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IMPACT OF FII ON STOCK MARKET
A PROJECT REPORT Submitted by ASHOK AMIPARA (09003) VIMAL BODA (09018) BATCH – 2009-2011 To Director (PGDM) In partial fulfillment of the requirements of Tolani Institute of Management Studies, Adipur For the award of the degree of Post Graduate Diploma in Management
Tolani Institute of Management Studies Adipur – 370 205 FEBRUARY 2011
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We hereby declare that the project work entitled “IMPACT OF FII ON STOCK MARKET” Submitted to Tolani Institute of Management Studies, Adipur is a record of an original work done by me under the guidance of Prof. Hitendra Lachhwani and this project work is not submitted for the award of any other degree/diploma/associate ship/fellowship or seminar award.
Ashok Amipara Vimal boda 14-02-2011 ADIPUR
Tolani Institute of Management Studies
Title : “IMPACT OF FII ON STOCK MARKET” :
To study the impact of FII on Indian stock market. To understand the concept of BSE sensitive index.
To understand the concept of FIIs. To understand the relationship between the Sensex and FII. To know the sector which get affected more by activities of FIIs.
Research Methodology: • Research problem • Research design • Sampling design • Data collection method
ResearchProblem: The project deals with the “Impact of Foreign Institutional Investors on Indian Stock Market”. This research project studies the relationship between FIIs investment and stock indices. For this purpose India’s two major indices i.e. Sensex and S&P CNX Nifty are selected. These two indices, in a way, represent the picture of India’s stock markets. Five indices of BSE i.e. BSE Auto, BSE Bankex, BSE IT, BSE FMCG, BSE Oil and Gas are also selected so as to further observe the effect of FII in particular industry . So this project reveals the impact of FII on the
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Government policies. But for this study I have selected only one independent variable i. This study uses the concept of correlation. Alternate Hypothesis (Ha): The various BSE indices and S&P CNX Nifty index rises with the increase in FIIs investment. FII. The sample data of FIIs investments consists of daily basis from January 2001 to February 2011. Tolani Institute of Management Studies Page 4 . budgets. FDI. The FII started investing in Indian capital market from September 1992when the Indian economy was opened up in the same year.e.e. There may be many other factors on which a stock index may depend i. regression and hypothesis to study the relationship between FII and stock index. inflation./Dollar exchange rate etc. Re.Indian capital market. bullion market. RESEARCHDESIGN: Null Hypothesis (Ho): The various BSE indices and S&P CNX Nifty index does not rise with the increase in FIIs investment. economic and political condition of the country. Their investments include equity only.
Data collection Method: Secondary data: For the secondary data various literatures.Exploratory Research: As an exploratory study is conducted with an objective to gain familiarity with the phenomenon or to achieve new insight into it. SAMPLING DESIGN: • Universe In this study the universe is finite and will take into the consideration related news and events that have happened in last few year. web links are used. this study aims to find the new insights in terms of finding the relationship between FII’S and Indian Stock Indices. As there are not possibilities of collecting data personally so no questionnaire is made. books. magazines. So for the sampling unit is confined to only the Indian stock market. Tolani Institute of Management Studies Page 5 . • Sampling Unit: As this study revolves around the foreign institutional investment and Indian stock market. journals.
Finding & Analysis: According to findings and results.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. 4) We have to modernize and also have to save our culture. 3) Somewhere. We can use the Correlation tool to determine whether two ranges of data move together — that is. we can conclude that FII have positive correlation with NIFTY & SENSEX as well as other sectorial indices but did not have any significant impact on the Indian capital market. a restriction related to the track record of Sub. 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. or whether values in both sets are unrelated (correlation near zero). height. Similarly the laws should be such that it protect domestic investors and also promote trade in country through FIIs. whether large values of one set are associated with large values of the other (positive correlation). Tolani Institute of Management Studies Page 6 . In different industries indices the FIIs should be encouraged through different patterns. 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. and weight. 5) Encourage industries to grow to make FIIs an attractive junction to invest. Recommendations: After the analysis of the project study.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. whether small values of one set are associated with large values of the other (negative correlation). 2) Allowing foreign investment in more areas. how an athlete's performance is affected by such factors as age.
CONTENT NO. Introduction of FII in India Literature review FII and Government policies Role of FII in capital market in India Determinants of FII Portfolio Investment FII:A cost benefit analisis A study of major episodes of volatility Objective of project Methodology Finding Conclusion Recommendations Bibliography Tolani Institute of Management Studies Page 7 . Executive summary Particulars Page No.
List of Table No. 1 2 3 4 5 6 Tolani Institute of Management Studies Page 8 . of FII registered with SEBI FII investment in India FII behavior during East Asian crisis FII behavior in the aftermath Pokhran Nuclear Explosion FII behavior during the stock market scam 2001 FII behavior around Black Monday. Particular No. May 17 2004 Page No.
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FIIs registered with SEBI may invest in domestic mutual funds. The banking sector witnessed sweeping changes. This is in contrast to the previous practice where all three functions. Between 1987 and 1992. and. permitted the entry of private sector mutual funds. which brought competition to the mutual fund industry. for the first time. reductions in reserve and liquidity requirements and an overhaul in priority sector lending. Competition in the markets increased with the establishment of the National Stock Exchange (NSE) in 1994. namely trusteeship. India’s capital markets also began to stage extensive changes. Indian investors have been able to invest through mutual funds since 1964. The notification of the SEBI (Mutual Fund) Regulations of 1993 brought about a restructuring of the mutual fund industry. and asset management. Since 1993. and asset Management Company. including the elimination of interest rate controls. leading to a significant rise in the volume of transactions and to the emergence of new important instruments in financial intermediation. The 1993 Regulations have been revised on the basis of the recommendations Tolani Institute of Management Studies Page 13 . Usually the fund sponsor or its subsidiary.INTRODUCTION: Financial markets are the catalysts and engines of growth for any nation. Around the same time. public sector banks and insurance companies set up mutual funds. trustees. India’s financial markets also began to embrace technology. The Securities and Exchange Board of India (SEBI) was established in 1992 with a mandate to protect investors and usher improvements into the microstructure of capital markets. India’s financial market began its transformation path in the early 1990s. The regulations prescribed disclosure and advertisement norms for mutual funds. Indian mutual funds have been organized through the Indian Trust Acts. while the repeal of the Controller of Capital Issues (CCI) in the same year removed the administrative controls over the pricing of new equity issues. whether listed or unlisted. under which they have enjoyed certain tax benefits. custodian. Persistent efforts by the Reserve Bank of India (RBI) to put in place effective supervision and prudential norms since then have lifted the country closer to global standards. when UTI was established. private sector mutual funds have been allowed. An arm’s length relationship is required between the fund sponsor. custodianship. This has resulted in the introduction of new products and improvement of services. were often performed by one body.
