more positive relation between the above two variables. It shows the absence of linear relation between the two variables but not a lack of relationship altogether.606 N 12 12 bankex Pearson Correlation .719 which means that in 2008 with the withdrawal of money by FIIs in 2008 the Auto Sector index has also fallen.807. of Observations = 12. Correlations FII bankex FII Pearson Correlation 1 . ? The regression coefficient is 0. (2-tailed) .

574 .03 which means FII has a 3% influence on all fluctuations in the Banking index. This means that BSE Banking sector index has a relation with FII but the FII is not influencing the the index much. Correlation = 0.14 Regression between the FII‘s equity investment pattern and banking sector for the year 2007 Analysis for the year 2007 on the basis of the above results obtained: The data includes 12 observations of monthly Banking sector indices and FIIs in year 2007.097 326.82145 a. No.574 1 3009.166.banking sector for the year 2007 Model Summary Model R R Square Adjusted R Square Std. Predictors: (Constant).028 . ? The regression is 0.606a Residual 1068122. of Observations = 12. FII Model Sum of Squares df Mean Square F Sig. Predictors: (Constant). . ? The R square is 0.632 10 106812. FII Fig 4.263 Total 1071132. The correlation and regression is calculated with the help of SPSS. ? The standard error comes out to be 326.053a .82145 which is very high and so it means that the deviation from the mean value is very high.166 which is low.003 -.82145 ? There is positive effect of FII on BSE Banking sector index but the correlation coefficient is 0. 1 Regression 3009. Standard Error = 326.206 11 a.870 from which it can be analysed that how BSE banking is affected by the values of independent variable FII.870. Error of the Estimate 1 . Regression = 0. It can be seen that BSE banking is affected a lot by FII and with more FIIs index is also going up. This does not mean the relation is false but we can say that the error in linear relation is high.

064a . (2-tailed) .040 . It shows the absence of linear relation between the two variables but not a lack of relationship altogether. The correlation and regression is calculated with the help of SPSS. Error of the Estimate 1 .028 Total 4.662 which means that with the change in .102E7 11 a.149 Sig.662a Residual 4. (2-tailed) .662 N 11 11 Fig 4.086E7 10 4085666. FII b. But as comparable to 2007 there is less positive relation between the above two variables.149.149 1 Sig.15 Correlation between the FII‘s equity investment pattern and banking sector for the year 2008 Model Summary Model R R Square Adjusted R Square Std.30305 a. ? The regression coefficient is 0.662.096 2021. Dependent Variable: bankex Fig 4. ? The coefficient of determination = Explained Variance/Total Variance Explained Variance = FIIs impact on overall fluctuation in BSE Banking Unexplained Variance = impact of other factors R square is 0.16 Regression between the FII‘s equity investment pattern and banking sector for the year 2008 Analysis for the year 2008 on the basis of the above results obtained: The data includes 12 observations of monthly Banking sector indices and FIIs in year 2008. of Observations = 12. 1 Regression 165442.207 1 165442. No. Regression = 0.207 .004 -.149 which means there is no significant correlation between banking sector and FIIs in 2008.30305 ? The correlation coefficient is 0. Standard Error = 2021.Correlations FII bankex FII Pearson Correlation 1 . Predictors: (Constant). FII Model Sum of Squares df Mean Square F Sig. Predictors: (Constant).662 N 12 11 bankex Pearson Correlation . Correlation = 0.004 which means 4% change in nifty due to explained variance and all other volatility is due to other factors.

