Rough Draft 2

IMPACT OF FOREIGN INSTITUTIONAL INVESTOR ON THE INDIAN STOCK
MARKET WITH REFERENCE TO SECTORAL INDICES
DISSERTATION
Submitted to CHRIST (Deemed to be University) in partial fulfilment of the

requirements for the award of the degree of
Bachelor of Business Administration (Honors)
BBA-H
By
Kushagra Sati
Reg No: 2023219
Under the guidance of
Dr. Muthu Gopalakrishnan. M

Associate Professor
School of Business and Management Studies
SCHOOL OF BUSINESS
AND MANAGEMENT
CHRIST (DEEMED TO BE UNIVERSITY)
BANNERGHATTA ROAD CAMPUS
HULIMAVU, BENGALURU-560076
2022-2023
DECLARATION
I, Kushagra Sati, hereby declare that the dissertation titled “IMPACT OF FOREIGN
INSTITUTIONAL INVESTOR ON THE INDIAN STOCK MARKET WITH
REFERENCE TO SECTORAL INDICES” submitted to CHRIST (Deemed to be
University), Bengaluru, in partial fulfilment of the requirements for the award of the degree of
Bachelor of Business Administration (Honors) is a record of original and independent study
undertaken by me during the academic year 2022–2023 under the supervision and guidance of
Dr Muthu Gopalkrishnan. M, Associate Professor, School of Business and Management,
CHRIST (Deemed to be University), Bannerghatta Road Campus, Bengaluru and it has not
formed the basis for the award of any Degree/ Diploma/Associateship/ Fellowship or other
similar titles of recognition to any candidate of any University.
Place: Bengaluru
Date: 27/02/23
Kushagra Sati
Register Number: 2023219

CERTIFICATE
This is to certify that Mr. Kushagra Sati (Registration Number: 2023219) is a bonafide
student of Bachelor of Business Administration (Honors) of CHRIST (Deemed to be
university), Bengaluru and has successfully completed his Dissertation report, titled “IMPACT
OF FOREIGN INSTITUTIONAL INVESTORS ON THE INDIAN STOCK MARKET
WITH REFERENCE TO SECTORAL INDICES” in partial fulfilment of the requirements
for the award of the Degree of Bachelor of Business Administration (Honors) of CHRIST
(Deemed to be University), Bengaluru for the academic year 2022-2023. The information
submitted is true and original to the best of my knowledge.
Place: Bengaluru
Date: 27/02/23
Dr RASHMI RAI
Associate Professor
Head of the Department
School of Business and Management
Christ (Deemed to be University)
Bannerghatta Road, Hulimavu
Bengaluru, 560076
CERTIFICATE BY GUIDE
This is to certify that the Dissertation titled “IMPACT OF FOREIGN INSTITUTIONAL
INVESTORS ON THE INDIAN STOCK MARKET WITH REFERENCE TO
SECTORAL INDICES” submitted to CHRIST (Deemed to be University), in partial fulfilment
of the requirements for the award of the Degree of Bachelor of Business Administration
(Honors) is a record of original study undertaken by Kushagra Sati (Registration Number:
2023219), during the academic year 2022 – 2023 in the School of Business Studies and
Management at CHRIST ( Deemed to be University ), Bengaluru, under my supervision and
guidance. The research paper has not formed the basis for the award of any Degree/
Diploma/Associateship/ Fellowship or other similar titles of recognition to any candidate of this
or any other University or Institution.
Place: Bengaluru
Date: 27/02/23
Dr Muthu Gopalakrishnan
Associate Professor
School of Business and Management
Christ (Deemed to be University)
Bannerghatta Road, Hulimavu
Bengaluru, 560076
ACKNOWLEDGEMENT
I express my special thanks to Dr Muthu Gopalakrishnan KM, Assistant Professor, School of

Business and Management, Christ (Deemed to be University), Bannerghatta Road Campus,
Bengaluru, for always taking out time to give me guidance in this journey and for the constant
support he provided me, whenever I felt stuck and needed help. His advice and constant
motivation helped me successfully complete this research, and I am indebted to him for the
efforts he put in.
I would also like to thank Dr. Fr. Abraham VM, Vice Chancellor, CHRIST (Deemed to be
University), Bengaluru, for having provided an opportunity to research my area of interest as a
part of my curriculum of Bachelor of Business Administration (Hons).
I would like to convey my gratitude to Fr. Biju K. C., Director – Bannerghatta Road Campus,
Dr. Jyothi Kumar, Dean – Bannerghatta Road Campus, Dr. Rashmi Rai, Head of Department,
School of Business and Management, CHRIST (Deemed to be University), Bannerghatta Road
Campus, Bengaluru for providing me with the opportunity and the support to carry out my
research in the area of Finance. This was instrumental in my journey of studying and
understanding the concept of
Finally, I would like to thank my parents, friends and all well-wishers, who have helped me
successfully complete my research paper by constantly supporting and motivating me.
Kushagra Sati
Registration Number: 2023219

Place: Bengaluru
Date: 27/02/23
PLAGERISM CERTIFICATE
TABLE OF CONTENTS
LIST OF TABLES............................................................................................................................................iii
LIST OF FIGURES...........................................................................................................................................v
EXECUTIVE SUMMARY...............................................................................................................................vii
CHAPTER – I.................................................................................................................................................1
INTRODUCTION...........................................................................................................................................1
1.1 Stock Exchange..................................................................................................................................1
1.2 SEBI....................................................................................................................................................1
1.3 The Bombay Stock Exchange (BSE)................................................................................................2
1.4 The National Stock Exchange (NSE)................................................................................................3
1.5 Foreign Institutional Investors.........................................................................................................4
1.5.1 Impact of Foreign Institutional Investors on the Indian Stock Market....................................4
1.5.2 Timeline of FII Investment............................................................................................................6
1.5.3 Regulations......................................................................................................................................8
1.5.4 Investment Opportunities for FII..................................................................................................9
1.6 Domestic Institutional Investors.......................................................................................................9
1.7 Automobile Index.............................................................................................................................11
1.8 FMCG Index.....................................................................................................................................12
1.9 Pharmaceutical Index......................................................................................................................13
1.10 Telecom Index................................................................................................................................15
1.11 Banking Index................................................................................................................................16
1.12 Information Technology Index.....................................................................................................18
1.13 Problem Statement.........................................................................................................................20
1.14 Relevance of Research...................................................................................................................20
1.15 Scope of the Research....................................................................................................................20
1.16 Research Objective:.......................................................................................................................21
1.17 Research Question:........................................................................................................................21
1.18 Limitations of Study......................................................................................................................22
CHAPTER – II................................................................................................................................................1
REVIEW OF LITERATURE..............................................................................................................................1
CHAPTER – II.......................................................................................................................................26
i
2.1 Introduction......................................................................................................................................26
2.2 Literature Review............................................................................................................................26
2.3 Research Gap...................................................................................................................................33
CHAPTER – III...............................................................................................................................................1
RESEARCH METHODOLOGY.........................................................................................................................1
3.2 Research Area..................................................................................................................................36
3.3 Operational Terms...........................................................................................................................36
3.4 Sample Design..................................................................................................................................37
3.5 Data Collection.................................................................................................................................37
3.6 Tools used for Analysis....................................................................................................................37
3.6.1 Normality Test...............................................................................................................................37
3.6.2 Correlation Test............................................................................................................................38
3.6.3 Regression Test..............................................................................................................................38
3.6.4 Granger Causality.........................................................................................................................39
3.6.5 Co-integration...............................................................................................................................40
3.7 Hypothesis.........................................................................................................................................40
CHAPTER – IV...............................................................................................................................................1
DATA ANALYSIS AND INTERPRETATION.......................................................................................................1
4.1 Test for Normality............................................................................................................................41
4.1.1 Nifty 50...........................................................................................................................................41
4.1.2 Automobile Index..........................................................................................................................42
4.1.3 FMCG Index..................................................................................................................................43
4.1.4 Bank Index.....................................................................................................................................44
4.1.5 Information Technology Index....................................................................................................45
4.1.6 Telecom Index...............................................................................................................................46
4.1.7 Pharmaceutical Index...................................................................................................................47
4.2 Correlation, Regression, and ANOVA Analysis...........................................................................48
4.2.1 Nifty 50...........................................................................................................................................48
4.2.3 FMCG Index..................................................................................................................................52
4.2.4 Bank Index.....................................................................................................................................54
4.2.6 Telecom Index Analysis................................................................................................................58
ii
4.2.7 Pharmaceutical Index Analysis...................................................................................................60
4.3 Stationarity Test (Augmented Dicky Fuller Test).........................................................................62
4.4 Granger Causality Test...................................................................................................................64
4.5 Co-Integration Analysis..................................................................................................................66
4.5.1 Nifty 50...........................................................................................................................................66
4.5.3 FMCG Index..................................................................................................................................70
4.5.4 Pharmaceutical Index...................................................................................................................71
4.5.5 Telecom Index...............................................................................................................................73
4.5.6 Banking Index...............................................................................................................................75
CHAPTER-V..................................................................................................................................................1
FINDINGS, SUGGESTIONS & CONCLUSIONS................................................................................................1
5.1 Findings of the Study:......................................................................................................................79
5.2 Recommendations and Suggestions:..............................................................................................81
5.3 Conclusion:.......................................................................................................................................82
REFERENCE................................................................................................................................................84
APPENDIX..................................................................................................................................................86
iii
LIST OF TABLES
Table Description Page No.

No.
3.1 Operational terms of the stock market indices under study 35
4.1 Correlation Model Summary (Nifty 50) 48
4.2 ANOVA (Nifty 50) 48
4.3 Coefficients (Nifty 50) 49
4.4 Correlation Model Summary (Automobile Index) 50

4.5 ANOVA (Automobile Index) 50
4.6 Coefficients (Automobile Index) 51
4.7 Correlation Model Summary (FMCG Index) 52
4.8 ANOVA (FMCG Index) 52
4.9 Coefficients (FMCG Index) 53
4.10 Correlation Model Summary (Bank Index) 54
4.11 ANOVA (Bank Index) 54
4.12 Coefficients (Bank Index) 55
4.13 Correlation Model Summary (Information Technology Index) 56
4.14 ANOVA (Information Technology Index) 56
4.15 Coefficients (Information Technology Index) 57
4.16 Correlation Model Summary (Telecom Index) 58
4.17 ANOVA (Telecom Index) 58
4.18 Coefficients (Telecom Index) 59
4.19 Correlation Model Summary (Pharmaceutical Index) 60
4.20 ANOVA (Pharmaceutical Index) 60
4.21 Coefficients (Pharmaceutical Index) 61
4.22 Augmented Dickey-Fuller Unit Root Test Results 62
4.23 Results of the Granger Causality Test 64