SEBI’s definition of FIIs presently includes foreign pension funds.2600 crores in 1993 to over Rs. received considerable amount of portfolio investment from foreigners in the form of Foreign Institutional Investor’s (FII) investment in equities. Ever since the opening of the Indian equity markets to foreigners. transactions by schemes of mutual funds with sponsors or affiliates of sponsors. Portfolio investment flows from industrial countries have become increasingly important for developing countries in recent years. While it is generally held that portfolio flows benefit the economies of recipient countries. charitable/endowment/university fund’s etc. foreign corporations need to register with the SEBI as Foreign Institutional Investor (FII). In order to trade in Indian equity markets. Mutual funds are now required to obtain the consent of investors for any change in the “fundamental attributes” of a scheme. policy makers worldwide have been more than a little uneasy about such investments. The revised regulations strongly emphasize the governance of mutual funds and increase the responsibility of the trustees in overseeing the functions of the asset management company.The FIIs registered with SEBI come from as many as 28 countries(including money management companies operating in India on behalf of foreign investors). as well as asset management companies and other money managers operating on their behalf The sources of these FII flows are varied . FII investments have steadily grow from about Rs. India opened its stock markets to foreign investors in September 1992 and has. since 1993. The Indian situation has been no different. with the asset Management Company and trustees. mutual funds. Investors are known to pull back portfolio investments at the slightest hint of trouble in the host Tolani Institute of Management Studies Page 14 . on the basis of which unit holders have invested.272165 crores till the end of Feb 2008. This has become one of the main channels of portfolio investment in India for foreigners.of the Mutual Funds 2000 Report prepared by SEBI. The revised regulations require disclosures in terms of portfolio composition.US based institutions accounted for slightly over 41% those from the U. mostly in equities. and also with respect to personal transactions of key personnel of asset management companies and of trustees. A significant part of these portfolio flows to India comes in the form of FII’s investments.K constitute about 20% with other Western European countries hosting another 17% of the FIIs. Portfolio flows often referred as “hot money”-are notoriously volatile compared to other types of capital inflows.
The financial market in India have expanded and deepened rapidly over the last ten years. This change in market environment has made the market more innovative and competitive enabling the issuers of securities and intermediaries to grow. The danger of “abrupt and sudden outflows” inherent with FII flows and their destabilizing effect on equity and foreign exchange markets have been stressed. institutional trades can potentially destabilize the markets. The Indian capital markets have witnessed a dramatic increase in institutional activity and more specifically that of FII’s. In smaller markets. Moreover.country often leading to disastrous consequences to its economy. Institutions often trade large blocks of shares and institutional order’s can have a major impact on market volatility. International capital flows and capital controls have emerged as an important policy issues in the Indian context as well. Tolani Institute of Management Studies Page 15 . In India the institutionalization of the capital markets has increased with FII’s becoming the dominant owner of the free float of most blue chip Indian stocks. They have also been responsible for spreading financial crisis –causing contagion in international financial markets. They have been blamed for exacerbating small economic problems in a country by making large and concerted withdrawals at the first sign of economic weakness. institutions also have to design and time their trading strategies carefully so that their trades have maximum possible returns and minimum possible impact costs.
He observed these indices during January 1993 to September 2001.LITERATURE REVIEW Purendra Verma (2002) has investigated the impact of FII on Capital Market to find the relation between FII and Stock indices.May 2002. To find out the results he used least square method. Capital Goods. out of them five are Consumer Durables. Fast Moving Consumer Goods. They concluded that in India the prime focus should be on regaining investor’s confidence in the equity market so as to strengthen the domestic investor’s base of the market. Information Technology and the other two are Sensex and Nifty. Finally. He has taken hypothesis for this study.2005. If BSE & Nifty increase with rise in FII investment. Suchismita Bose and Dipankar Coondoo (2002) carried out research on the topic Foreign Institutional Investment in The Indian Equity Market an Analysis of daily flows during Jan 1999 . Sensex and Nifty. Health Care. FII flows to and from the Indian market tend to be caused by return in the domestic equity market and not the other way round. Health Care. Returns in the equity market are very important to influence the flows of FIIs in the country. after completing his study he concluded that except IT sector on all other indices the impact is very low during January 1993 to September 2001 as the correlation is negative in Consumer Durables. It gives it constantly rise in Indian context since all their trades are delivery based and Market become more efficient with the growing presence of institutional investors who primarily go by fundamentals. Fast Moving Consumer Goods. Paramita Mukherjee. with their war chests of money.S.S. Tolani Institute of Management Studies Page 16 . S. For this he has taken seven indices into consideration. The paper was conducted to understand the relationship of foreign institutional investment (FII) flows to the Indian equity market. Capital Goods. set the direction to the market. He concluded with the use of Regression analysis that the combined force of the FIIs and MF are a powerful force and in fact their direction can forecast market direction. The paper was conducted to examining whether the institutional investors. Kumar (2005) of IIM-Kozhikode carried out research on the Role of Institutional Investors in Indian Stock Market during 1992 .
Anita Pariyani. They do not found any substantiation to the claim that foreigners’ destabilize the market. Their principal conclusions are as follows. The paper was conducted to understand influence of FII on movement of Indian Stock market and to understand the FII policy in India. the change of volatility in the Indian stock prices has been examined by comparing the variance of the returns of sub sample days before and after the event day. they separate the flows into expected and unexpected and found that unexpected flows have a greater impact than expected flows. Leena Kanjani. Chandrasekhar Krishnamurti from Department of Finance and Nilanjan Sen from Nanyang Technological University conducted this research of Foreign Institutional Investors and Security Returns: Evidence from Indian Stock Exchanges for understanding the impact of trading of Foreign Institutional Investors on the major stock indices of India. Their findings supported the price pressure hypothesis. Second. Sulabh Mehta. Their contribution to this growing literature pertaining to globalization is twofold.S. they identify the specific flows of foreign institutional investors flowing into (or out of) each exchange and examine the impact on the specific stock market indices. TIMS Batch 2008-10. they analyzed the monthly movement of stock market from 2006 to 2009. They found strong evidence consistent with the base-broadening hypothesis consistent with prior work. Pasricha (2009) in the paper titled Foreign Institutional Investor’s Impact on Stock Prices in India for the purpose of analyzing Impact of FIIs entry and the stock market behavior. They used Correlation and Hypothesis test methodology and concluded that FII did have significant impact on Sensex but there is less co-relation with Benkex and IT. It means volatility in Indian market is not the function of FIIs investment flows. Tolani Institute of Management Studies Page 17 . Amin Pattani.Anand Bansal and J. They concluded that return declined reasonably after the entry of FIIs. Mehul Rakholiya & Krishna Vyas conducted a research study on FII in India. Average return before and after the event day has been calculated for different sub sample days. the correlation between FIIs investments and market volatility and market return has been comparatively low. They do not found compelling confirmation regarding momentum or contrarian strategies being employed by foreign institutional investors. First. Sandhya Ananthanarayanan from CRISIL.