173 Sig.072E7 10 1072267.610 N 12 11 consumerdurables Pearson Correlation . No.976 .079E7 11 a.50370 a. Error of the Estimate 1 .006 -.610.077a .610 N 11 11 Fig 4. FII Model Sum of Squares df Mean Square F Sig.060 . This means that BSE CD sector index has a relation with FII but the FII is not influencing the the index much. (2-tailed) . of Observations = 12.5070 ? There is positive effect of FII on BSE CD sector index but the correlation coefficient is 0. ? The coefficient of determination = Explained Variance/Total Variance Explained Variance = FIIs impact on overall fluctuation in BSE CD Unexplained Variance = impact of other factors . Standard Error = 1035.173.18 Regression between the FII‘s equity investment pattern and consumer durables sector for the year 2007 Analysis for the year 2007 on the basis of the above results obtained: The data includes 12 observations of monthly Consumer durables sector indices and FIIs in year 2007. Predictors: (Constant). Correlation = 0. (2-tailed) . 1 Regression 64755. Correlations FII consumerdurables FII Pearson Correlation 1 . Dependent Variable: consumerdurables Fig 4.173 1 Sig.FII there is less change in the banking sector index and fewer amounts is withdrawn from this.093 1035.166 which is low.920 Total 1.976 1 64755. FII b. Predictors: (Constant).610a Residual 1.17 Correlation between the FII‘s equity investment pattern and consumer durables sector for the year 2007 Model Summary Model R R Square Adjusted R Square Std. Regression = 0. The correlation and regression is calculated with the help of SPSS.

of Observations = 12. No.386E7 11 a.572 Fig 4.383E7 10 1382676.021 .610 from which it can be analyzed that how BSE CD is affected by the values of independent variable FII.006 which means 6% change in nifty due to explained variance and all other volatility is due to other factors.276 1 28461.572a Residual 1.098 1175.572 N 12 11 consumerdurables Pearson Correlation . Correlation = 0. FII Model Sum of Squares df Mean Square F Sig. Dependent Variable: consumerdurables Fig 4.192 Sig. It can be seen that BSE banking is affected a lot by FII and with more FIIs index is also going up. Predictors: (Constant). Correlations FII consumerdurables FII Pearson Correlation 1 . (2-tailed) . FII b.20 Regression between the FII‘s equity investment pattern and consumer durables sector for the year 2008 Analysis for the year 2008 on the basis of the above results obtained: The data includes 12 observations of monthly Consumer durables sector indices and FIIs in year 2008.192 1 Sig.045a .19 Correlation between the FII‘s equity investment pattern and consumer durables sector for the year 2008 Model Summary Model R R Square Adjusted R Square Std. The correlation and regression is calculated with the help of SPSS. Predictors: (Constant).192 . (2-tailed) . ? The regression is 0.R square is 0.87269 a.276 . 1 Regression 28461.002 -. Error of the Estimate 1 .572 Total 1.

1 Regression 11453. ? The coefficient of determination = Explained Variance/Total Variance Explained Variance = FIIs impact on overall fluctuation in Nifty Unexplained Variance = impact of other factors R square is 0. Predictors: (Constant). FII b.Regression = 0.339 10 34989.252 Sig.572 which means that in 2008 with the withdrawal of money by FIIs in 2008 the Auto Sector index has also fallen. Error of the Estimate 1 .572.065 187. Correlations FII fmcg FII Pearson Correlation 1 .032 -.87269 ? The correlation coefficient is 0.182 1 11453.572.05383 a.454 N 11 11 Fig 4.252 1 Sig. But as comparable to 2007 there is more positive relation between the above two variables.192 which means there is no significant correlation between BSE CD sector and FIIs in 2008.22 Regression between the FII‘s equity investment pattern and fmcg sector for the year 2007 . Predictors: (Constant).178a .21 Correlation between the FII‘s equity investment pattern and fmcg sector for the year 2007 Model Summary Model R R Square Adjusted R Square Std.454 N 12 11 fmcg Pearson Correlation . (2-tailed) .134 Total 361344. ? The regression coefficient is 0.521 11 a. It shows the absence of linear relation between the two variables but not a lack of relationship altogether.610 to 0. This can easily be seen as the reduction in regression coefficient from 0.327 . Dependent Variable: fmcg Fig 4. (2-tailed) .004 which means 2% change in nifty due to explained variance and all other volatility is due to other factors.454a Residual 349891.182 . Standard Error = 1175. FII Model Sum of Squares df Mean Square F Sig.