4.24 Johansen’s Cointegration Results: Nifty 50 Index 67
iv
4.25 Johansen’s Cointegration Results: Automobile Index 68
4.26 Johansen’s Cointegration Results: FMCG Index 70
4.27 Johansen’s Cointegration Results: Pharmaceutical Index 72
4.28 Johansen’s Cointegration Results: Telecom Index 74
4.29 Johansen’s Cointegration Results: Banking Index 75
4.30 Johansen’s Cointegration Results: Information Technology Index 77
LIST OF FIGURES
v
Figure Description Page No.
No.
1 SENSEX 2002-2022 3
2 NIFTY 50 2002-2022 4
3 FII Gross Purchase and Sales 6
4 DII Gross Purchase and Sales 11
5 NIFTY Automobile Index 14
6 NIFTY FMCG Index 15
7 NIFTY Pharmaceutical Index 17
8 NIFTY Telecom Index 18
9 NIFTY Banking Index 20
10 NIFTY Information Technology Index 21
11 Nifty 50 Normal Probability Plot 41
12 Automobile Index Normal Probability Plot 42
13 FMCG Index Normal Probability Plot 43
14 Bank Index Normal Probability Plot 44
15 Information Technology Index Normal Probability Plot 45
16 Telecom Index Normal Probability Plot 46
17 Pharmaceutical Index Normal Probability Plot 47
vi
EXECUTIVE SUMMARY
This paper intends to test whether there exists an impact of Foreign Institutional Investors on the
Indian stock market and its various sectoral stock indices. To begin with, the paper defines what
is the Indian Stock Market and the various stakeholders involved, further defining who foreign
institutional investors are and how they have influenced the market over the span of three
decades. Following to the introduction to the mentioned area of research, the literature review on
the same is also made available to the readers. For the study, a sample of 6 stock market indices
were taken from all the 19 distinct sectoral indices on the National Stock Exchange of India. In
an attempt to test the relationship and impact of FIIs on the market indices, various tests were
done on the data taken from NSE, starting from normality test, correlation and regression
analysis, stationarity test, granger causality test and cointegration.
Post analysis, it was found in the study that the FIIs inflow and outflow of funds from the Indian
stock market greatly impacts the stock prices of companies in the long run but the impact is not
very significant in the short run.
Hence, keeping a track on FII movements becomes a necessity for stock market price trend
followers and prediction makers.
Keywords: Stock market, Foreign Institutional Investors, Nifty, Automobile Index, FMCG
Index, Pharmaceutical Index, Information Technology Index, Telecom Industry, Banking
Industry, Correlation, Regression.
vii
CHAPTER – I
INTRODUCTION
CHAPTER - I
INTRODUCTION
1.1 Stock Exchange

A stock exchange is a marketplace where buyers and sellers of securities issued by governmental
entities, financial institutions, corporations, and other entities come together and conduct
business. The issuance and redemption of securities and other financial instruments, as well as
capital events like the payment of income and dividends, may also be accommodated by stock
exchanges. Stock issued by listed firms, unit trusts, derivatives, pooled investment products, and
bonds are examples of securities traded on a stock exchange. Buyers and sellers’ complete deals
in a single place, making stock exchanges frequently behave as "continuous auction" markets. It
gives capital essential mobility and allows for the direct flow of cash into viable businesses.
Prices for specific securities reflect supply and demand. In fact, it is said that the stock market
serves as a gauge of the health of the economy and financial system.
1.2 SEBI
The Securities and Exchange Board of India is known as SEBI. It is a statutory regulatory
agency that the Indian government set up in 1992 to control the securities market and safeguard
the interests of investors who buy securities. Mutual funds and the stock market are likewise
subject to SEBI regulation.
1.3 The Bombay Stock Exchange (BSE)
1
Figure 1: SENSEX 2002-2022 Source –
Moneycontrol
The earliest and biggest stock exchange in India, the Bombay Stock Exchange (BSE), was
founded in 1875 as the Native Share and Stock Brokers' Association. One of the biggest
exchanges in the world, the BSE is headquartered in Mumbai, India, and features a list of about
6,000 firms.
The BSE has contributed to the growth of the Indian business sector and to the development of
India's capital markets, especially the retail debt market. The BSE is the first stock exchange in
Asia and features a platform for trading stocks for small and medium-sized businesses (SMEs).
BSE has expanded its offerings to include clearing, settlement, and risk management services for
the capital markets.
The BSE Sensex, in the long run, has seen tremendous bullish movement, but there have been
records of incidents where the index saw major plunges, with the global financial crisis in 2008
and the Covid-19 pandemic in 2020 being two such major incidents. Both these incidents saw the
index crashing by over 10000 points but were both followed by a positive market pull over in the
following years.
2
1.4 The National Stock Exchange (NSE)
Figure 2: NIFTY 50 2002-2022 Source –

Moneycontrol
According to the World Federation of Exchanges, the National Stock Market (NSE) is the largest
stock exchange in India and the fourth largest in the world by volume of equities trading in 2015.
(WFE). The NSE was the first exchange in India to introduce screen-based or electronic trading.
It started operating in 1994, and according to SEBI data, it has consistently been the largest stock
exchange in India in terms of total and average daily turnover for equity shares since 1995.
The exchange listings, trading services, clearing and settlement services, indices, market data
feeds, technological solutions, and financial education services are all part of NSE's completely
integrated business model. The NSE also monitors adherence to the exchange's rules and
regulations by trading and clearing members.
Similar to the BSE Sensex, the Nifty index over the past few decades has seen an overall rise in
the market index returns (bullish movement), but the two catastrophic incidents of the 2008
financial crisis and the Covid-19 pandemic of 2020 left the index shattered with major plunges
and bearish movements, but the market always turned out to be more bullish after these incidents
and led to rise in market prices.
3
1.5 Foreign Institutional Investors
An investor or investment fund that makes investments in a nation other than the one in which it
is registered or has its headquarters is known as a foreign institutional investor (FII). India is
perhaps the country where the phrase "foreign institutional investor" is most frequently used to
describe foreign investors in that country's financial markets. FIIs play an important role in the
global financial market by providing capital and liquidity to different markets and can also help
to promote economic growth and stability in the countries in which they invest. However, their
large and often sudden trades can also lead to volatility in the markets they invest in.
Hedge funds, insurance firms, pension funds, investment banks, and mutual funds are examples
of FIIs. However, several developing countries, including India, have imposed restrictions on the
overall amount of assets an FII can buy and the number of equity shares it can purchase,
particularly in a single firm. This lessens the impact that FIIs have on specific businesses and the
country's financial systems, as well as the potential harm that could result if FIIs are left in large
numbers during a crisis. Although the FIIs can be significant sources of capital in developing
economies.
1.5.1 Impact of Foreign Institutional Investors on the Indian Stock Market

Developing economies, which often offer investors better development potential than established
economies, are some of the nations with the biggest volume of foreign institutional investments.
One reason for this is that India, with its fast-growing economy and appealing individual firms to
invest in, is a popular destination for FIIs. To engage in the market, all FIIs in India must register
with the Securities and Exchange Board of India (SEBI).
The Indian government started implementing liberalisation and economic changes in 1990–1991
to achieve rapid and significant economic growth and advance the globalisation of the economy.
4
Foreign Institutional Investments
300,000.00
250,000.00
200,000.00
Crores
150,000.00
100,000.00
50,000.00
0.00
2008 2008 2009 2010 2011 2011 2012 2013 2014 2014 2015 2016 2017 2017 2018 2019 2020 2020 2021 2022
Gross Purchase Gross Sales
Figure 3: FII Gross Purchase and Sales
The graph above indicates how steadily the FII inflows and outflows have moved over the past
decade and a half or so. This is indicative of the general bullish sentiment of FIIs in the Indian
stock market.
The government updated its foreign investment policy as part of the reform process under the
New Industrial Policy, recognising the growing significance of foreign investment as a tool for
technology transfer, augmentation of foreign exchange reserves, and globalisation of the Indian
economy. At the same time, the government approved foreign portfolio investors' first-ever
portfolio investments in the Indian capital market from abroad. The addition of FIIs appears to
respond to the Narasimhan Committee Report on Financial System's advice.
The committee merely advocated for gradually opening the capital market to foreign portfolio
investments. Foreign portfolio investors were allowed to invest in all securities traded on the
primary and secondary markets, including shares, debentures, and warrants issued by companies
that were listed or were expected to be listed on the Indian stock exchanges, beginning on
September 14, 1992, subject to the appropriate restrictions. Then-Finance Minister Dr
Manmohan Singh had proposed allowing reputable international investors, like Pension Funds
etc., to invest in the Indian capital market while presenting the Budget for 1992-1993.
5
Foreign institutional investors were categorised as FIIs following a SEBI notification that was
issued in January 2014. (Foreign portfolio investors).
1.5.2 Timeline of FII Investment

 An important turning point in the emergence of a rapidly developing India occurred on
September 14, 1992, when foreign institutional investors (FIIs) were permitted to invest
in all securities traded on the primary and secondary markets, including shares,
debentures, and warrants issued by companies that were listed or were going to be listed
on the Indian stock exchange, as well as in the schemes floated by domestic mutual
funds.
 The initial limits on the total amount of FII holdings in any one company were 5% for a
single FII and 24% for all FIIs combined.
 It was stipulated that FII funds have to have at least 50 investors, with no single
shareholder holding more than 5%. To diversify the source of FII investment was done.
 Since November 1996, the FIIs have been able to invest 100% of their funds in debt
securities with SEBI's permission. The whole investment needs to stay under a US$ 1.5
billion overall cap.
 The board of directors of individual companies approved a resolution in their meeting
and a special resolution to that effect in the company's general body meeting in 1997,
allowing the total investment cap for all FIIs to increase from 24% to 30%.
 The board of directors of individual companies approved a resolution in their meeting
and a special resolution to that effect in the company's general body meeting in 1997,
allowing the total investment cap for all FIIs to increase from 24% to 30%.
 Since 1998, FIIs have also been permitted to invest in treasury bills, money market
products, and dated government securities.
 High net worth individuals and foreign corporations were also permitted to invest in 2000
as sub-accounts (underlying funds on whose behalf FII invests) of SEBI registered FIIs.
 This was done in order to include domestic asset management firms or domestic portfolio
managers
6
 The maximum investment level for the entire FII portfolio was set at 40% in March 2000.
Then, on March 8, 2001, this was raised to 49%; in 2001, it was raised to a specified
sectoral cap. In a recent circular dated March 30, it was announced that starting on April
5, 2016, the total investment in government securities would increase to Rs. 1 40,000
crores, and starting on July 5, 2016, it would increase by another Rs. 4,000 crores.
 On March 13, 2002, a committee was established to determine the industries in which FII
portfolio investments would not be subject to sectoral FDI limits.
 The investment cap for FIIs in debt funds was raised in 2004 from US$ 1 billion to US$
1.75 billion.
 In addition, SEBI shortened the processing time for FII registration applications from 13
working days to 7 working days, with the exception of banks and subsidies.
 Additionally, from April 4 and July 5, respectively, the cap for FII investments in state
development loans would increase to Rs. 10,500 crore and Rs. 14,000 crores,
respectively. The current ceiling is Rs. 7,000 crores.
 From October 12 of last year, the limit for foreign investors in securities was raised to Rs.
1, 29,000 crores, and it was subsequently raised to Rs. 1, 35,000 crores on January 1,
2016.
7
1.5.3 Regulations
FII registration and investment are mainly governed by SEBI (FII) regulations, 1995.
The following entities/funds are eligible to get registered as FII:
 Pension Funds
 Mutual Funds
 Insurance Companies
 Investment Trusts
 Banks
 University Funds
 Endowments
 Foundations
 Charitable Trusts / Charitable Societies
Further, the 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
FIIs registered with SEBI fall under the following categories:
 Regular FIIs-those who are required to invest not less than 70% of their investment in
equity-related instruments and 30% in non-equity investments.
 100% debt fund FIIs-those who are permitted to invest only in debt instruments.
8
Only through the nation's portfolio investment scheme are FIIs permitted to invest in India's
primary and secondary capital markets. Through this programme, FIIs are able to buy Indian
company shares and debentures on the national stock exchange.
There are numerous regulations, though. For instance, FIIs are typically only permitted to invest
up to 24% of the Indian firm receiving the investment's paid-up capital. If a special resolution is
issued and the investment is authorised by the board of the company, FIIs may invest more than
24%. Only 20% of the bank’s paid-up capital may be invested in public sector banks in India by
FIIs. The Reserve Bank of India uses cut-off points that are 2% below the maximum investment
to track compliance with these rules every day. This gives it the opportunity to warn the Indian
business receiving the investment before permitting the purchase of the final 2%.
1.5.4 Investment Opportunities for FII