but cases require the approval from RBI. The promulgation of legislation pertaining to foreign investment by SEBI in 1995 market a watershed for FII flows to India. foreign individual. 1999. In order to trade in India equity market. Tolani Institute of Management Studies Page 18 . 1995 and by the Reserve Bank of India through Regulation 5(2) of the Foreign Exchange Management Act (FEMA). The SEBI FII Regulations and RBI policies are amended and modified from time to time in response to the gradual maturing of the Indian financial market and changes taking place in the global economic scenario. institution funds or portfolio established or incorporated outside India. FII sub accounts include those foreign corporate. debentures and warrant of companies. Without registration they can invest. b) Units of mutual funds c) Dated government securities d) Derivative traded in a recognized stock market and e) Commercial papers FII can invest their own funds as well as invest on behalf of their overseas clients registered as such with SEBI. They are generally concentrated in secondary market. listed or to be the listed in India. foreign corporation need to register with SEBI as Foreign Institutional Investors. FII are allowed to invest in a) Securities in primary and secondary market including shares.FII AND GOVERNMENT POLICIES: Investment by FII was jointly regulated by Securities and Exchange Board of India (SEBI) through the SEBI (Foreign Institutional Investors) Regulations. unlisted. These client accounts that the FII manages are known as ’sub accounts’. this led to a significant increase in the level of FII equity inflows in the pre-Asian crisis period.
or any other similar body provided that the entity must not only be authorized but also be regulated by the aforesaid regulatory bodies c) Any entity that is regulated.FII may issue deal in or hold off share derivative instrument such as participatory notes (PN). authorized or supervised by a securities or futures commission. The entities that can subscribe to the PN are a) Any entity incorporated in a jurisdiction that requires filing of constitutional or other documents with a registrar of companies or comparable regulatory agency or body under the applicable companies legislation in that jurisdiction b) Any entity that is regulated authorized or supervised by a central bank.regulatory organizations are ultimately accountable to the respective securities financial market regulators. Tolani Institute of Management Studies Page 19 . such as the Bank of England. state or territory provided that the aforesaid mentioned organizations which are in the nature of self. such as the Financial Services Authority or other securities or futures authority or commission in any country. state or territory d) Any entity that is a member of securities or futures exchanges such as the New York Stock Exchange or other self-regulatory securities or futures authority or commission within any country.
Tolani Institute of Management Studies Page 20 . the ceiling on aggregate FII portfolio investment increased to 49%. restricted to the debt instrument of companies listed or to be listed on the stock exchanges.This was subsequently raised to 49%. In June 1998 the 5% individual limit was raised to 10%.Investment limit for FIIs: As per the September 1992 policy permitted foreign institutional investment registered FII could individually invest in a maximum of 5% of a company’s issued capital and all FIIs together up to a maximum of 24%. From November 1996 are allowed to make 10 percentage investment in debt securities subject to the specific approval from SEBI as a separate category of FIIs or sub accounts as 100% debt fund investment such investment were of occurs subjected to the fund specific ceiling prescribed by SEBI and had to be within overall ceiling US 1.In March 2000. the aggregate limit on investment by FIIs was allowed to be raised from 24% to 30% by then board of directors of individual companies by passing a resolution in their meeting and by special resolution to that effect in the company’s Board meeting. In 1997. Finance minister announced February 28 2002 that foreign institutional investors can invest in accompany under the portfolio investment rout beyond 24% of the paid up capital of the company with the approval of the general body of the share holders by a special resolution. on March 8 2001. The investment was however.5 $.
Under the earlier regime. Tolani Institute of Management Studies Page 21 . University Funds and Charitable trusts or societies have been exempted from the requirement of being “regulated” for registration as FIIs. subject to such fund manager providing its disciplinary track record details. Track Record of the Applicant – Track record of individual fund managers will be considered for the purpose of ascertaining the track record of a newly set up fund. SEBI has made the following relaxations in the FII registration criteria: Broad Based Criteria – Registration criteria for “broad based funds” has been modified to include entities having at least 20 investors with no single investor holding more than 49% of the shares or units of the fund as against the earlier 10% limit. Relaxation of the “regulated” requirement –Pension Funds. Perpetual Registration – FII and sub-account registrations will be perpetual. Foundations. subject to payment of fees. Endowments. FIIs and their sub-accounts were registered for a period of three years after which the renewal application was subject to a re-examination by SEBI.New registration criteria for FIIs in India: With a view to make the P-Note holders eligible for FII registration thereby obviating the need for ODIs.
From the below table it’s clear that the number of FIIs increases year by year except for the years 1998. inflation.2010. Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Source.e./Dollar exchange rate etc. Re. Number of FIIs registered with SEBI.org The number of foreign institutional investors which was 3 in1993 increased to 1713 in the year 2010. budgets.sebi. FDI. Government policies.Number of FIIs registered with SEBI: The following table represents the number of FIIs registered with SEBI from 1992 to 2010 yearly.1999.(1992-1993 to 2009-2010). The following table revels the pattern of gross sales. economic and political condition of the country. and net investment during the period 1993. bullion market.www.2002. Tolani Institute of Management Studies Page 22 . End of March 0 3 156 353 439 496 450 506 527 490 502 540 685 882 997 1319 1626 1713 End of Decemeber 517 637 823 993 1219 1594 1706 FII investment in India: There may be many other factors on which a stock index may depend i.1994 to 2009. gross purchase. and 2001.