05383 ? There is a positive correlation between FMCG and FIIs and the correlation coefficient is 0. (2-tailed) . FII Model Sum of Squares df Mean Square F Sig.407 10 34506. No.403 Sig.454 from which it can be analyzed that how BSE FMCG is affected by the values of independent variable FII.403a .032 which means that FII has a big impact on the FMCG sector index.23 Correlation between the FII‘s equity investment pattern and fmcg sector for the year 2008 Model Summary Model R R Square Adjusted R Square Std. ? The R square is .194 N 12 12 fmcg Pearson Correlation .Analysis for the year 2007 on the basis of the above results obtained: The data includes 12 observations of monthly FMCG sector indices and FIIs in year 2007. FII b.75990 a. It can be seen that BSE banking is affected a lot by FII and with more FIIs index is also going up.403 1 Sig. of Observations = 12. Predictors: (Constant).741 Total 411847. Correlations FII fmcg FII Pearson Correlation 1 . The correlation and regression is calculated with the help of SPSS.194a Residual 345067. Correlation = 0.252. (2-tailed) .415 11 a.078 185. Dependent Variable: fmcg . Standard Error = 187. Error of the Estimate 1 .454.162 .008 1 66780. ? The regression is 0.194 N 12 12 Fig 4.935 . Predictors: (Constant). It reflects FMCG and FII inflow/Outflow moving in same direction.252 Regression = 0.008 1. 1 Regression 66780.

146a .501 N 11 11 Fig 4. FII b.24 Regression between the FII‘s equity investment pattern and fmcg sector for the year 2008 Analysis for the year 2008 on the basis of the above results obtained: The data includes 12 observations of monthly FMCG sector indices and FIIs in year 2008.228 Sig. (2-tailed) . of Observations = 12.Fig 4.75990 ? The correlation coefficient is 0.077 2294. (2-tailed) . Dependent Variable: realty .783 . Predictors: (Constant).25 Correlation between the FII‘s equity investment pattern and realty sector for the year 2007 Model Summary Model R R Square Adjusted R Square Std.501a Residual 5. Standard Error = 185.501 N 12 11 realty Pearson Correlation . It shows the absence of linear relation between the two variables but not a lack of relationship altogether.194.192 which means there is no significant correlation between BSE FMCG sector and FIIs in 2008. 1 Regression 1143793. The less investment in FMCG sector index is the reason for this.670 Total 5.021 -. No.783 1 1143793. Correlation = 0.403 Regression = 0. The correlation and regression is calculated with the help of SPSS.194 which means that in 2008 with the withdrawal of money by FIIs in 2008 the FMCG Sector index has also fallen. ? The regression coefficient is 0.494 to 0.194. Correlations FII realty FII Pearson Correlation 1 . This can easily be seen as the reduction in regression coefficient from 0.380E7 11 a. Error of the Estimate 1 . But as comparable to 2007 there is more positive relation between the above two variables.217 .77791 Model Sum of Squares df Mean Square F Sig.228 1 Sig.266E7 10 5266005.

348a .129 1 Sig.228 Regression = 0.27 Correlation between the FII‘s equity investment pattern and realty sector for the year 2008 Model Summary Model R R Square Adjusted R Square Std.96136 a.129 Sig. Correlations FII realty FII Pearson Correlation 1 .690a Residual 5097408. 1 Regression 703762.033 713.386 1. It can be seen that BSE realty is affected a lot by FIIs inflow and with more FIIs inflow. No.021 which means 21% change in realty sectoral indices due to explained variance and all other volatility is due to other factors.828 Total 5801170.Fig 4.282 10 509740. Standard Error = 2294.690 N 12 12 realty Pearson Correlation . It reflects Realty and FII inflow/Outflow moving in same direction.77791 ? There is a positive correlation between Realty and FIIs and the correlation coefficient is 0.26 Regression between the FII‘s equity investment pattern and realty sector for the year 2007 Analysis for the year 2007 on the basis of the above results obtained: The data includes 12 observations of monthly Realty sector indices and FIIs in year 2007. Correlation = 0.381 . ? The coefficient of determination = Explained Variance/Total Variance Explained Variance = FIIs impact on overall fluctuation in Nifty Unexplained Variance = impact of other factors R square is 0. of Observations = 12. index is also going up. ? The regression is 0.668 11 . FII Model Sum of Squares df Mean Square F Sig.501 from which it can be analyzed that how BSE realty is affected by the values of independent variable FII.386 1 703762. Error of the Estimate 1 . Predictors: (Constant). (2-tailed) . (2-tailed) . The correlation and regression is calculated with the help of SPSS.690 N 12 12 Fig 4.252.121 .501.