If FIIs want to invest in India, they might look into the following list of investment opportunities.
 Securities traded on the primary and secondary markets, such as shares, bonds, or stock
warrants.
 Units of investment programmes offered by domestic fund companies, such as the Unit
Trust of India. Whether or whether unit schemes are listed on recognised stock markets,
FIIs may invest in them.
 Units of schemes that collective investment schemes have floated
 Trading in derivatives on reputable stock exchanges
 Dated government securities and commercial notes issued by organisations, businesses,
or institutions in India
 Bonds with credit enhancement that are primarily in rupees
 Security receipts and depository receipts issued in India
 Non-convertible bonds or debentures issued by Indian infrastructure-related enterprises,
both listed and unlisted. In this context, "infrastructure" refers to the conditions of the
ECB's guidelines for external commercial borrowings.
9
1.6 Domestic Institutional Investors
Domestic Institutional Investors (DIIs) are entities that invest in the securities of their own
country. These can include pension funds, mutual funds, insurance companies, banks, and other
types of investment companies. They are considered an important source of long-term capital for
companies and play a significant role in the functioning of the stock market by providing
liquidity, stability and promoting economic growth.
Domestic Institutional Investments

200,000.00
180,000.00
160,000.00
140,000.00
120,000.00
Crores
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
0.00
2008 2008 2009 2010 2011 2011 2012 2013 2014 2014 2015 2016 2017 2017 2018 2019 2020 2020 2021 2022
Gross Purchase Gross Sales
Figure 4: DII Gross Purchase and Sales
Similar to that of the FII investments the Domestic Institutional Investors have just added to the
bullish rally which was hindered by small dips but the investment flows bounced back. Post the
onset of Covid 19 the market saw a dip but it was followed by a major jump in DII Gross
purchase thus continuing the bullish movement.
DIIs typically have a long-term investment horizon and tend to hold a diversified portfolio of
stocks, which helps to reduce the overall market volatility. They also play a key role in providing
liquidity to the market by buying and selling large amounts of stock without significantly
affecting stock prices.
Some of the major types of DIIs in India include mutual funds, insurance companies, pension
funds, and banks. These institutions typically have large pools of capital that they invest on
10
behalf of their clients, and their investment decisions can significantly impact the Indian stock
market.
However, DII's investment decisions can also be influenced by various factors such as changes in
government policies, changes in tax laws and regulations, and overall economic conditions.
Thus, keeping a track of these factors can help in understanding the potential impact of DIIs on
Indian stock markets
1.7 Automobile Index

The Nifty Automobile Index is a stock market index in India that tracks the performance of
companies in the automobile sector. It is part of the Nifty 50. The Nifty Automobile Index was
created to provide investors with a gauge of the performance of the Indian automobile industry,
and it is considered a benchmark for measuring the performance of individual stocks in the
sector.
On analysing the FII investment trends in the automobile industry over a period of 10 years in
the graph below, it can be seen that over the long run, the FII investments in the Indian
Automobile Index have increased from 50,000 crores to 2,50,000 crores.
FII INVESTMENTS
300,000
250,000
200,000
150,000
Crores
100,000
50,000
0
12 12 12 13 13 14 14 14 15 15 16 16 17 17 17 18 18 19 19 19 20 20 21 21 22 22 22
a n- un- ov- pr- ep- eb- Jul- ec- ay- ct- ar- ug- an- un- ov- pr- ep- eb- Jul- ec- ay- ct- ar- ug- an- un- ov-
J J N A S F D M O M A J J N A S F D M O M A J J N
Time
Figure 5: NIFTY Automobile Index
11
The Nifty Auto Index includes companies engaged in manufacturing vehicles, auto components,
and two-wheelers. Some known companies included in the index are Maruti Suzuki, Tata
Motors, Mahindra & Mahindra, Hero MotoCorp, and Bajaj Auto. The index is calculated based
on free-float market capitalization-weighted methodology, where the level of the index reflects
the total market value of all the stocks included in the index relative to a particular base period.
The Nifty Auto Index is updated in real time and is widely followed by market participants,
including investors, traders, and analysts. It provides a snapshot of the overall performance of the
Indian automobile sector and can be used as a tool to measure the performance of individual
stocks in the sector. For investors, the Nifty Auto Index serves as a benchmark for investment
decisions, allowing them to track the performance of the automobile sector and identify trends
and opportunities.
Over the years, the Nifty Auto Index has been an essential indicator of the health of the Indian
economy, as the automobile sector is one of the largest contributors to the country's Gross
Domestic Product (GDP). Various factors, such as changes in government policies, interest rates,
inflation, and consumer sentiment, have impacted the index.
1.8 FMCG Index

The Fast-Moving Consumer Goods (FMCG) sector in India is an important component of the
Indian stock market and is represented by the FMCG Index, which tracks the performance of the
leading FMCG companies listed on the stock exchanges in India. The FMCG Index is a market
capitalization-weighted index, which means that the stocks with a higher market capitalization
carry more weight in the index.
12
FII INVESTMENTS
400,000
350,000
300,000
250,000
200,000
Crores
150,000
100,000
50,000
0
12 12 12 13 13 14 14 14 15 15 16 16 17 17 17 18 18 19 19 19 20 20 21 21 22 22 22
n- un- ov- pr- ep- eb- Jul- ec- ay- ct- ar- ug- an- un- ov- pr- ep- eb- Jul- ec- ay- ct- ar- ug- an- un- ov-
Ja J N A S F D M O M A J J N A S F D M O M A J J N
Time
F
igure 6: NIFTY FMCG Index
On analysing the FII investment trends in the FMCG industry over a period of 10 years in the
graph above, it can be seen that over the long run, the FII investments in the Indian FMCG Index
have increased from less than 50,000 crores to over 3,50,000 crores. It can also be observed that
the FMCG Index saw a sudden boom of investments during the post post-Covid-19as the
industry experienced a boom in demand
Some of the prominent companies included in the FMCG Index in India are Hindustan Unilever
Limited, Nestle India, Procter & Gamble, ITC Limited, and Dabur India, among others. These
companies operate in various FMCG segments, such as personal care, food and beverages,
household goods, and over-the-counter pharmaceuticals.
The performance of the FMCG Index is often considered as a barometer of the health of the
Indian economy, as the FMCG sector is considered to be a defensive sector and is less affected
by economic cycles. The sector is characterized by stable revenue growth, high profitability, and
low volatility, making it an attractive investment option for investors looking for steady returns.
Over the years, the FMCG Index has performed well, outpacing the broader market indices in
India. For example, in 2020, the FMCG Index outperformed the Nifty 50 and the Sensex, which
are the leading market indices in India, due to the strong demand for essential goods during the
COVID-19 pandemic.
13
1.9 Pharmaceutical Index
The Pharmaceutical sector in India is one of the most important components of the Indian stock
market and is represented by the Pharmaceutical Index, which tracks the performance of the
leading pharmaceutical companies listed on the stock exchanges in India. The Pharmaceutical
Index is a market capitalization-weighted index, which means that the stocks with a higher
market capitalization carry more weight in the index.
Some of the prominent companies included in the Pharmaceutical Index in India are Sun
Pharmaceutical Industries, Dr. Reddy's Laboratories, Cipla, Lupin, and Cadila Healthcare,
among others. These companies operate in a wide range of pharmaceutical segments, such as
generic drugs, branded drugs, and biopharmaceuticals.
On analysing the FII investment trends in the pharmaceutical industry over a period of 10 years
in the graph below, it can be seen that over the long run, the FII investments in the Indian
Pharmaceutical Index have increased from less than 50,000 crores to close to 2,50,000 crores. An
uptrend can be noticed up to May 2015, post which a decline in the FII investments and a bearish
sentiment in FII investors can be noticed, which was reversed post the onset of the Covid-19
pandemic due to an increase in demand for pharma products.
FII INVESTMENTS
300,000
250,000
200,000
150,000
Crores
100,000
50,000
0
12 12 12 13 13 14 14 14 15 15 16 16 17 17 17 18 18 19 19 19 20 20 21 21 22 22 22
n- n- v- r- p- b- l- c- y- t- r- g- n- n- v- r- p- b- l- c- y- t- r- g- n- n- v-
Ja Ju No Ap Se Fe Ju De Ma Oc Ma Au Ja Ju No Ap Se Fe Ju De Ma Oc Ma Au Ja Ju No
Time
Fig
ure 7: NIFTY Pharmaceutical Index
14
The Pharmaceutical sector in India has been growing at a rapid pace in recent years, driven by
increasing demand for affordable and high-quality medicines, both domestically and
internationally. The sector has also been benefiting from favorable government policies, such as
the National Pharmaceutical Pricing Policy (NPPP) and the Foreign Direct Investment (FDI)
policy, which have encouraged the growth of the sector.
The performance of the Pharmaceutical Index is often considered as a barometer of the health of
the Indian economy, as the sector is considered to be a defensive sector and is less affected by
economic cycles. The sector is characterized by stable revenue growth, high profitability, and
low volatility, making it an attractive investment option for investors looking for steady returns.
1.10 Telecom Index

The Telecom sector in India is a crucial component of the Indian stock market and is represented
by the Telecom Index, which tracks the performance of the leading telecom companies listed on
the stock exchanges in India. The Telecom Index is a market capitalization-weighted index,
which means that the stocks with a higher market capitalization carry more weight in the index.
Some of the prominent companies included in the Telecom Index in India are Bharti Airtel,
Vodafone Idea Limited, and Reliance Jio, among others. These companies operate in the
telecommunications sector, offering services such as mobile voice and data services, broadband,
and fixed-line services.
On analysing the FII investment trends in the telecom industry over a period of 10 years in the
graph below, it can be seen that over the long run, the FII investments in the Indian Telecom
Index have increased from less than 40,000 crores to close to 1,40,000 crores. An uptrend can be
noticed in the industry indicating a bullish sentiment in the foreign institutional investors.
15
FII INVESTMENTS
160,000
140,000
120,000
100,000
80,000
Crores
60,000
40,000
20,000
0
12 12 12 13 13 14 14 14 15 15 16 16 17 17 17 18 18 19 19 19 20 20 21 21 22 22 22
n- un- ov- pr- ep- eb- Jul- ec- ay- ct- ar- ug- an- un- ov- pr- ep- eb- Jul- ec- ay- ct- ar- ug- an- un- ov-
Ja J N A S F D M O M A J J N A S F D M O M A J J N
Time
Figure 8: NIFTY Telecom Index
The Telecom sector in India has been growing at a rapid pace in recent years, driven by
increasing demand for telecom services, both domestically and internationally. The sector has
also been benefiting from favorable government policies, such as the National Telecom Policy
(NTP) and the Foreign Direct Investment (FDI) policy, which have encouraged the growth of the
sector.
However, the Telecom sector in India has also been facing challenges, such as intense
competition, high debt levels, and regulatory issues. For example, the sector has been grappling
with the issue of adjusted gross revenue (AGR) dues, which has resulted in increased financial
stress for the telecom companies.
In conclusion, the Telecom sector in India is a crucial component of the Indian stock market and
is represented by the Telecom Index. The sector has been growing at a rapid pace, driven by
increasing demand for telecom services and favorable government policies. However, the sector
has also been facing challenges, such as intense competition, high debt levels, and regulatory
issues. Investing in the Telecom sector can be done through mutual funds, ETFs, or individual
stocks, although the latter requires a higher level of knowledge and research.
16
1.11 Banking Index
The Banking Index, which analyses the performance of the top banking companies listed on
Indian stock exchanges, represents a critical component of the Indian stock market. The Banking
Index is a market capitalization-weighted index, which implies that stocks with a higher market
capitalization are weighted more heavily in the index.
State Bank of India, HDFC Bank, ICICI Bank, and Axis Bank are among the significant
corporations listed in the Banking Index in India. These firms are active in a variety of banking
categories, including retail banking, corporate banking, investment banking, and international
banking.
On analysing the FII investment trends in the banking industry over a period of 10 years in the
graph below, it can be seen that over the long run, the FII investments in the Indian
Pharmaceutical Index have increased from less than 2,00,000 crores to close to 9,00,000 crores.
An uptrend can be noticed in the graph followed by a small dip during the onset of Covid-19
pandemic. A recovery bullish phase followed the dip.
FII INVESTMENTS
1,000,000
900,000
800,000
700,000
600,000
500,000
Crores
400,000
300,000
200,000
100,000
0
12 12 12 13 13 14 14 14 15 15 16 16 17 17 17 18 18 19 19 19 20 20 21 21 22 22 22
a n- un- ov- pr- ep- eb- Jul- ec- ay- ct- ar- ug- an- un- ov- pr- ep- eb- Jul- ec- ay- ct- ar- ug- an- un- ov-
J J N A S F D M O M A J J N A S F D M O M A J J N
Time
Figure 9: NIFTY Banking Index
In recent years, India's banking sector has grown steadily, driven by rising demand for financial
services both domestically and abroad. The sector has also benefited from favourable
17
government initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) and the Foreign
Direct Investment (FDI) policy, which have aided its expansion.
However, the Indian banking system has been confronted with concerns such as non-performing
assets (NPAs), rising competition, and regulatory issues. For example, the sector has been
battling with the issue of non-performing assets (NPAs), which has resulted in greater financial
stress for banks.
The performance of the Banking Index is frequently regarded as a barometer of the health of the
Indian economy, as the sector is regarded as defensive and less impacted by economic cycles.
The industry is distinguished by consistent revenue growth, moderate profitability, and minimal
volatility, making it an appealing investment option for investors seeking consistent returns.
Investing in India's banking industry can be done through mutual funds or exchange-traded funds
(ETFs) that track the Banking Index, or through individual stocks of banking companies.
Individual stock investing, on the other hand, necessitates a higher level of expertise and research
because stock values can be influenced by a variety of factors such as the company's financial
performance, regulatory changes, and worldwide economic conditions.
1.12 Information Technology Index