1998.000 companies Tolani Institute of Management Studies Page 23 .2 -46385. Based on the performance of the Indian market the net investment changes. although there are more than 8.2 crores. Given the presence of foreign institutional investors in Sensex companies and their active trading behavior.6 522417.2 882699 658791. Such volatility is an inevitable result of the structure of India’s financial markets as well..e. FII crossed 65 thousand crores in the Indian history of capital market in 2008 is the highest investment made by FII. -46385. In crores 466 2835 2752 6974 11804 17935. 2008. and on 1997. only stocks of a few companies are actively traded in the market.7 44186 99547. Thus.3 148514.5 Gross sales Rs.4 148514.7 111053 The net investment made by FII in Indian market is volatile.3 42920.2008. First.3 50184. During the year of 2007.3 32647. ROLE OF FOREIGN INSTITUTIONAL INVESTORS IN CAPITAL MARKET IN INDIA: Volatility: Foreign institutional investment is certainly volatile in nature and its volatility has certainly posed some threats to the Indian stock market considering its influence on the market. Markets in developing countries like India are thin or shallow in at least three senses.5 57430.Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Gross purchase Rs.9 46846.5 10582.5 9511. In crores 5126 4796 2752 8484 4876 -1428.7 crores).3 214524.9 Net investment Rs.5 612406.8 947770.6 106697. 65073. But on the consequent year i.1 347850. the net investment was very high which reaches to RS.5 8648 2822 48968.2009.1 41453.3 41153.1 171604. In crores 5593 7631 9694 15458 16679 16507.4 73269. small and periodic shifts in their behavior lead to market volatility.8 65073.3 64179.7 489770. The gross purchase is lower than the gross sales because of the economic crisis. the net investment goes to negative (RS.
listed on the stock exchange, the BSE Sensex incorporates just 30 companies, trading in whose shares is seen as indicative of market activity. Second, of these stocks there is only a small proportion that is routinely available for trading, with the rest being held by promoters, the financial institutions and others interested in corporate control or influence. And, third the number of players trading these stocks is also small. In such a scenario investment by the foreign institutional investors leads to a sharp price increase this provides incentives to FII investment and enhances investment and when the correction in the stock prices begins it would have to be a pull out by the FII and can result in sharp decline in the prices. The other reason for volatility is that the foreign institutional investors are attracted to a market by the expectation of price increase that tend to be automatically realized, the inflow of foreign capital can result in an appreciation of the rupee vis-à-vis the dollar This increases the return earned in foreign exchange, when rupee assets are sold and the revenue converted into dollars. As a result, the investments turn even more attractive triggering an investment spiral that would imply a sharper fall when any correction begins. Apart from that the growing realization by the FIIs of the power they wield in what are shallow markets, encourages speculative investment aimed at pushing the market up and choosing an appropriate moment to exit. This manipulation of the market would certainly enhance the volatility and in volatile markets even the domestic investors try to manipulate the market when the prices are really high. Overall the foreign institutional investors have been Bullish on the Indian stocks but the problem is that this bullish nature might be a result of the activities outside the Indian market it might be due to the performance of their equity market or their non equity returns. Therefore they seek out for best returns and diversified geographical portfolio in order to hedge their risk and when they make some adjustments in their portfolio and make shifts in favor or against a country it borings about sharp changes.
Price building mechanism: With the increasing participation of the institutional investors in the capital market, it has also helped the different companies to raise funds for their use through the capital market in India. Earlier the companies use to go for debt financing which a cost has attached to it and also in
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those days the cost of issuing an IPO was higher as compared to the funds that were being generated by the companies. With the help of FII the market has become more competitive fair value of their.
Role of speculation: The effect of foreign speculative activity in emerging markets can be particularly beneficial if in the emerging market, liquidity is poor first, the potential of market manipulation is acute in small emerging markets and liquidity is often poor. Although there are many policy initiatives that could increase liquidity and reduce the degree of collusion among large traders, there may not be a sufficient mass of domestic speculators to ensure market liquidity and efficiency. Second, opening the market to foreign speculators may increase the valuation of local companies, thereby reducing the cost of equity capital
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hence when risk in the domestic market increases they will withdraw from the domestic market. Risk can be divided into ex-ante and unexpected risk. Investors are believed to follow a higher return. It is assumed that the equity returns have a positive impact on the FII inflow but foreign investors can also get involved in profit booking.Investors are considered to be risk averse. depend heavily on risk factors. risk and stock market returns and understand the basic principle behind the inflows. Hence. price earring ratio and risk. While the ex-ante risk certainly has an inverse relation with the foreign investment nothing can be clearly said about the unexpected risk. FII flows to the domestic market.An increase in the return in the foreign market will induce investors to withdraw from the Indian (domestic) stock market to invest in the foreign market. While the flows are highly correlated with equity returns in India. they are more likely to be the effect than the cause of these returns. thereby jacking-up the asset prices and sell when the asset prices are increasing and hence be the cause of such returns so making it more of a bi-directional relationship. it is important to consider the risk variable. Now if we try to analyze the relation of each of these factors with the level of foreign inflow in the country.DETERMINANTS OF FOREIGN INSTITUTIONAL INVESTMENT After the initiation of economic reforms in the early 1990s. They can buy financial assets when the prices are declining. investors will withdraw from the foreign market and invest in the Indian (domestic) market. . when risk in the foreign market increases. a) Equity returns. while studying the behavior of FII. we might have a better understanding. let us broadly classify the factors into inflation. the movement of foreign capital flow increased very substantially. Investments. either domestic or foreign.The inflation no doubt has an inverse relation with the foreign investment inflow as the investor would keep in mind the purchasing power of the funds invested and as inflation Tolani Institute of Management Studies Page 28 . There are a lot of factors that determine the nature and cause of foreign institutional investment in a country a few of them being inflation exchange rate equity returns. government policies. c) Inflation. hence when the return in the domestic market increases. b) Risk.
the purchasing power of the funds invested declines. Similarly. d) Exchange rate –When the value of the home currency is stronger the FII investments will also increase as the percentage of returns the FII get automatically increases and visa versa So it can be said that the inflation and risk in the domestic country and return in the foreign country adversely affect the FII flowing to the domestic country. hence investors will withdraw from the domestic market. When inflation in the domestic country increases.increase i. the purchasing power declines the investor is most likely to withdraw his money. Tolani Institute of Management Studies Page 29 . when inflation in the foreign country increases. the purchasing power of funds invested in the foreign country declines. causing institutional investors to withdraw from the foreign market and make investment in the domestic (Indian) market. whereas inflation and risk in the foreign country and return in the domestic country have a favorable effect on the flow of FII.e.
To begin with. where such control exists. Offshore funds. due to the widespread availability of price information. Guidelines issued by the Reserve Bank of India permitted such foreign institutional investors to invest in the secondary market for equity subject to a ceiling of 5per cent (subsequently raised to 10 per cent) for individual foreign institutional investors in a single Indian firm with an overall limit at 24 per cent of equity (later relaxed to 30 per cent of equity at the option of the firm) for total foreign institutional investment in a single Indian firm. This access. The liberalization of the policy regime was extended to portfolio investment in September1992. Foreign portfolio investment further classified into 1. American Depositary Receipts make it easier for individuals to invest in foreign companies. ADR/GDR. Individual applications. foreign institutional investors such as pension funds or mutual funds were allowed to invest in the domestic capital market subject simply to registration with the Securities and Exchange Board of India. or other financial assets. none of which entails active management or control of the securities’ issuer by the investor. Also called European Depositary Receipt. 2.Portfolio Investment: Portfolio investment represents passive holdings of securities such as foreign stocks. bonds. and timely dividend distributions. Indian firms were allowed access to international capital markets through global depository receipts or Euro convertible bonds which converted debt into equity after stipulated period. Global Depositary Receipt: A negotiable certificate held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country. lower transaction costs. The option of portfolio investment was also made available to domestic corporate entities from September 1992. it is known as foreign direct investment. was not automatic. drawn up Tolani Institute of Management Studies Page 30 . however.