? The regression coefficient is 0. . The correlation and regression is calculated with the help of SPSS.129 which means there is no significant correlation between BSE realty sector and FIIs in 2008. Correlation = 0.690. It shows the absence of linear relation between the two variables but not a lack of relationship altogether. But as comparable to 2007 there is less positive relation between the above two variables. No. Dependent Variable: nifty Fig 4.a. of Observations = 12.96136 ? The correlation coefficient is 0. Predictors: (Constant). FII b.690 in 2008 which means that with the fall in FIIs in this year there is a big variability in realty sector as well.28 Regression between the FII‘s equity investment pattern and realty sector for the year 2008 Analysis for the year 2008 on the basis of the above results obtained: The data includes 12 observations of monthly Realty sector indices and FIIs in year 2007.129 Regression = 0. But there are many other factors which are affecting realty sector other than FII in 2008. Standard Error = 713.

BSE CD. And also the coefficient of determination reveals that the explained variance ( FII ) doesn‘t has much impact on the sectoral indices. FII for the dependent variable Nifty.1 FINDINGS After the analysis following are the findings of the study: 1) Impact of FIIs on Sensex: In 2007.911 in 2007 which replicates that how Nifty index has gone down by withdrawal of FIIs. The error is very high in both the years which doesn‘t mean that relation is false but we can say that the error in linear relation is high. LIMITATIONS & RECOMMENDATIONS 5. so a less significant impact of FIIs is seen. BSE Realty) the correlation is always less.CHAPTER V FINDINGS.e.267 in 2008 and 0. Regression coefficient is 0. the correlation coefficient is more than in 2008 which interprets that the relationship between these two variables is more in the period when there is bearish trend. But in both the years FIIs were not much positively correlated. BSE Banking. CONCLUSIONS. The regression coefficient predicts the value from an independent variable i. BSE FMCG. And in 2008 the regression coefficient is giving a clear picture that the withdrawal by FIIs is resulting a fall in indices and so FIIs are playing good role during this . 3) Impact of FIIs on Industrial Sectoral Indices: In different Industrial sectoral indices of BSE ( BSE Auto. 2) Impact of FIIs on Nifty: The correlation coefficient of FIIs and Nifty is unrelated in 2007 and 2008.

5) In bearish trend of 2008 the volatility in Indian Stock indices due to FIIs is more than in bullish trend of 2007. budgets. BSE CD and Nifty showed some positive correlation with FII in 2007 and 2008 but rest of the indices showed very less positive correlation with FII. No doubt FII inflow is more in 2007. According to Data analysis and findings. economical and political condition. One of the reasons for absence of any linear relation can also be due to the sample data. etc. There are other major factors that influence the bourses in the stock market. bullion market.time. Also the coefficient of determination is less in all the case.2 CONCLUSION In developing countries like India foreign capital helps in increasing the productivity of labour and to build up foreign exchange reserves to meet the current account deficit.3 LIMITATIONS . it can be concluded that FII do have any significant impact on the Indian Stock Market but there are other factors like government policies. This does not mean that there is no relation between them. 4) FIIs have less impact on Indian stock indices and other unexplained variables are also influencing the Indices. Also FII is not the only factor affecting the stock indices. There is a positive correlation between stock indices and FIIs but FIIs didn‘t have any significant impact on Indian Stock Market. 5. inflation. The null hypothesis is rejected. 5. The domestic investors were also playing an important role in 2007 but in 2008 FIIs are influencing market more as domestic investors are not in the market. It shows the absence of linear relation between FII and stock index. The data on daily basis can give more positive results (may be). Foreign Investment provides a channel through which country can have access to foreign capital. The data was taken on monthly basis. do also have an impact on the Indian stock market.