The Information Technology (IT) sector in India is a crucial component of the Indian stock
market and is represented by the IT Index, which tracks the performance of the leading IT
companies listed on the stock exchanges in India. The IT Index is a market capitalization-
weighted index, which means that the stocks with a higher market capitalization carry more
weight in the index.
Some of the prominent companies included in the IT Index in India are Tata Consultancy
Services (TCS), Infosys, Wipro, and HCL Technologies, among others. These companies
provide a wide range of IT services, such as software development, consulting, and IT
infrastructure management services, both domestically and internationally.
On analysing the FII investment trends in the Information Technology industry over a period of
10 years in the graph below, it can be seen that over the long run, the FII investments in the
18
Indian Information Technology Index have increased from about 1,00,000 crores to close to
7,00,000 crores in Jan 2022 post which a bearish sentiment was observed in the FII investments.
FII INVESTMENTS
800,000
700,000
600,000
500,000
400,000
Crores
300,000
200,000
100,000
0
12 12 12 13 13 14 14 14 15 15 16 16 17 17 17 18 18 19 19 19 20 20 21 21 22 22 22
n- n- v- r- p- b- l- c- y- t- r- g- n- n- v- r- p- b- l- c- y- t- r- g- n- n- v-
Ja Ju No Ap Se Fe Ju De Ma Oc Ma Au Ja Ju No Ap Se Fe Ju De Ma Oc Ma Au Ja Ju No
Time
Fig
ure 10: NIFTY Information Technology Index
The IT sector in India has been growing at a rapid pace in recent years, driven by increasing
demand for IT services, both domestically and internationally. The sector has also been
benefiting from favourable government policies, such as the Foreign Direct Investment (FDI)
policy, which has encouraged the growth of the sector.
The NIFTY IT index is considered an important benchmark for both Indian and global investors.
For the Indian IT industry, the index provides insight into its performance and growth, which
helps the companies in the sector to gauge their performance against their peers and make
informed decisions. For investors, the NIFTY IT index acts as a barometer of the Indian IT
sector's performance and provides a good indication of its overall growth and development.
19
1.13 Problem Statement
Various factors influence the stock market and affect the investment decisions of investors.
These factors become the driving force for making specific moves in the market. This study aims
to study whether Investment from Foreign institutional investors is a determining factor for
making investment decisions based on the impact they have on the price movement of the
various stock market indices
1.14 Relevance of Research

Research on the impact of Foreign Institutional Investments (FIIs) on the Indian stock market is
important for several reasons:
20
 Understanding market dynamics: Research on the impact of FIIs on the Indian stock
market can help in understanding the market dynamics and the factors that affect it. This
can help in making informed investment decisions and improve market efficiency.
 Market stability: Understanding the impact of FIIs on the Indian stock market can help in
maintaining market stability by reducing the volatility caused by the large inflows and
outflows of foreign funds.
 Policy formulation: The findings of research on the impact of FIIs on the Indian stock
market can be used by policymakers to formulate policies that can attract more foreign
investments, improve market efficiency, and increase economic growth.
 Investors' confidence: Research on the impact of FIIs on the Indian stock market can help
in building the confidence of investors and encourage them to invest in the market,
leading to increased liquidity and market depth.
1.15 Scope of the Research

The research is centric on the Indian Stock market to establish a relationship between the inflow
and outflow of Foreign Institutional Investments and their influence on the stock prices in the
National Stock Exchange (NSE) and its six major indices (Automobile, FMCG, Pharmaceuticals,
Information Technology, Banking, Telecom). The study takes 10 years into consideration, 2013-
2022. The period chosen to establish a relationship between FII investment and the market
indices in the recent past also includes exceptional market situations, such as that during the
2020 Covid-19 pandemic.
1.16 Research Objective:

 To study how foreign institutional investors have influenced the expansion and evolution
of the Indian capital market.
 To study and interpret trends and patterns of FII investments in the Indian stock market
 To examine and analyse the relationship between FII inflows and outflows on the Indian
stock index Nifty 50.
21
Automobile stock index
FMCG stock index
Pharmaceutical stock index
Information Technology stock index
Telecom stock index
Banking stock index
1.17 Research Question:

 What impact do the inflow and outflow of foreign institutional investments have on the
Indian stock market Nifty 50?
 What impact do the inflow and outflow of foreign institutional investments have on the
Indian stock market sectoral indices?
1.18 Limitations of Study