Luxembourg. only for investment in shares or debentures through stock exchanges. were subject to approval. for example British Virgin Islands. Cayman Islands or Dublin. nonresident Indians (as individuals) and overseas corporate bodies. Similar facilities for portfolio investment were subsequently extended to Offshore funds.inconformity with the general guidelines of the government. but subject to a ceiling of 5 per cent for individual non-resident Indians or overseas corporate bodies in a single Indian firm. Offshore Funds An offshore fund is a collective investment scheme domiciled in an Offshore Financial Centre. This process remains unchanged. on the same terms as foreign institutional investors. Tolani Institute of Management Studies Page 31 .
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Tolani Institute of Management Studies Page 33 . that is. The nuclear tests and East Asian crisis did slow down the flows but as stated by Gordan and Gupta (2003). In the year 1998.6 percent in 1998 to 5. foundations. Asset Management Companies. in the words of Banaji (2002). As of August 2003 net FII investment was 9 percent of the BSE market capitalization which is small compared to the size of the market. the net flows have been positive. it is not the market capitalization that matters but what is important is the level of the free float. With floating stock in the Indian market being less than 25 percent. This event represents a landmark event since it resulted in effectively globalizing its financial services industry.5 percent in 2002. the group was expanded to include registered university funds. the share of average of FII sales and purchases increased from 2. The cumulative net FII investment in India as on August 2003 is approximately $17400 million. In percentage of total net turnover of BSE. 1992. FII flows which form a part of foreign portfolio investments have been steadily growing in importance in India. charitable trusts and charitable. the shares that are actually publicly available for trading.despite the fact that they invest in just a few highly liquid stocks. endowment. Beginning 1996-97. pension funds. mutual funds. about 35 percent of the 3 free float available has been bagged by FIIs . investment trusts. However. Since then. their effects were short lived. Initially. nominee companies and incorporated/institutional portfolio managers were permitted to invest directly in the Indian stock markets.Foreign Institutional Investors in India: India opened her doors to foreign institutional investors in September.
The Government of India gave preferential treatment to FIIs till 1999-2000 by subjecting their long term capital gains to lower tax rate of 10 percent while the domestic investors had to pay higher long-term capital gains tax. FIIs by adopting a bottom-up approach seem to invest in top-quality. According to the April 2001 report on corporate governance by CLSA Emerging Markets. 2003). second only to China. FIIs are now looking at the economy as a whole. large cap stocks (Gordan and Gupta. But FII flows can be considered both as the cause and the effect of capital market reforms. The Securities Exchange Board of India (SEBI) along with the Institute of Chartered Accountants of India (ICAI) jointly monitor the markets and announces the regulatory measures thus making the Indian companies more transparent and more disciplined. This gives an incentive for foreign Tolani Institute of Management Studies Page 34 .Though India receives hardly 1 percent of the FII investments in emerging markets. the portfolio flows to India have been less volatile when compared with that of many other emerging markets (Gordan and Gupta. key reforms in the banking.6 percent. invest in large. Given that India is one of the fastest growing economies in South Asia. 2003). liquid companies which enable them to exit their positions quickly at relatively lower cost and also that the foreign institutional owners have a larger impact than foreign corporate owners when performance is measured using stock market valuation criterion. Sytse et al. it would not be a surprise to see increased FII flows to India in the future. power and telecommunications sector. Banaji (2000) emphasizes that the capital market reforms like improved market transparency. high growth. with the macro-economic factors also playing their role in attracting foreign investors. (2003) provide empirical evidence that foreign institutional investors in India. automation. dematerialization and regulations on reporting and disclosure standards were initiated because of the presence of the FIIs. The market reforms were initiated because of the presence of FIIs and this in turn has lead to increased flows. India ranks fourth with a score of 55. Factors like a strong currency. The Indo-Mauritius Double Taxation Avoidance Convention 2000 (DTAC). increased consumer spending and stable policies are expected to play a major role in attracting FIIs to India. exempts Mauritius-based entities from paying capital gains tax in India including tax on income arising from the sale of shares. promising a growth of over 6 percent.
Tolani Institute of Management Studies Page 35 . we now see investments coming from Mauritius while there were none before 2000. Consequently.investors to invest in Indian markets taking the Mauritius route.
and FDI. c) Knowledge flows: The activities of international institutional investors help strengthen Indian finance.FII: A COST BENEFIT ANALYSIS BENEFITS a) Reduced cost of equity: FII inflows augment the sources of funds in the Indian capital markets. and lead to spillovers of human capital by exposing Indian participants to modern financial techniques. through capital flows. FII investment reduces the required rate of return for equity. and fosters investment by Indian firms in the country. promote innovation. there is need to augment domestic investment. The impact of FIIs upon the cost of equity capital may be visualized by asking what stock prices would be if there were no FIIs operating in India. Prior to 1991. development of sophisticated products such as financial derivatives. as opposed to debt-creating flows. are important as safer and more sustainable mechanisms for funding the current account deficit. enhance competition in financial intermediation. over and beyond domestic saving. The excess of domestic investment over domestic savings result in a current account deficit and this deficit is financed by capital flows in the balance of payments. b) Stability in the balance of payment: For promoting growth in a developing country such as India. and international best practices and systems. debt flows and official development assistance dominated these capital flows. This mechanism of funding the current account deficit is widely believed to have played a role in the emergence of balance of payments difficulties in 1981 and 1991. FIIs advocate modern ideas in market design. enhances stock prices. Portfolio flows in the equity markets. Tolani Institute of Management Studies Page 36 .
which are primarily export-oriented. improved efficiency and better shareholder value. foreign investors were rapidly able to assess the potential of firms like Infosys.and push prices away from fair values. FIIs. even when these do not measure up to the international benchmarks of best practices. For example. often accept such practices. First. and engage in stabilizing trades. with their vast experience with modern corporate governance practices. selling after negative returns). Tolani Institute of Management Studies Page 37 . e) Improving market efficiency: A significant presence of FIIs in India can improve market efficiency through two channels. used as they are to the ongoing practices of Indian corporate. FII participation in domestic capital markets often lead to vigorous advocacy of sound corporate governance practices. FIIs may act as a channel through which knowledge and ideas about valuation of a firm or an industry can more rapidly propagate into India. such as a bad monsoon. COSTS a) Hedging and positive feedback training: There are concerns that foreign investors are chronically ill informed about India. at the level of individual stocks and industries. applying valuation principles that prevailed outside India for software services companies. when adverse macroeconomic news.d) Strengthening corporate governance: Domestic institutional and individual investors.These Kinds of behavior can exacerbate volatility . unsettles many domestic investors. it may be easier for a globally diversified portfolio manager to be more dispassionate about India's prospects. Second. are less tolerant of malpractice by corporate managers and owners (dominant shareholder). and this lack of sound information may generate herding (a large number of FIIs buying or selling together) and positive feedback (buying after positive returns.