4 RECOMMENDATIONS After the analysis of the project study. options. These are: ? The study is based on Sensex sample. In different industries indices the FIIs should be encouraged through different patterns like futures. ? Secondary data that I have used in this study may not give true picture of the concern. The data on daily basis can give more positive results. The Sensex companies have an external image that they are the best performers in the country. 2) Allowing foreign investment in more areas. etc. If the sample companies consist of probably a heterogeneous group then the results may give better insight in to relationship of the specific variables. ? Due to time constraint. . 3) Somewhere. following recommendations can be made: 1) Simplifying procedures and relaxing entry barriers for business activities and providing investor friendly laws and tax system for foreign investors. a restriction related to the track record of Sub. my project report is not fully exhaustive. ? The data is taken on monthly basis. 5.Besides following scientific methodologies the study has come across some limitations.Accounts is also to be made on the investors who withdraw money out of the Indian stock market who have invested with the help of participatory notes.

CHAPTER VI BIBLIOGRAPHY References: References for articles: . Similarly the laws should be such that it protect domestic investors and also promote trade in country through FIIs.4) We have to modernize and also have to save our culture. 5) Encourage industries to grow to make FIIs an attractive junction to invest.

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Vol: 28. References from weblinks: http://stockstalks. Journal: Journal of impact of Institutional Investors on ism.mayerbrown. Journal : Journal of stock market volatility . Vol 15. Journal: Journal of Institutional Investors .gov.com/publications/article.ssrn. Publisher: Emerald Group Publishing Limited Trivedi & Nair. Vol 17. Stanley Morgan (2002) :―FII‘s influence on Stock Market‖.htm www.com/sol3/papers.com/stocktalksforums/index.com/Fii-Newsstockmarket.com/news-analysis/fii-s-influence-on-s-2626.sharetipsinfo. Chakrabarti (2003) .html http://papers.go.cfm?abstract_id=755324 http://ezinearticles.jp/English/Publish/De/pdf/04_04_02. Publisher: MCB UP Ltd.pdf http://www. Sikdar Soumyen (2006) : ―Foreign Capital Inflow into India: Determinants and Management‖.pdf . Vol 17.isb. Vol: 19. Sandhya Ananthanarayanan of Nanyang Technological University(2004) : ―Foreign Institutional Investors and Security Returns: Evidence from Indian Stock Exchanges‖.com/money/2003/oct/06spec2. Vol: 34. Journal: European Business Review. Journal: International Journal of foreign money supply Management.pdf http://www.indiamart. Publisher: MCB UP Ltd.asp?id=2099 http://www. Publisher: MCB UP Ltd.rediff.in/workingpaper/stock. Publisher: MCB UP Ltd.php?PHPSESSID=1c9e4a 95fb85330dc5c1d0bd081d10fe&topic=6.Market Movement in India – Present Scenario‖. Publisher: Emerald Group Publishing Limited Sivakumar S (October 2003) : ―FIIs: Bane or boon?‖ .com/?A-Study-on-Capital-Stock-Market-Movementin-India---Present-Scenario&id=719360 http://news.sebi.html http://www. and Agarwal.0 http://www.edu/CAF/htmls/Sandhya&Sen.ide. Journal: International Journal of foreign money supply Management.