 Data Availability: One of the study’s major limitations is the availability of data. The
data on FII investments and the Indian stock market may not always be accurate,
complete, and up-to-date.
 Market Complexity: The stock market is a complex system, and the impact of FII
investments on it may be difficult to understand and analyze. There are several other
factors that can impact stock prices and market performance, making it challenging to
isolate the effects of FII investments.
22
 Model Specification: The models used to study the impact of FII investments on the
Indian stock market may be subject to specification bias. The choice of variables, time
frame, and methodology can impact the results, and different models may lead to
different conclusions.
 Short-term versus Long-term impact: The study of the impact of FII investments may
focus on short-term effects while ignoring long-term effects. This can lead to a distorted
view of the overall impact of FII investments on the Indian stock market.
 Regional Differences: The impact of FII investments may vary across different regions,
and the study may not be able to capture these differences.
23
CHAPTER – II
REVIEW OF LITERATURE
CHAPTER – II
REVIEW OF LITERATURE
2.1 Introduction
To develop a thorough understanding of the conceptual constructions and empirical research for
the present study, an extensive review of the literature was undertaken. This has not only helped
in the identification of the gaps in the existing body of knowledge but has also enabled to
establish a relationship of the present study with what already exists. The 20 literature reviews
conducted covering a wide research span of over two decades encompass the impact of FII
investments in the Indian Stock Market over the years.
2.2 Literature Review
Chakraborty, Rajh (2001) is his study aims to analyze FII flows in India and their relationship
with the Indian Capital Market. According to the research, FII participation in the Indian capital
markets has led to a decrease in the cost of capital for Indian Industries. It concludes that the FIIs
do not appear to be at a disadvantage in terms of information compared to local investors;
besides this, it highlights that The Asian Crisis marked a regime shift in the determinants of FII
flows to India, with domestic equity returns becoming the sole driver of these flows since the
crisis. 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. According to the research, detailed information
about the FII flows to India helps better evaluate the risks and benefits of foreign portfolio
investments in India.
Kumar (2001) in his research explored the implications of foreign institutional investment (FII)
inflows on the Indian stock market. The study lasted from January 1993 through December 1997.
The study's goal was to see if Net FII Investment (NFI) had any effect on the Sensex. His
methodology was regression analysis, and he discovered that the Sensex induces NFI. Similarly,
regression with Sensex as the dependent variable revealed that NFI has a significant one-month
lag, indicating that there is causality from FII to Sensex.
26
Vaibhav Bhansali (2002) in his research targets to establish whether any actual relationship
exists between the Indian Stock Market and FIIs. Foreign Institutional Investors are one of the
most significant investment groups that have arisen to play a significant impact in the overall
success of the stock market (FIIs). Since FIIs are the ones who invest their resources in the
markets, their investments must be directed toward the most lucrative areas of the economy if the
market-guided economic system is to succeed in this regard. The impact of foreign investments
is also felt by the Indian stock market, which is one of the indicators of the state of the economy.
FII portfolio flows have a significant advantage because they are growth-oriented and lower the
cost of capital in the emerging market. The two main Indian stock market indices, NIFTY and
SENSEX, which are commonly referred to as the market's barometer, are discovered to have a
favorable correlation with FII investment. This proves that one of the main factors contributing
to the volatility of the Indian stock indices is FIIs. The great degree of association helps to
explain how foreign investment affects them.
Mukherjee, Paramita, S. Bose and D. Coondoo (2002) in the study target to find whether
returns have an effect on the FII investments in the Indian stock market with its possible
covariates. The evidence from causality tests suggests that FII flows to and from the Indian
market tend to be caused by return in the domestic equity market and not the other way around,
despite the general perception that FII activities exert a strong demonstration effect and thus
drive the domestic stock market in India. The results of the regression analysis show that returns
on the Indian equity market are, in fact, a significant (and maybe the single most significant)
factor that affects FII flows into the nation. While the dependency of net FII flows on daily
returns in the domestic equity market suggests that foreign investors want returns, market return
volatility in recent years has also had a substantial impact on both the domestic and international
stock markets. The performance of the Indian equities market has a major impact on FII sales
(and FII net inflow), but FII purchasing is not responsive to this market performance.
Batra Amit (2003) in his study develops an understanding of the various dynamics of the
trading behavior of the FIIs and returns in the Indian equity market. In this research, the author
analyses monthly and daily data to establish an understanding of FII investing behavior and the
returns generated from the market. FIIs are clearly seen to be following trends and using positive
27
feedback trading tactics on a daily basis at the aggregate level. However, no proof that positive
feedback trading occurs every month could be found. The findings of the research also show that
FIIs in India tend to group together when trading. The FIIs' trading practices and prejudices don't
seem to have a destabilizing effect on the equities market. The researcher also concluded that
there is compelling evidence that FIIs have consistently and at the aggregate level been positive
feedback to investors and trend chasers. However, there is no proof that traders receive positive
feedback each month. The relationships between long-horizon returns and net equity purchases
are essentially nonexistent. The outcome also suggests that, despite the fact that they might not
all trade on the same day, foreign investors have the propensity to herd on the Indian equity
market. On average, there is increased sell-side herding during times of pressure in the stock
market brought on by a financial crisis in the area, and on either side of the market during a crisis
may be lower than during the just-preceding period. The author cannot discover any conclusive
data that would allow FIIs to be blamed for the instability of the equities market when it comes
to investing the effects of trading imbalances across days.
Ahmad, Shahid and Ashraf, Shahid and Ahmad, Khan (2005) in their study focus on
examining the relationship of FII flows with firm-level stock returns in the Indian Equity Market.
The study was carried out in 36 listed companies in the Indian equity market which was
conducted between August 2002 and August 2004. At the aggregate level, the study discovered
substantial unidirectional causation between FII investments and NSE Nifty, along with some
flimsy evidence of a bidirectional connection. The researchers used the Garch (1,1) test for
volatility and spillover effects and the Granger causality test to determine the direction of
causality at the firm level. According to the findings, a unidirectional causal relationship existed
between stock returns and FII flows in 21 firms, and a bidirectional causal relationship between
stock returns and FII flows in 13 enterprises.
Kaur Mandeep and Sharma Renu (2005) in this study aim to study whether there exists any
effect of FIIs in determining volatility in share prices and how it can be reduced. It is observed
that the stock market is steadily becoming more non-competitive, centralized, and concentrated.
The FIIs have contributed much to this area. After FIIs arrived, share price volatility was found
to have decreased until 1997–1998. Due to a decline in FIIs at this time, it began to rise once
more, starting in 1998–1999. As a result, regular investors have experienced significant losses
28
and lost interest in the stock market. Hence FII investment should be curtailed. Increasing the
number of domestic investors (corporate and industrial) and encouraging mutual funds to engage
in profit-taking activities against FIIs appear to be the primary ways to achieve this. The author
also comes to the conclusion that FIIs' entrance has decreased the volatility of the Indian stock
market. The author concludes by saying that while FIIs have played a role, the capital market
reforms, including screen-based trading, dematerialization of shares, and rolling statements, have
had an impact, and the market has become less volatile.
Dhamija Nidhi (2007) in his study aims to find the effect of various macroeconomic factors
affecting FII investments in the stock market and their impact. The study concerns about the
volatility of flows, the threat of capital flight, its impact on the stock markets, and the influence
of regulatory regime changes have arisen as a result of the rise in the volume of foreign
institutional investment (FII) inflows in recent years. Questionable topics include the causes,
destinations, and effects of these flows on the nation's economic growth. The influence of
numerous macroeconomic factors and firm-level features in affecting FII investment is examined
in this research. The host nation's regulatory framework significantly affects FII inflows. In order
to adapt to the shifting domestic environment, regulatory regulations have altered as the pace of
foreign investment has quickened.
P. Krishna Prasanna (2008) in this study investigated the role of FII in the Bombay Stock
Exchange's sensitivity index (Sensex). The time span was 1999 to 2006. The goal was to analyse
foreign institutional investment and firms in terms of ownership structure, financial performance,
and stock performance, and he utilised the ARIMA model, which found that foreign investors
invested more in companies with a bigger volume of shares owned by the general public. Foreign
investments and promoter holdings are inversely connected. Foreign investors prefer enterprises
in which the promoters' family stake is not significant. Among the financial performance
elements impacting their investing decision are share returns and earnings per share.
Thenmozhi and Kumar (2009) have investigated in this research the dynamic interaction
between mutual fund flows and securities returns from 1994 to 2008, with the goal of
determining the link between returns and institutional investment by FIIs and MFs. The VAR
technique and the Granger Causality test were employed in the methodology. The study
discovered a positive contemporaneous link between stock market returns and mutual fund flows
29
as assessed by stock purchases and sells. The study discovered that mutual fund flows are highly
influenced by returns, but that mutual fund flows have no influence on returns. The research also
discovered a significant positive association between stock market volatility and mutual fund
flows.
Bohra and Dutt (2011) in this study aim to understand the behavioral pattern of FII by
identifying decade trend analysis of FII investments in India. According to the researchers
research Sensex follows the investing behavior of FIIs, with few exceptions in the years 2005
and 2008. The researchers discovered a favorable link between the stock market and FII
investments. They also demonstrate how changes in FII activity, whether positive or negative,
cause significant shifts in the attitudes of domestic or linked investors in the market, with the
policy consequence that authorities can concentrate on domestic economic policies to stabilise
the stock market.
Gupta, A (2011) in this study the researcher examines the rise or fall of the Indian stock market
due to FIIs investment. Here the research encompassed the period from April 2006 to February
2011 and analyzed whether the Indian stock market increased or decreased as a result of FII
investment. In order to determine if FIIs are the cause or effect of the Indian stock market, she
employed Granger Causality Test and linear regression analysis. Her study's findings
demonstrated that FII investment flows are erratic and dependent on market mood; as a result, it
was shown that the increased volatility of FII investment flows causes significant price swings in
the Indian stock market. It was thus found that both the Indian stock market and FIIs influence
each other; however, their timing of influence is different.
Dr. Renuka and Dr. Kiran Mehta (2012) in their research investigated foreign institutional
investors and the Indian stock market from 2000 to 2011. Their goal was to investigate the
degree to which the success of the Indian stock market was dependent on the movement of the
Indian stock market. The methodology utilised was the correlation coefficient and simple linear
regression analysis, and the findings were that foreign institutional investment is generally done
on a short-term basis, and in most cases, foreign institutional investment is channeled through
financial markets. FIIs can invest in both primary and secondary market instruments, which are
completely supervised by the Reserve Bank of India under the Portfolio Investment Plan (PIS).
The PIS contains all principles, norms, and regulations governing FII investment.
30
Abhijeet Chandra (2012) in this study aims to investigate the relationship between the volume
of trading by foreign institutional investors (FIIs) and stock market performance in the Indian
setting and determine if changes in net FII trading volume affect stock market returns or vice
versa. There is evidence of a two-way causal relationship between net FII investment and Indian
stock market return. The returns on the Indian stock market appear to be what the FIIs are
generally chasing. It has been discovered that huge trading volumes caused by FII trading
behaviour may affect stock market returns only temporarily; after that, changes in FII trading
behaviour are driven by stock market performance.
Jain, Vaishali and Nair, K. and Jain, Dheeraj (2014) in this study aim to research FII flow's
impact on capital markets, the degree to which FII flow and capital market growth are causally
related, and the lead-lag relationship between FII flow and NSE Nifty. The finding of the study
gave an interesting insight into the relationship between nifty and FII investments, where it was
found that both these factors were independent of each other. Various macroeconomic factors
also played an integral role in impacting the relationship between the two. There existed no
direct causal relationship between the two in all cases.
Salar, Atif and Shamim, Mohommad (2019) in the study establish a relationship between the
domestic institutional investors and the movement of the Indian stock market indices Sensex. In
this study, the causal link between domestic institutional investors and the Sensex movement is
established. Granger Causality Test and Vector Auto Regression have both been used as tools to
assess the causal relationship. As these investments are not having a significant impact on the
movement of indices, the findings of the analysis performed using the aforementioned
methodologies demonstrate that domestic institutional investors' inflows have no beneficial
impact on the Sensex. But the trading behavior of DIIs is significantly impacted by Sensex
fluctuation. According to the study, DIIs actually have little effect on the market; instead, market
return or market movements have a significant impact on DIIs' investment strategy.
Gupta (2019) conducted this study to examine the impact of FII investment on stock market
returns in India. The researcher used the regression and correlation model to analyze the data.
The study found a positive and significant relationship between FII investment and stock market
31
returns. The findings suggest that FII investment has a positive impact on the Indian stock
market. The research also further added that though FII had a positive impact on the stock
market, the market movement was not restricted to just the FII investment values but also
depended on factors such as DII investments, RBI and economic policies and retail investor
sentiments.
K, Dhananjaya and Wright, Rowena (2019) in this study work to understand how DIIs and
FIIs influence market trading strategies. Using the most recent high-frequency data, the current
study makes an effort to comprehend how domestic institutional investors (DIIs) and foreign
institutional investors (FIIs) interact in India. According to the report, FIIs and DIIs have
different market trading strategies. Importantly, the study demonstrates that, in contrast to how
the FII flows influence them, DIIs are not impacted by the FII flows. This shows that DIIs do, in
fact, operate as a buffer against FIIs' substantial withdrawals, supporting market stability.
Jain, Tanu and Singh, Satyendra (2020) in this study assess how domestic institutional
investors' inflow and outflow decisions affect foreign institutional investors' inflow and outflow
decisions in India and to determine whether there is a difference in the purchase and sales
decisions made by foreign and domestic institutional investors in India. This study investigates
whether domestic institutional investors have an impact on foreign institutional investors' choices
in India. The regression analysis has been utilized by scholars to achieve this goal. Investments
made through mutual funds are used as a stand-in for investments by DIIs. Eight variables—FII
Equity Purchases, FII Equity Sales, FII Debt Purchases, FII Debt Sales, MF Equity Purchases,
MF Equity Sales, MF Debt Purchases, and MF Debt Sales—have been used to categorise the
investment behaviours of FIIs and DIIs. According to the study, FII investment decisions are
influenced by DII investment decisions.
Thombare, Pradip, and Chitnis, Ravikumar (2021) in this study examine the contribution of
FIIs on BSE companies and establish a relationship between FII investments and firm-specific
characteristics. The research worked to investigate the link between foreign institutional
investment and various firm traits such as ownership structure, financial performance, and stock
performance. It has been noted that foreign investors made more investments in businesses when
a larger percentage of shares are held by the general public. It also established that promoter
holdings in companies were inversely related to FII investments, i.e., the higher the promoter
32
holdings lesser the willingness of the FII’s to invest in such companies; rather, they preferred
investing in companies with greater public holdings. The share returns and earnings per share
were found to be important factors influencing FII investment decisions among the financial
performance criteria.
2.3 Research Gap

The impact of FIIs on the Indian Stock Market has been studied time and again, but the impact of
FIIs specifically on the various sectoral indices has not been studied extensively. Since investors
have a keen incline towards investing in the sectoral indices of Nifty it becomes a necessity to
understand FIIs role in the price fluctuations of these indices so as to get an idea of future stock
index movements. This study aims to overcome this research gap by focusing on six sectoral
indices which include the Automobile Index, FMCG Index, Pharmaceutical Index, Bank Index,
Information Technology Index and Telecom Index and leaves further scope of research in the
other sectoral indices of Nifty.
33
CHAPTER – III
RESEARCH
METHODOLOGY
CHAPTER – III
RESEARCH METHODOLOGY
3.1 Introduction
The aim of this research is to examine the impact of FII investments on the Indian Stock Market
and its six sectoral indices. For this a quantitative research design has been adopted.
The population for this study includes all the companies listed on the Nifty 50 index and the six
sectoral indices (Automobile, FMCG, Pharmaceutical, Bank, Information Technology and
Telecom Index). Secondary data was used for this study, and it was collected from the National
Stock Exchange and SEBI. The data will be collected for a period of 10 years, from 2013 to
2022.
The dependent variable in this study are the performance of the Indian Stock Market, as
measured by the NIFTY 50 index and the six sectoral indices. The independent variable is the
corresponding FII investments, as measured by the total net investments made by foreign
institutional investors in Indian stocks of various sectoral indices.
The statistical software packages SPSS and EViews are used for analysing the data collected.
The primary research method used is the regression analysis, which investigates the relationship
between FII investments and the performance of the Indian Stock Market and its various indices.
This is followed by the correlation analysis which determines the strength and direction of the
relationship between the two variables under study. Since the data is a time series data the
Augmented Dicker Fully test is then performed to check whether the data is stationary or not.
Testing the stationarity of the same is followed by conducting the Granger Casualty Test and the
Cointegration test to check whether there exist a short term or long term relationship between the
variables’
The results of the study is to be presented in the form of Normality plots, correlation coefficients,
and regression coefficients along with granger casualty and cointegration significance levels
35
which determines whether there exists a short term or a long term relationship between the
variables.
3.2 Research Area