Furthermore. however. and seek control of companies that they have a substantial shareholding in. may not be inconsistent with India's quest for greater FDI. Tolani Institute of Management Studies Page 38 . A billion or more of US dollars of portfolio capital has never left India within the period of one month. Such outcomes. and has functioned fairly well.b) Balance of payment vulnerability: There are concerns that in an extreme event. or the 2001 stock market scandal. c) Possibility of takeovers: While FIIs are normally seen as pure portfolio investors. triggering difficulties in the balance of payments front. no capital flight has taken place. portfolio investors can occasionally behave like FDI investors. India's experience with FIIs so far. ensuring that all investors benefit equally in the event of a takeover. suggests that across episodes like the Pokhran blasts. however. When juxtaposed with India's enormous current account and capital account flows. there can be a massive flight of foreign capital out of India. SEBI's takeover code is in place. without interest in control. this suggests that there is little vulnerability so far.
During the Black Monday episode the FII were also on a heavy selling spree which ultimately leads to some major fall in the Sensex value. Fung. and influencing the behavior of investors. These are: the East-Asian crisis in 1997. some Asian government officials accused speculators and hedge funds of attacking the currencies and causing their downfall. and the Black Monday of May 17. Kodres. A public debate ensued. Jansen. 2004. the Pokhran Nuclear explosion (May 1998) and the attendant sanctions.10 The investment behavior of the FIIs vis-àvis the movements of the stock market indices during these episodes are given in Table. and Stsatsaronis (2000) report “At the height of the episode. The resulting study by Eichengreen. There have been four episodes of vulnerability in India. Hsieh. Chadha. Mathieson. and During the stock market scam which shook the capital market in India the FII were also one of the major factors which exacerbates the fall in the Sensex.A STUDY OF MAJOR EPISODES OF VOLATILITY FII investment in equities had little role to play in the crisis. which are negative shocks affecting the economy. Tolani Institute of Management Studies Page 39 . the stock market scam of early 2001. and the International Monetary Fund (IMF) responded by examining the role of hedge funds in the Asian currency crisis.
09 -552.FII Behavior During East Asian Crisis MONTH BSE INDEX FOR THE MONTH July 1997 August 1997 September 1997 October 1997 November 1997 December 1997 January 1998 February 1998 March 1998 4256.73 2988.83 3515.30 104.87 3402.66 598. In crores) -557.59 -289.31 3944.22 FII investment behavior during these four specific events indicates that these events did affect the behavior of the foreign portfolio investors.75 3611.46 Tolani Institute of Management Studies Page 40 .78 3991.97 629.05 472.40 3089.55 FII investments (Rs.11 4276.68 -390.54 3472.59 641.45 -896. But. FII Behavior in the aftermath of Pokhran Nuclear Explosion Month May 1998 June 1998 July 1998 August 1998 September1998 October 1998 Bse index for the month 3911.8 493.38 -374. crore) 1002.82 111.96 3816. these events did affect domestic investors’ behavior as well.95 3317.88 2866.87 -182.49 3271.89 FII INVESTMENTS (Rs.
88 FII investments -3151.80 FII Behavior around Black Monday. but the success of a radical new market design in the Indian equity market have led to enormous growth of liquidity and market efficiency on the equity market. Through this. FIIs are a small part of the Indian equity market. shortening of settlement cycles.42 4152.29 511.39 4310.44 2204. The net FII inflows into India have been less volatile compared to other emerging markets this stability could be attributed to several factors: Strong economic fundamentals and attractive valuation of companies.58 1574. In calendar 2004.170 crore per day – has never been observed.88 lakh crore contained Rs.10 4081. This suggests that as yet. gross turnover on the equity market of Rs. May 17.5 lakh crore in a year might have been large in 1993.65 4823.13 3807. high quality of disclosure and corporate governance requirement.00 1292.5 lakh crore of gross turnover by FIIs.FII Behavior during the Stock Market Scam 2001 Month November 2000 December 2000 January 2001 February 2001 March 2001 BSE index for the month 3928. Transactions by FIIs of Rs. 2004 Month May 2004 June 2004 July 2004 BSE index for the month 5204. India’s ability to absorb substantial transactions on the equity market appears to be in place. In crores) 1090. accounting standards.78 3971. Improved regulatory standards. These values – Rs.11 -461. efficiency of Tolani Institute of Management Studies Page 41 .64 FII investment (Rs.83 These experiences show that FII outflow of as much as a billion dollars in a month –which corresponds to an average of $40 million or Rs.170 crore per day – are small when compared with equity turnover in India.87 4972.
at that point of time other emerging markets were also down.FII acted in this fashion because of the weak global cues i. We can very well say that this time around the fall of BSE Sensex was majorly due to the FII which went on a selling spree which lead to the fall of the market during this Crash. Post 2004 Major Volatile Episodes: As from the month of Jan 2008 the BSE Sensex was already moving down due to the weak global cues and US recession and similarly the FII investment fell drastically during that period running panic among the investors and further exacerbating the fall. But in the case of mutual fund investment went up during the time shows that the domestic institutional investors cash on the fall of Sensex because of the strong fundamentals of the Indian capital market.This is clearly viable from the above that this time Tolani Institute of Management Studies Page 42 .To cover their losses in US they started selling in India which lead to the fall of Sensex on that particular day and subsequent days.clearing and settlement systems and risk management mechanisms.700 points in the Sensex on Wednesday. As the subprime losses mainly hit the US economy and the majority of FII participating in the Indian capital market are from US . Strengthening of the rupee dollar exchange rate and low interest rates in the US. 2007 was attributed to the fact mainly due to the subprime losses and also was exacerbated due to the withdrawal of investments by the FII. The share market is extremely vulnerable to the sentiments created by the utterances of those in regulatory authority.e. SEBI should have used some pragmatic caution by avoiding the announcement and introducing regulatory steps in a phased manner. The fall of 769 points by Sensex on Dec 17. This lead the FII to withdraw from the Indian market as they were not sure of how the measure taken by the govt. will be implemented . The restrictions proposed by SEBI in regulating participatory notes in a sudden announcement wrought havoc in the operations of the share market causing a fall of over 1. Product diversification and introduction of derivatives. took some strict measure to control the usage of the Participatory notes. During the month of October 2007 Indian govt.