org www.edu/faculty/rajeshchakrabarti/FII_Basu.sagepub.org.ibef.nseindia.joaag.upenn. www.ouhk.org/economy/foreigninvestors.ssrn.http://mar.rbi.pdf?CFID=4849913 &CFTOKEN=38706388&jsessionid=a83084e3a6ca3577732b738405bd1 766251b http://cmr.com/cgi/content/abstract/2/3/287 http://papers.com Journals: Economic Political Weekly ICFAI Journals Magazines and Newspapers: Economic times .com/4005-fiis-and-their-impact-on-indian-stockmarket/ www.isb.bseindia.pdf http://www.moneycontrol.cfm?abstract_id=565861 http://www.ba.sebi.com/uploads/4_PrasannaFinal3_2_.aspx http://www.com www.edu/articlepdf/885.hk/cmr/webjournal/v9n2/CMR503E05.wharton.pdf http://www.pdf http://knowledge.com/sol3/papers.citeman.edu.com www.

CHAPTER VII ANNEXURE .

28 Jun-07 4.933.887.62 Jul-08 3.98 Oct-08 2.36 Feb-07 5.330.515.878.BSE Automobile sectoral Index from January 2007 to December 2008 Month Close Jan-07 5.62 Nov-08 2.524.26 Oct-07 5.13 Apr-07 4.001.109.51 Aug-08 4.332.585.71 .674.00 May-08 4.726.869.832.38 Mar-07 4.998.71 May-07 5.685.50 Dec-07 5.444.17 Nov-07 5.48 Feb-08 4.667.355.012.17 Mar-08 4.77 Apr-08 4.83 Aug-07 4.507.76 Jun-08 3.23 Sep-08 3.56 Dec-08 2.739.57 Jul-07 4.679.05 Sep-07 5.469.45 Jan-08 4.

607.454.01 Apr-07 6.33 Nov-07 10.73 Mar-08 7.011.85 Oct-08 5.469.645.61 Apr-08 8.00 Jan-08 10.870.858.94 Jul-07 8.41 Aug-08 7.89 May-07 7.516.98 Jul-08 6.88 Dec-07 11.915.542.54 .009.717.148.24 Nov-08 4.819.40 Dec-08 5.713.01 Mar-07 6.91 Feb-08 10.69 Sep-08 6.009.68 Aug-07 7.882.478.79 Sep-07 9.59 Jun-08 5.113.35 Jun-07 8.714.09 Feb-07 6.26 Oct-07 10.418.655.BSE Banking sectoral Index from January 2007 to December 2008 Month Close Jan-07 7.68 May-08 7.408.260.

46 7-Jun 14.BSE Sensex Index from January 2007 to December 2008 Month Close 7-Jan 14.837.37 7-May 14.19 .650.090.938.544.60 7-Sep 17.09 7-Mar 13.10 7-Apr 13.550.363.10 7-Oct 19.072.51 7-Jul 15.872.318.99 7-Aug 15.99 7-Nov 19.92 7-Feb 12.291.

647.08 Jun-07 4.250.477.320.195.543.86 Feb-08 4.685.71 8-Feb 17.84 Aug-08 3.956.103.72 8-Dec 9.99 8-Jan 17.7-Dec 20.79 .860.804.564.31 8-May 16.299.07 Aug-07 4.79 Jan-08 5.172.509.44 8-Apr 17.29 Apr-08 4.65 Jul-07 4.283.461.415.53 8-Sep 12.83 Dec-07 6.60 Jul-08 3.11 May-08 4.24 Oct-07 5.06 8-Nov 9.578.788.644.34 Mar-08 3.31 BSE CD Index from January 2007 to December 2008 Month Close Jan-07 3.60 8-Jul 14.800.286.685.43 8-Oct 9.092.355.699.648.840.38 Nov-07 5.75 8-Aug 14.365.570.00 Sep-07 4.82 Jun-08 3.38 Mar-07 3.93 Feb-07 3.883.33 Apr-07 3.86 May-07 4.287.57 8-Jun 13.72 8-Mar 15.