The research area for this study is in the domain of Finance, specifically focusing on the Indian
Stock market indices and the Foreign Institutional Investor movements within its system.
3.3 Operational Terms
Table 3.1 Operational terms of the stock market indices under study
S. No Operational Term Definition

1 Nifty 50 Nifty 50 is an index of 50 companies
listed on the National Stock Exchange
of India, representing various sectors of
the economy.
2 Automobile Index The automobile index tracks the
performance of companies in the
automobile industry, including
manufacturers, distributors, and
suppliers of auto parts.
3 FMCG Index The FMCG index measures the
performance of Fast Moving Consumer
Goods companies, which produce and
distribute frequently purchased
household items.
4 Pharmaceutical Index The pharmaceutical index tracks the
healthcare sector that research, develop,
produce, and market drugs and medical
devices.
5 Telecom Index The telecom index tracks the
telecommunications industry, including
providers of wireless, internet, and other
communication services.
6 Banking Index The bank index measures the
banking industry, including commercial
banks, investment banks, and other
financial institutions.
36
7 Information Technology Index The information technology index tracks
the performance of companies in the
tech industry, including hardware,
software, and internet-based firms.
3.4 Sample Design

The closing stock price indexes of the, NSE (NIFTY50) and the Indian stock market indices
(Automobile, FMCG, Pharmaceuticals, Information Technology, Banking, Telecom) for the past
10 years, dating from 1st January 2013 to 31st December 2022 have been taken into account for
this study.
3.5 Data Collection

The study is descriptive in nature, and thus only secondary data has been taken into
consideration. The data has been collected from various sources, including the internet, journals
and books in the library. Online sources such as Shodhganga, Research gate, and Knimbus have
been thoroughly utilised to get access to previously published research papers so as to establish a
base for the secondary research to be performed. The information about FII flows both combined
and sector-wise, was gathered from the SEBI website, whereas the information about the
monthly closing values of the NIFTY was obtained from the official website of NSE.
3.6 Tools used for Analysis

Descriptive statistics, correlation statistics, multiple regression statistics, and Normality test were
used in the current research to determine the kind of relationship between the variables selected
in the long term. Many of these methods have been used at various locations based on the need
for research.
3.6.1 Normality Test

The test of normality is a crucial step in determining the measurements of core propensity
and mathematical techniques for data processing for continuous data. Since normal data is an
inherent assumption in parametric research, determining the normality of data is a
requirement for many statistical experiments. Normality can be evaluated in two ways:
37
graphically and numerically. The above experiments equate the sample's scores to a naturally
distributed range of scores with the same mean and standard deviation; the null hypothesis is
that the "sample distribution is natural." The distribution is non-normal if the measure is
relevant. Normality checks have no ability to refute the null hypothesis in limited sample
sizes, but small samples often pass normality tests. And where there is a minor variance from
normality, important findings can be obtained with large sample sizes, though this small
deviation would not change the results of a parametric test. If the p-value is greater than 0.05,
it indicates that the data is significant and data is normally distributed. If the p-value is lesser,
it indicates the data is not normally distributed.
3.6.2 Correlation Test

Correlation Analysis is a statistical method that is used to discover if there is a relationship
between two variables/datasets and how strong that relationship may be.
There are 3 types of results post a correlation test, which are –
 Positive Correlation: Any score from +0.5 to +1 indicates a very strong positive
correlation, which means that they both increase at the same time. The line of best fit,
or the trend line, is the place to represent the data on the graph best. In this case, it
follows the data points upward to indicate the positive correlation.
 Negative Correlation: Any score from -0.5 to -1 indicates a strong negative
correlation, which means that as one variable increases, the other decreases
proportionally. The line of best fit can be seen here to indicate the negative
correlation. In these cases, it will slope downwards from the point of origin.
 No Correlation: Very simply, a score of 0 indicates that there is no correlation or
relationship, between the two variables. The larger the sample size, the more accurate
the result. No matter which formula is used, this fact will stand true for all. The more
data there is inputted into the formula, the more accurate the end result will be.
38
3.6.3 Regression Test
Regression analysis is a reliable method of identifying which variables have an impact on a
topic of interest. The process of performing a regression allows you to confidently determine
which factors matter most, which factors can be ignored, and how these factors influence
each other.
In order to understand regression analysis fully, it’s essential to comprehend the following
terms:
 Dependent Variable: This is the main factor that you’re trying to understand or
predict.
 Independent Variables: These are the factors that you hypothesize have an impact
on your dependent variable.
In our application training example above, attendees’ satisfaction with the event is our
dependent variable. The topics covered, length of sessions, food provided, and the cost of a
ticket are our independent variables.
3.6.4 Granger Causality

The Granger causality test is a statistical method used to establish the causal relationship
between two time series variables. It is based on the concept of Granger causality, which
states that if past values of one time series are useful in predicting the future values of
another time series, then the two-time series are said to have a causal relationship.
The test is typically performed by regressing the future values of one time series (the
dependent variable) on both its own past values and past values of the other time series (the
independent variable). The result of this regression is compared to a similar regression that
only includes past values of the dependent variable, and the difference in their goodness of fit
is measured. If the regression with the independent variable included has a significantly
better fit, it suggests that the independent variable has a causal relationship with the
dependent variable.
It is important to note that the Granger causality test only establishes the presence of a causal
relationship, not the direction of causality. In other words, it cannot determine if the
39
independent variable is causing the dependent variable, or if the dependent variable is
causing the independent variable. To determine the direction of causality, additional analysis
and tests may be necessary.
3.6.5 Co-integration
Johansen cointegration is a statistical method for determining whether or not two or more
time series variables are cointegrated. Cointegration is the presence of a long-term link
between two or more non-stationary time series variables that is not spurious, i.e., not driven
by random fluctuations. In other words, cointegration implies that the variables move
together throughout time, even if they diverge in the short term.
The vector autoregressive (VAR) model, which is a multivariate time series model that
allows for the estimation of the relationship between numerous time series variables, is the
foundation of the Johansen cointegration test. The test involves calculating the number of
cointegrating correlations between variables by examining the VAR model's eigenvalues and
eigenvectors. The amount of cointegrating relationships reveals how many linear
combinations of variables are stationary and so unaffected by random shocks throughout
time.
3.7 Hypothesis
The following hypotheses have been formulated for the study in order to draw a conclusion
based on the study that whether FII investments and the market index Nifty 50 and the sector
indices (Automobile, FMCG, Pharmaceuticals, Information Technology, Banking, Telecom)
have an impactful relationship.
 Testing the impact of FII’s investment on the Nifty 50
Null Hypothesis (H0): FII’s investment has no impact on the Nifty 50
Alternate Hypothesis (Hα): FII’s investment has an impact on the Nifty 50
40
 Testing the impact of FII’s investment on the Automobile Index
Null Hypothesis (H0): FII’s investment has no significant impact on the Automobile
Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the Automobile
Index
 Testing the impact of FII’s investment on the FMCG Index
Null Hypothesis (H0): FII’s investment has no significant impact on the FMCG Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the FMCG Index
 Testing the impact of FII’s investment on the Pharmaceutical Index
Null Hypothesis (H0): FII’s investment has no significant impact on the Pharmaceutical
Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the

Pharmaceutical Index
 Testing the impact of FII’s investment on the Information Technology Index
Null Hypothesis (H0): FII’s investment has no significant impact on the Information
Technology Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the Information
Technology Index
 Testing the impact of FII’s investment on the Banking index
Null Hypothesis (H0): FII’s investment has no significant impact on the Banking index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the Banking
index
41
 Testing the impact of FII’s investment on the Telecom Index
Null Hypothesis (H0): FII’s investment has no significant impact on the Telecom Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the Telecom
Index
42
CHAPTER – IV
DATA ANALYSIS AND

INTERPRETATION
CHAPTER - IV
DATA ANALYSIS AND INTERPRETATION
4.1 Test for Normality
4.1.1 Nifty 50
To Study: How FII may have an impact on the Nifty 50. If a perfect bell shape curve
exists, it can be concluded that the data is normally distributed.
Normal Probability Plot

20000
15000
NIFTY 50
10000
5000
0
0 20 40 60 80 100 120
FII Investments (theoretical expected percentile)
Figure 11 Nifty 50 Normal Probability Plot
Data Sets:
The Dependent Variable: Nifty 50
The Independent Variable: FII investment
Hypothesis:
H0: Both data sets are not normally distributed
H1: Both data sets are normally distributed
41
Since the normal probability plot is a straight line, we can conclude that the null
hypothesis is rejected and alternate hypothesis stands true. The data is normally
distributed along the straight line. Thus, the data can be further processed for analysis.
4.1.2 Automobile Index

To Study: How FII may have an impact on the Automobile Index of the Indian stock
market. A straight, diagonal line means that you have normally distributed data.

15000
Automobile Index
10000
5000
0
0 20 40 60 80 100 120
Figure 12 Automobile Index Normal Probability Plot
Data Sets:
The Dependent Variable: Automobile Index Prices
Hypothesis:
42
4.1.3 FMCG Index

To Study: How FII may have an impact on the FMCG Index of the Indian stock market.
A straight, diagonal line means that you have normally distributed data.

50000
40000
FMCG Index
30000
20000
10000
0
0 20 40 60 80 100 120
Figure 13 FMCG Index Normal Probability Plot
Data Sets:
The Dependent Variable: FMCG Index Prices
Hypothesis:
43
4.1.4 Bank Index

To Study: How FII may have an impact on the Bank Index of the Indian stock market.
A straight, diagonal line means that you have normally distributed data.

50000
40000
30000
Banking
20000
10000
0
0 20 40 60 80 100 120
Figure 14 Bank Index Normal Probability Plot
Data Sets:
The Dependent Variable: Bank Index Prices
Hypothesis:
44
4.1.5 Information Technology Index

To Study: How FII may have an impact on the Information Technology Index of the
Indian stock market. A straight, diagonal line means that you have normally distributed
data.

50000
40000
30000
IT Index
20000
10000
0
0 20 40 60 80 100 120
Figure 15 Information Technology Index Normal Probability Plot
Data Sets:
The Dependent Variable: Information Technology Index Prices
Hypothesis:
45
4.1.6 Telecom Index

To Study: How FII may have an impact on the Telecom Index of the Indian stock
market. A straight, diagonal line means that you have normally distributed data.