Tolani Institute of Management Studies Page 43 . an expected increase in interest rates by the US Feds. P Chidambaram. a crash in the international commodity prices. which saved the market from a heavy meltdown. issued an evening press release denying the latter. the country’s Finance Minister. and the straw which broke its back seems to be a government circular which was interpreted that FIIs should be taxed.around the FII were the main cause of the crash of the Sensex on 18 Oct. But also there comes an th interesting fact that there was also a heavy selling on 22 October but this time the FII nd Withdrawal effect was offset by the Huge investment made by domestic institutional investor specially LIC. The reasons being given for the crash are the sale of Rs 7300 crore (Rs 73Billion) shares by FII’s in the past 1 week.
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To understand the concept of BSE sensitive index.Objectives of project • • • • • To study the impact of FII on Indian stock market. To understand the concept of FIIs. To know the sector which get affected more by activities of FIIs. To understand the relationship between the Sensex and FII. Tolani Institute of Management Studies Page 45 .
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. • • Primary data Secondary data For this project only secondary data was used. Basically there are two types of sources to collect data namely they are as under. information plays an important role to make research successful. Tolani Institute of Management Studies Page 46 . magazines. • Sampling Unit: As this study revolves around the foreign institutional investment and Indian stock market. Secondary data: For the secondary data various literatures. As there are not possibilities of collecting data personally so no questionnaire is made. journals. books. web links are used.Methodology Data Collection Method: Here. For the sampling unit is confined to only the Indian stock market.
and weight. Tolani Institute of Management Studies Page 47 . how an athlete's performance is affected by such factors as age. or whether values in both sets are unrelated (correlation near zero). 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).Techniques of analysis 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. We can use the Correlation tool to determine whether two ranges of data move together — that is. 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. height.
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Sensex and S&P CNX Nifty starting from January 2001 to February 2011. The results and the analysis are shown below: Tolani Institute of Management Studies Page 50 . Stock indices were taken as dependent variable. The data was taken from various financial sites. The relationship between the FII’s equity investment pattern and Indian stock indices is studied for the 10 year with the help of correlation and regression analysis.TO FIND THE RELATIONSHIP BETWEEN THE FIIS EQUITY INVESTMENT PATTERN AND INDIAN STOCK INDICES. FII was taken as independent variable. Average index of all the indices and daily net investments made by FII is taken into consideration in the study. The sample data consists of 24 observations for FII.
33 0.352 NIFTY 0.17 0. FIIs have same co-relation with Sensex as well as Nifty.32 0.35 Indices Auto Bankx IT FMCG Oil and Gas Correlation with FII 0.Correlation CORRELATION WITH FII SENSEX 0. FII ‘s impact on sectorial indices is also positive which shows that bank sector is most affected sector amongst which we have analyzed and IT sector is the least affected sector but they are affected positively. Tolani Institute of Management Studies Page 51 .16 0.27 From the above table we can say that FII has a positive impact on the indices which means that if FIIs come in India then they will affect Indian Capital market.
Correlation is significant at the 0.Hypothesis test Null Hypothesis (H0): Sensex does not rises with the increase in FIIs investment Hypothesis (Ha): Sensex rises with the increase in FIIs investment. (2-tailed) N CHANGE IN SENSEX Pearson Correlation Sig.124 Adjusted R Square . Predictors: (Constant). FII INVESTMENT Tolani Institute of Management Studies Page 52 . (2-tailed) N **.000 2721 1 Regression Model Std.352a R Square .463 a. 2722 .352** . Correlations FII INVESTMENT CHANGE IN SENSEX FII INVESTMENT Pearson Correlation Sig.000 2721 2722 1 . Error of the Model 1 R .01 level (2-tailed).352** .124 Estimate 175.
124 which reflects 0. This means that Sensex has a relation with FII but the FII is not influencing the Sensex much. Here the correlation 0.01) so it shows that FIIs will have no significant impact on the Sensex There is positive effect of FII on Sensex but the correlation coefficient is low.35 which shows that both have positive relation if FII increase then Sensex will also increase. The correlation and regression is calculated.The data includes 2722 observations of daily basis of Sensex and FIIs in year from 2000 to 2011. The regression coefficient is 0. This does not mean the relation is false but we can say that the error in linear relation is high.463 which is high and so it means that the deviation from the mean value is high.00<0. Tolani Institute of Management Studies Page 53 . The standard error comes out to be 175. But if we compare the significance with the degree of freedom then null hypothesis is accepted because (0.124 % variability in Sensex with the independent variable every day due to FII.
Correlations FII INVESTMENT FII INVESTMENT Pearson Correlation Sig. Regression Model Summary Std.01 level (2-tailed).000 2721 2722 1 CHANGE IN NIFTY . Predictors: (Constant).350** .350** .123 Adjusted R Square .109 2722 .000 2721 1 a.Hypothesis Null Hypothesis (H0): Nifty does not rises with the increase in FIIs investment Hypothesis (Ha): Nifty rises with the increase in FIIs investment. Correlation is significant at the 0. (2-tailed) N CHANGE IN NIFTY Pearson Correlation Sig. (2-tailed) N **. FII INVESTMENT Tolani Institute of Management Studies Page 54 . Error of the Model 1 R .350a R Square .123 Estimate 53.
109. The standard error comes out to be 53. Tolani Institute of Management Studies Page 55 .35 which shows that both have positive relation if FII increase then Nifty will also increase.Here the correlation 0. The regression coefficient is 0. Which is low and so it means that the deviation from the mean value is low.123 which reflects 0. There is positive effect of FII on Nifty but the correlation coefficient is low. This means that Nifty has a relation with FII but the FII is not influencing the Nifty much. But if we compare the significance with the degree of freedom then null hypothesis is accepted because (0.01) so it shows that FIIs will have no significant impact on the Nifty. This means the relation is there between nifty and FII.123 % variability in Nifty with the independent variable every day due to FII.00<0.