080.461.427.161.Sep-08 2.88 Mar-07 1.38 May-08 2.987.167.907.290.800.276.913.39 Mar-08 2.139.81 Dec-07 2.98 Nov-08 1.906.93 Sep-07 2.126.274.34 Feb-08 2.60 Sep-08 2.83 Nov-08 1.319.936.215.33 Jul-07 1.76 Oct-08 1.92 Jan-08 2.16 Aug-07 1.160.973.33 Jul-08 2.07 Apr-08 2.18 Oct-08 2.10 Apr-07 1.60 .76 Jun-08 2.973.799.739.793.38 Jun-07 1.60 Dec-08 1.21 Feb-07 1.55 May-07 1.154.785.59 Nov-07 2.35 Oct-07 2.38 BSE FMCG Index from January 2007 to December 2008 Month Close Jan-07 7.57 Dec-08 1.929.829.18 Aug-08 2.072.74 BSE FMCG Index from January 2007 to December 2008 Month Close Jan-07 1.

41 1-Jun-07 2346.8 1-Apr-08 2371.727.565.15 3-Dec-07 3452.854.01 Dec-08 2.65 1-Jan-08 3838.13 Nifty Fifty Index from January 2007 to December 2008 Date Nifty fifty 2-Jan-07 2244.65 Sep-07 9.06 Feb-08 9.995.33 1-Oct-07 2897.47 Jul-08 5.933.274.37 2-Apr-07 1852.62 May-07 7.079.25 .39 3-May-07 2187.26 2-Jul-07 2482.73 1-Mar-07 1976.75 1-Nov-07 3139.53 Oct-07 10.49 May-08 7.Feb-07 5.99 3-Sep-07 2504.182.649.3 1-Feb-08 2804.82 Jun-07 6.77 Oct-08 1.06 Apr-07 6.66 Jun-08 4.01 Aug-08 4.77 Nov-07 10.502.05 Aug-07 7.80 Apr-08 8.626.84 Mar-07 5.978.505.871.561.41 1-Aug-07 2400.67 Mar-08 7.008.42 Jan-08 9.25 Sep-08 3.241.24 Nov-08 1.646.25 1-Feb-07 2249.91 Jul-07 7.31 Dec-07 12.554.543.368.178.508.45 3-Mar-08 2688.

506.094.403.149.90 45.80 31.10 76.30 Apr-08 62.00 -7.467.90 6.4 1-Dec-08 1146.863.866.969.966.107.437.701.526.017.60 Sep-07 70.750.60 61.40 4.455.90 48.80 Jul-07 80.820.60 -7.50 Aug-07 58.60 49.30 -17.690.746.20 24.20 65.90 47.8 1-Aug-08 2160.00 94.132.40 -4.574.322.45 .587.198.60 Sep-08 68.401.068.510.80 Jul-08 64.30 65.40 -4.577. Month Equity (Rs.00 Aug-08 46.577.326. Crore) Gross Gross Net Purchase Purchase Sales /Sales Feb-09 21.30 65.990.553.431.95 1-Jul-08 1847.539.557.694.065.80 Jun-07 54.574.77 47.988.216.10 -2.029.882.083.90 Nov-08 28.640.679.50 39.937.939.4 Feb-08 76.339.60 27.60 75.304.8 1-Sep-08 2154.30 124.896.197.70 May-08 60.091.568.90 Jan-08 103.60 -4.065.90 Jun-08 61.948.419.20 5.2-May-08 2781.70 -2.50 Jan-09 28.90 7.70 Nov-07 89.55 3-Nov-08 1338.30 63.269.50 46.60 979 Mar-08 70.250.223.50 Apr-07 44.20 Dec-08 29.597.30 109.552.929.40 4.503.10 71.70 15.330.60 May-07 51.60 72.10 18.30 Feb-07 51.20 62.70 5.40 Oct-07 124.30 1.917.60 51.70 1.412.40 18.248.20 -1.30 -10.526.00 120.70 -2.20 32.129.000.00 Jan-07 47.012.30 Oct-08 49.3 2-Jun-08 2521.80 Mar-07 50.273.85 1-Oct-08 1804.90 -14.85 FII Net Purchase/ Sales for the Year 2007 and 2008.748.30 Dec-07 80.32 94.808.70 70.490.

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