2000
Telecom Index
1500
1000
500
0
0 20 40 60 80 100 120
FFII Investments (theoretical expected percentile)
Figure 16 Telecom Index Normal Probability Plot
Data Sets:
The Dependent Variable: Telecom Index Prices
Hypothesis:
46
4.1.7 Pharmaceutical Index

To Study: How FII may have an impact on the Pharmaceutical Index of the Indian
stock market. A straight, diagonal line means that you have normally distributed data

16000
14000
12000
Pharma Index
10000
8000
6000
4000
2000
0
0 20 40 60 80 100 120
Figure 17 Pharmaceutical Index Normal Probability Plot
Data Sets:
The Dependent Variable: Pharmaceutical Index Prices
Hypothesis:
47
4.2 Correlation, Regression, and ANOVA Analysis
4.2.1 Nifty 50
Table 4.1: Correlation Model Summary between Nifty

50 and Corresponding FII Investments
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 .886a .785 .784 1855.331037727

739800
The correlation between the Nifty Index values (dependent variable) and the FII inflow
(Independent variable) is shown by the R-Value. The R-Value, in this case, is 0.886, which is
close to the value +1 a strong positive correlation is indicated between the two variables.
The R-Square value shows how much of the variance in the Nifty Index values (dependent) can
be accounted for by FII inflow (independent). The value of 0.785 in the table, which is more than
0.5, indicates that the model is sufficient to identify the association between the two variables.
The Adjusted R-square should always be less than or equal to the R-square value. In our case,
the adjusted R-square value is 0.784, which is less than the R-square value. It identifies the
percentage of variance in the specific target area that is elaborated by the inputs. An adjusted R-
square value close to 1 indicates that the values are perfectly predicted in the target area.
Since our adjusted R-square value is 0.784 which is close to 1, we can conclude that only 78.4%
of the values in the data are perfectly predicted in the target area. Besides this Nifty has several
other factors other than FII investments influencing its price movements.
48
Table 4.2 ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 2238324890.028 1 2238324890.028 650.250 <.001b
Residual 612721080.201 178 3442253.260
Total 2851045970.228 179
P-Value/Sig Value: - A 95% confidence interval is used for this study. For the outcome to be
considered significant, the P-Value must be lower than 0.05. In terms of statistics, the
P-Value/Significant Value is much below the 0.05 mark thus the model is significant and the null
hypothesis can be rejected and the alternate hypothesis should be accepted.
Null Hypothesis (H0): FII’s investment has no impact on the Nifty 50
Alternate Hypothesis (Hα): FII’s investment has an impact on the Nifty 50
Therefore, it can be concluded that according to the prevalence of the Alternate hypothesis FIIs
investment have an impact on the Nifty 50.
F-Ratio: - It reflects an improvement in the variable's prediction after accounting for the model's
inherent error. An effective model is produced by an F Ratio larger than 1, and in this instance,
650.25 is above the value 1, thus the model is effective.
Table 4.3 Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 1415.337 318.136 4.449 <.001
V6 .078 .003 .886 25.500 <.001
49
The confidence interval for this study is 95% or 0.05, as was previously stated. For FII inflows,
the significance value is less than 0.05, indicating that it is extremely significant. Additionally,
the Nifty index values will rise by 7.8 % for every 1% increase in FII inflows (B Value).

Table 4.4 Correlation Model Summary between Automobile
Index and Corresponding FII Investments

1 .951a .904 .904 780.1647160932

41400
The correlation between the Automobile Index values (dependent variable) and the FII inflow
very close to the value +1 and indicates an extremely strong positive correlation between the two
variables.
The R-Square value shows how much of the variance in the Automobile Index values
(dependent) can be accounted for by FII inflow (independent). The value of 0.904 in the table,
which is much more than 0.5, indicates that the model is sufficient to identify the association
between the two variables.
the adjusted R-square value is 0.904, which is equal to the R-square value. It identifies the
percentage of variance in the specific target area that is elaborated by the inputs. An R-square
value close to 1 indicates that the values are perfectly predicted in the target area. Since our R-
square value is 0.904 which is very close to 1, we can conclude that 90.4% of the values in the
data are perfectly predicted in the target area.
50
Table 4.5 ANOVAa
1 Regression 748857132.736 1 748857132.736 1230.343 <.001
Residual 79125407.951 130 608656.984
Total 827982540.687 131
Null Hypothesis (H0): FII’s investment has no significant impact on the Automobile Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the Automobile Index
investment have a significant impact on the Automobile Index.
1230.343 is much above the value 1, thus the model is effective.
1 (Constant) 2590.860 177.765 14.575 <.001
V4 .041 .001 .951 35.076 <.001
51
the Automobile index values will rise by 4.1% for every 1% increase in FII inflows (B Value).
4.2.3 FMCG Index
Table 4.7 Correlation Model Summary between

FMCG Index and Corresponding FII Investments
1 .743a .552 .549 5653.756815400

447000
The correlation between the FMCG Index values (dependent variable) and the FII inflow
(Independent variable) is shown by the R-Value. The R-Value, in this case, is 0.743, which is more
than 0.4 thus there exists a moderately positive correlation.
The R-Square value shows how much of the variance in the FMCG Index values (dependent) can be
accounted for by FII inflow (independent). The value of 0.552 in the table, which is more than 0.5,
indicates that the model is sufficient to identify the association between the two variables.
The Adjusted R-square should always be less than or equal to the R-square value. In our case, the
adjusted R-square value is 0.549, which is less than to the R-square value which is 0.552. It
identifies the percentage of variance in the specific target area that is elaborated by the inputs. An
adjusted R-square value close to 1 indicates that the values are perfectly predicted in the target area.
Since our adjusted R-square value is 0.549 which is not very close to 1, we can conclude that only
54.9% of the values in the data are perfectly predicted in the target area.
Tabld 4.8 ANOVAa
1 Regression 5124795773.273 1 5124795773.273 160.325 <.001b
52
Residual 4155445596.599 130 31964966.128
Total 9280241369.872 131
Null Hypothesis (H0): FII’s investment has no significant impact on the FMCG Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the FMCG Index
investment have a significant impact on the FMCG Index.
Coefficientsa
1 (Constant) 13111.079 1092.921 11.996 <.001
V4 .112 .009 .743 12.662 <.001
the FMCG index values will rise by 11.2% for every 1% increase in FII inflows (B Value).
53
4.2.4Bank Index
Table 4.10 Correlation Model Summary between Bank

Index and Corresponding FII Investments
1 .936a .876 .875 3195.697411845

433600
The correlation between the Bank Index values (dependent variable) and the FII inflow
very close to the +1 value thus indicating a very strong positive correlation.
The R-Square value shows how much of the variance in the IT Index values (dependent) can be
accounted for by FII inflow (independent). The value of 0.876 in the table, which is more than
the adjusted R-square value is 0.875, which is less than to the R-square value which is 0.876. It
identifies the percentage of variance in the specific target area that is elaborated by the inputs.
An adjusted R-square value close to 1 indicates that the values are perfectly predicted in the
target area. Since our adjusted R-square value is 0.875 which is very close to 1, we can conclude
that 87.5% of the values in the data are perfectly predicted in the target area.
Table 4.11 ANOVAa
1 Regression 9412665543.270 1 9412665543.270 921.682 <.001b
Residual 1327622653.250 130 10212481.948
Total 10740288196.52 131

0
54
Null Hypothesis (H0): FII’s investment has no significant impact on the Bank Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the Bank Index
investment have a significant impact on the Bank Index.
921.682 is well above the value 1, thus the model is effective.
1 (Constant) 8881.836 533.108 16.660 <.001
V4 .033 .001 .936 30.359 <.001
the Bank index values will rise by 3.3% for every 1% increase in FII inflows (B Value).
55

Information Technology Index and Corresponding FII
Investments
1 .988a .976 .975 1286.114816374

740700
The correlation between the IT Index values (dependent variable) and the FII inflow
very close to the +1 value thus indicating a very strong positive correlation.
The R-Square value shows how much of the variance in the IT Index values (dependent) can be
accounted for by FII inflow (independent). The value of 0.976 in the table, which is more than
that 97.5% of the values in the data are perfectly predicted in the target area.
Table 4.14 ANOVAa
1 Regression 8608864675.820 1 8608864675.820 5204.589 <.001b
Residual 215031871.717 130 1654091.321
Total 8823896547.537 131
56
Null Hypothesis (H0): FII’s investment has no significant impact on the IT Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the IT Index
investment have a significant impact on the IT Index.
1 (Constant) -1810.203 259.098 -6.987 <.001
V4 .053 .001 .988 72.143 <.001
the IT index values will rise by 5.3% for every 1% increase in FII inflows (B Value).
57
4.2.6 Telecom Index Analysis

Telecom Index and Corresponding FII Investments
1 .639a .409 .404 186.7959663619

74400
a. Predictors: (Constant), V4
The correlation between the Telecom Index values (dependent variable) and the FII inflow
more than 0.4 thus there exists a positive correlation.
The R-Square value shows how much of the variance in the Telecom Index values (dependent)
can be accounted for by FII inflow (independent). The value of 0.409 in the table, which is less
than 0.5, indicates that the model is not sufficient to identify the association between the two
variables.
target area. Since our adjusted R-square value is 0.404 which is not very close to 1, we can
conclude that only 40.4% of the values in the data are perfectly predicted in the target area.
Table 4.17 ANOVAa
1 Regression 3135249.251 1 3135249.251 89.854 <.001b
Residual 4536055.296 130 34892.733
Total 7671304.548 131
58
Null Hypothesis (H0): FII’s investment has no significant impact on the Telecom Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the Telecom Index
investment have a significant impact on the Telecom Index.
1 (Constant) 976.170 37.496 26.034 <.001
V4 .005 .001 .639 9.479 <.001
the Telecom index values will rise by 0.5% for every 1% increase in FII inflows (B Value).
59
4.2.7 Pharmaceutical Index Analysis

Pharmaceutical Index and Corresponding FII
Investments
1 .937a .877 .876 903.0886972910

35300
The correlation between the Pharma Index values (dependent variable) and the FII inflow
very close to +1 and thus there exists a very strong positive correlation.
The R-Square value shows how much of the variance in the Pharma Index values (dependent)
can be accounted for by FII inflow (independent). The value of 0.877 in the table, which is more
than 0.5, indicates that the model is sufficient to identify the association between the two
variables.
that only 87.6% of the values in the data are perfectly predicted in the target area.
Table 4.20 ANOVAa
1 Regression 758443052.458 1 758443052.458 929.955 <.001b
Residual 106023995.373 130 815569.195
Total 864467047.831 131
60
Null Hypothesis (H0): FII’s investment has no significant impact on the Pharma Index
Alternate Hypothesis (Hα): FII’s investment has a significant impact on the Pharma Index
investment have a significant impact on the Pharma Index.
inherent error. An effective model is produced by an F Ratio larger than 1, and in this instance
1 (Constant) 2945.236 241.615 12.190 <.001
V4 .054 .002 .937 30.495 <.001
the Telecom index values will rise by 5.4% for every 1% increase in FII inflows (B Value).
61
4.3 Stationarity Test (Augmented Dicky Fuller Test)
Stationarity of data shows whether a given data set’s properties are stable (stationary) over a
given period of time. To perform unit root test, the Augmented Dickey Fuller test is performed
and the following hypothesis is formed:
H0: Data has unit root (non-stationary)
H1: Data does not have unit root (Stationary)
Where, the null hypothesis is rejected if the t-statistic is significant at 95% confidence interval,
i.e., p ≤ 0.05. First, ADF for each data set is run at level failing which, it is run at 1 st order
difference. Table 4.22 summarizes the ADF test results at 95% confidence.
Table 4.22: Augmented Dickey-Fuller Unit Root Test Results
Data Series At LEVEL At 1st Order Difference Result

t statistic Probability t statistic Probability
Nifty 50 0.697414 0.9918 -13.51215 0.0000 I(d)
FII Investments -0.251652 0.9280 -4.932508 0.0001 I(d)
(Nifty 50)
Automobile -1.2780 0.6385 -10.7576 0.0000 I(d)
Index
(Automobile
Index)
FMCG Index -0.2070 0.9335 -10.14703 0.0000 I(d)
FII investments 0.9379 0.9958 -11.11508 0.0000 I(d)
(FMCG Index)
Pharmaceutical -1.7907 0.3837 -12.4785 0.0000 I(d)
Index
62
(Pharmaceutical
Index)
Banking Index -0.36427 0.9107 -12.04069 0.0000 I(d)
(Banking Index)
Telecom Index -1.83649 0.3615 -12.91091 0.0000 I(d)
(Telecom Index)
Information -0.2782 0.9238 -4.69351 0.0002 I(d)
Technology
Index
(Information
Technology
Index)
Source: Computed (Eviews)
Data set of Nifty 50 and all of the six indices along with their corresponding FII investments are
not stationary at level so we go ahead with the test at the first difference. Data set of Nifty 50 and
all of the six indices along with their corresponding FII investments are found to be stationary at
first difference i.e., p < 0.05 for all indices when ADF test is run at first difference. Therefore, we
reject the null hypothesis at first difference and accept the alternate hypothesis. Hence, the
application of Johansen’s co-integration and Granger Causality tests can proceed.
63
4.4 Granger Causality Test
After performing the stationarity test, there is a need to find the degree and direction of causation
in the short run among the indices and the FII investments under study. Thus, the Granger
Causality test is conducted with an intention to examine whether the lagged values of one index
have any significant power on another index. It is used to study the cause-and-effect relationship
between the Stock Indices under study and the respective FII investments in a pair wise manner.
It uses the F-statistic and also helps in determining if past information is useful in predicting
stock market behavior.
Table 4.23 Results of the Granger Causality Test of the Logarithmic Returns
Null Hypothesis F-statistic Probability Accept/Reject H0