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Correlation is significant at the 0. Bankx rises with the increase in FIIs investment. Oil & Gas. IT. Error of the Model 1 R .08643 a. (2-tailed) N **.111 Adjusted R Square .333a R Square .333** . Correlations FII INVESTMENT FII INVESTMENT Pearson Correlation Sig.Hypothesis Null Hypothesis (H0): FMCG.000 2474 2475 1 BANKX CHANGE . Auto. FII INVESTMENT Tolani Institute of Management Studies Page 57 .01 level (2-tailed). (2-tailed) N BANKX CHANGE Pearson Correlation Sig.333** . Predictors: (Constant). Bankx does not rises with the increase in FIIs investment Hypothesis (Ha): FMCG. 2722 .000 2474 1 Model Summary Std. Oil & Gas.111 Estimate 129. IT. Auto.
171a R Square . Still It can be seen that BSE banking is affected a lot by FII and with more FIIs index is also going up.227 a.029 Estimate 33.000 2474 1 Model Summary Std.000 2474 2475 1 FMCG CHANGE . The co relation co-efficient of regression is . (2-tailed) N **. Predictors: (Constant). FII INVESTMENT In FMCG sector the correlation between FII and index is positive that is .171** . Here the standard error is 129. 2722 .171 which is very low.01 level (2-tailed).9% volatility comes on Tolani Institute of Management Studies Page 58 . Error of the Model 1 R . It shows the low linear relation between the two variables but not a lack of relationship altogether.The correlation coefficient is 0. Correlation is significant at the 0. Correlations FII INVESTMENT FII INVESTMENT Pearson Correlation Sig.029 that means the only 2.08643 that means error is high.029 Adjusted R Square .111 which means there is no significant correlation between banking sector and FIIs on daily basis. (2-tailed) N FMCG CHANGE Pearson Correlation Sig.171** .
daily basis due to FII activity here the standard error is also 33. Or the flow of FII on this sector is very low.227 which is very low. Tolani Institute of Management Studies Page 59 . So FII is not more affect the FMCG sector on daily basis.
000 2474 1 Model Summary Std.272** . 2722 . FII INVESTMENT The data includes 2474 observations of daily basis of Oil and Gas and FIIs in year from 2001 to 2011.27 which means FII is positively affect the oil and gas sector but the correlation co-efficient is .error which is 134. (2-tailed) N OIL GAS CHANGE Pearson Correlation Sig.272** .272a R Square .4% on daily basis. linearity is not there in the observation. Tolani Institute of Management Studies Page 60 . Predictors: (Constant). (2-tailed) N **.074 Estimate 134.074 Adjusted R Square .Correlations FII INVESTMENT OIL GAS CHANGE FII INVESTMENT Pearson Correlation Sig.000 2474 2475 1 .01 level (2-tailed).951 which high so.95120 a. Correlation is significant at the 0.074 that means the volatility comes due to FII investment in this sector is only 7. Error of the Model 1 R . While considering the std. Here the correlation is 0.
(2-tailed) N **. Correlation is significant at the 0. Predictors: (Constant). This means that IT has a relation with FII but the FII is not influencing the IT much.000 2474 2475 1 BSE IT CHANGE .000 2474 1 Model Summary Std.027 Adjusted R Square .16 % variability in IT with the independent variable every day due to FII. (2-tailed) N BSE IT CHANGE Pearson Correlation Sig.Correlations FII INVESTMENT FII INVESTMENT Pearson Correlation Sig.165** . The standard error comes out to be 83.165** . This means the relation is there between IT and FII.68. FII INVESTMENT There is positive effect of FII on IT sector but the correlation coefficient is also 0.027 Estimate 83. Error of the Model 1 R .01 level (2-tailed). The regression coefficient is 0.165. Tolani Institute of Management Studies Page 61 .68679 a.165 which reflects 0. Which is low and so it means that the deviation from the mean value is low.165a R Square . 2722 .
106 Adjusted R Square .01 level (2-tailed). While the std.00<0.105 Estimate 65.000 2474 1 a. But if we compare the significance with the degree of freedom then null hypothesis is accepted because (0. FII INVESTMENT Here the FII and auto sector have positively correlated that is 0. 0. and Auto sector are 0. And the co –efficient of correlation is 0.325a R Square . Oil and Gas.32 that means the FII flow comes more in this sector compare to other sector so the volatility of auto sector is more.error is 65. (2-tailed) N AUTO CHANGE Pearson Correlation Sig. 0. 0. IT.5% in auto index.325** .01) so it shows that FIIs will have no significant impact on the indices.33.34498 2722 .32 which shows that all the five sector have positive relation with FII if FII increase then all five indices will also increase. Hypothesis of sector indices Here the correlation of bankx. Correlation is significant at the 0. Model Summary Std. (2-tailed) N **.34 which is very low so the deviation from mean is also low. There are other factors which also affect the indices.325** .105 that means the due to FII investment in Auto sector daily volatility is 10.Correlations FII INVESTMENT FII INVESTMENT Pearson Correlation Sig. FMCG. 0.16 .17. Error of the Model 1 R . Tolani Institute of Management Studies Page 62 .27. Predictors: (Constant).000 2474 2475 1 AUTO CHANGE .
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Through which we cannot directly say that FII’s have significant impact. economical and political condition. bullion market. At the significant level 0. but there are other factors like government policies. etc.CONCLUSION According to findings and results. do also have an impact on the Indian stock market. which says that SENSEX & NIFTY are not much affected by FII’s investment. Indian Institutional Investor as well as retail investor may act on their direction of trading and overall impact will be positive.01 we found that FII have not any significant effect on SENSEX & NIFTY and that’s why the null hypothesis is accepted. Tolani Institute of Management Studies Page 64 . Many research papers says about FII’s have significant impact on Indian Capital Market but it can be because of their investment. inflation. budgets. we can conclude that FII have positive correlation with NIFTY & SENSEX as well as other sectorial indices but did not have any significant impact on the Indian capital market.
Similarly the laws should be such that it protect domestic investors and also promote trade in country through FIIs.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. 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. 5) Encourage industries to grow to make FIIs an attractive junction to invest. 4) We have to modernize and also have to save our culture. a restriction related to the track record of Sub.RECOMMENDATIONS After the analysis of the project study. Tolani Institute of Management Studies Page 65 . 2) Allowing foreign investment in more areas. In different industries indices the FIIs should be encouraged through different patterns . 3) Somewhere.
bseindia.BIBLIOGRAPHY • • • • • • www.madaan.html http://finance.com/equities/6939-fii-foreign-institutional-investor.html www.com www.org. S.asp www.Sebi.com/q/hp?s= %5EBSESN&a=00&b=1&c=2000&d=09&e=14&f=2010&g=d http://www.com http://www.com/fii. Marchal. W.yahoo.in • Books: Lind. (2008). Tolani Institute of Management Studies Page 66 . D.capitalmarket. Statistical Techniques in Business and Economics (13th edition).com/MarketWatch/fii. and Wathen.traderji.nseindia. New Delhi: Tata McGraw-Hill.
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