Nifty 50 does not Granger Cause FII Investments 0.40468 0.6678 Accept
FII investments does not Granger Cause Nifty 50 1.67126 0.1910 Accept
Automobile Index does not Granger Cause FII 0.01751 0.9826 Accept
Investments
FII Investments does not Granger Cause 2.16912 0.1186 Accept
Automobile Index
Pharmaceutical Index does not Granger Cause FII 1.01278 0.3662 Accept
Investments
FMCG Index does not Granger Cause FII 0.88633 0.4148 Accept
Investments
FII Investments does not Granger Cause FMCG 0.22320 0.8003 Accept
Index
64
Banking Index does not Granger Cause FII 0.37238 0.6899 Accept
Investments
FII Investments does not Granger Cause Banking 0.14999 0.8609 Accept
Index
Telecom Index does not Granger Cause FII 1.32426 0.2697 Accept
Investments
FII Investments does not Granger Cause Telecom 0.99483 0.3727 Accept
Index
Information Technology Index does not Granger 0.15522 0.8564 Accept

Cause FII Investments
Information Technology Index
Source: Computed (EViews)
The null hypothesis is rejected when the probability value is less than 0.05, meaning there is a
cause-and-effect relationship between stock indices. Alternatively, the null hypothesis is
accepted when the probability value is more than 0.05. This is summarized in Table 4.23
On analyzing the results obtained from the tests conducted on the data of Nifty 50 and its 6
different sectoral indices and their corresponding FII investment values we can see that in all the
7 test conducted the probability value is greater than 0.05 which indicates that in all 7 cases, the
null hypothesis would be accepted and the alternate hypothesis would be rejected.
This is indicative that in all the 7 cases mentioned in the table, no short-term causal relationship
exists between the independent and the dependent variables. This means that Nifty 50, the
Automobile Index, the Pharmaceutical Index, the FMCG Index, the Banking Index, the Telecom
Index and the Information Technology Index do not have any (unidirectional or bidirectional)
relationship with the corresponding FII investment values.
65
4.5 Co-Integration Analysis
Since, the results of the unit root tests under the Augmented Dickey-Fuller show that the series
are integrated at first order level, the variables under study are stationary. Thus, Johansen’s
cointegration test is a suitable method to examine the long-term co-integrations among the stock
market indices under study. If any linear combinations are found, it will pinpoint the existence of
long run inter-linkages among the series.
Null hypothesis: There exists no cointegration equations with regards to the stock market indices
under study and the corresponding FII investments.
Alternative hypothesis: There exists cointegration equations among the stock market indices
under study and the corresponding FII investments.
In this study, the Trace test and maximum eigen value test has been applied to test the long-run
co-integration among the stock market indices under study.
4.5.1 Nifty 50
The results of Johansen’s cointegration test for the Nifty 50 Index are given in the Table 4.24
below. It shows the calculated values of trace statistics and maximumeigen value.
The first pre requisite for conducting the test is that the data should not be stationary at first level
and the second pre requisite is that all the data under study should be stationary at the same level.
In our analysis we find that all the data sets are stationary at the first difference thus satisfying
both the pre requisites for the test.
None:
Null Hypothesis: There are no cointegrating relation between 50 and FII Investments
Alternative Hypothesis: There are cointegration relation between Nifty 50 and FII Investments
66
Table 4.24 Johansen’s Cointegration Results (Trace Test): Nifty 50 Index
Trend assumption: Linear deterministic trend

Series: DGROSS_PURCHASE DNIFTY
Lags interval (in first differences): 1 to 4
Unrestricted Cointegration Rank Test (Trace)
Hypothesized Trace 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**
None * 0.443146 135.7622 15.49471 0.0000

At most 1 * 0.176992 33.89342 3.841465 0.0000
Trace test indicates 2 cointegrating eqn(s) at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized Max-Eigen 0.05

None * 0.443146 101.8688 14.26460 0.0000

At most 1 * 0.176992 33.89342 3.841465 0.0000
Max-eigenvalue test indicates 2 cointegrating eqn(s) at the 0.05 level

Since probability is lesser than 0.05, and the trace statistics at 135.76 is more than the critical
value which is 15.49 we reject the null hypothesis and accept the alternative hypothesis. Further
we notice that the Max-Eigen statistic at 101.86 is more than the critical value which is at 14.26.
From this, we can conclude that there exists a long-term association between variables and that
the variables, in the long run, will move together i.e., in the long run, an increase or decrease in
FII investments would have a similar effect on the Nifty 50 Index prices.
At most 1:
Null Hypothesis: There is no one cointegrating relation between Nifty 50 and FII Investments
Alternative Hypothesis: There is one cointegration relation between Nifty 50 and FII
Investments.
67
Since probability is lesser than 0.05, and the trace statistics and Max Eigen statistic at 33.89 is
more than the critical value which is 3.841 we reject the null hypothesis and accept the
alternative hypothesis. From this again, we can conclude that there exists a long-term association
between the two variables and that the variables, in the long run, will move together i.e., in the
long run, an increase or decrease in FII investments would have a similar effect on the Nifty 50
Index prices.
The results of Johansen’s cointegration test for the Automobile Index are given in the Table 4.25
Table 4.25 Johansen’s Cointegration Results: Automobile Index

Date: 02/23/23 Time: 11:52
Sample (adjusted): 2012M07 2022M12
Included observations: 126 after adjustments
Series: DTOTAL DAUTOMOBILE_INDEX

None * 0.205797 48.20523 15.49471 0.0000

At most 1 * 0.141153 19.17276 3.841465 0.0000


None * 0.205797 29.03247 14.26460 0.0001

At most 1 * 0.141153 19.17276 3.841465 0.0000

68
In our analysis we find that that all the data sets are stationary at the first difference thus
satisfying both the pre requisites for the test.
None:
Null Hypothesis: There are no cointegrating relation between Automobile Index and FII
Investments
Alternative Hypothesis: There are cointegration relation between Automobile Index and FII
Investments.
FII investments would have a similar effect on the Automobile Index prices.
At most 1:
Null Hypothesis: There is no one cointegrating relation between Automobile Index and FII
Investments
Alternative Hypothesis: There is one cointegration relation between Automobile Index and FII
Investments.
more than the critical value which is 3.841 we reject the null hypothesis and accept the
long run, an increase or decrease in FII investments would have a similar effect on the
Automobile Index prices.
69
4.5.3 FMCG Index
Date: 02/23/23
Table 4.26 Johansen’s Time: 09:36 Results: FMCG Index
Cointegration
Series: DPRICE DTOTAL

None * 0.291918 64.28388 15.49471 0.0000

At most 1 * 0.152101 20.78926 3.841465 0.0000


None * 0.291918 43.49462 14.26460 0.0000

At most 1 * 0.152101 20.78926 3.841465 0.0000
\
The first pre requisite for

conducting the test is that the data should not be stationary at first level and the second pre
requisite is that all the data under study should be stationary at the same level.
None:
Null Hypothesis: There are no cointegrating relation between FMCG Index and FII Investments
70
Alternative Hypothesis: There are cointegration relation between FMCG Index and FII
Investments.
FII investments would have a similar effect on the FMCG Index prices.
At most 1:
Null Hypothesis: There is no one cointegrating relation between FMCG Index and FII
Investments
Alternative Hypothesis: There is one cointegration relation between FMCG Index and FII
Investments.
more than the critical value which is 3.841, we reject the null hypothesis and accept the
long run, an increase or decrease in FII investments would have a similar effect on the FMCG
Index prices.
4.5.4 Pharmaceutical Index
71
Table 4.27Date: 02/22/23Cointegration
Johansen’s Time: 11:35 Results: Pharmaceutical Index
Series: DPHARMA DTOTAL

None * 0.258080 70.96313 15.49471 0.0000

At most 1 * 0.225769 32.75330 3.841465 0.0000


None * 0.258080 38.20983 14.26460 0.0000

At most 1 * 0.225769 32.75330 3.841465 0.0000

None:
Null Hypothesis: There are no cointegrating relation between Pharmaceutical Index and FII
Investments.
Alternative Hypothesis: There are cointegration relation between Pharmaceutical Index and FII
Investments.
72
FII investments would have a similar effect on the Pharmaceutical Index prices.
At most 1:
Null Hypothesis: There is no one cointegrating relation between Pharmaceutical Index and FII
Investments
Alternative Hypothesis: There is one cointegration relation between Pharmaceutical Index and
FII Investments.
Pharmaceutical Index prices.
4.5.5 Telecom Index
The results of Johansen’s cointegration test for the Telecom Index are given in the Tables 4.28
None:
73
Null Hypothesis: There are no cointegrating relation between Telecom Index and FII
Investments.
Alternative Hypothesis: There are cointegration relation between Telecom Index and FII
Investments.
Table 4.28 Johansen’s Cointegration Results: Telecom Index


None * 0.253872 65.42053 15.49471 0.0000

At most 1 * 0.202563 28.52035 3.841465 0.0000


None * 0.253872 36.90018 14.26460 0.0000

At most 1 * 0.202563 28.52035 3.841465 0.0000

FII investments would have a similar effect on the Telecom Index prices.
At most 1:
74
Null Hypothesis: There is no one cointegrating relation between Telecom Index and FII
Investments
Alternative Hypothesis: There is one cointegration relation between Telecom Index and FII
Investments.
long run, an increase or decrease in FII investments would have a similar effect on the Telecom
Index prices.
4.5.6 Banking Index
The results of Johansen’s cointegration test for the Banking Index are given in the Tables 4.29
Table 4.29 Johansen’s Cointegration Results: Banking Index

Series: DBANK DTOTAL

None * 0.272258 63.52017 15.49471 0.0000

At most 1 * 0.169992 23.47630 3.841465 0.0000


None * 0.272258 40.04387 14.26460 0.0000

At most 1 * 0.169992 23.47630 3.841465 0.0000

75
None:
Null Hypothesis: There are no cointegrating relation between Banking Index and FII
Investments.
Alternative Hypothesis: There are cointegration relation between Banking Index and FII
Investments.
FII investments would have a similar effect on the Banking Index prices.
At most 1:
Null Hypothesis: There is no one cointegrating relation between Banking Index and FII
Investments
Alternative Hypothesis: There is one cointegration relation between Banking Index and FII
Investments.
76
long run, an increase or decrease in FII investments would have a similar effect on the Banking
Index prices.
The results of Johansen’s cointegration test for the Information Technology Index are given in
the Table 4.30 below. It shows the calculated values of trace statistics and maximumeigen value.
Table 4.30 Johansen’s Cointegration Results: Information Technology Index


None * 0.253872 65.42053 15.49471 0.0000

At most 1 * 0.202563 28.52035 3.841465 0.0000


None * 0.253872 36.90018 14.26460 0.0000

At most 1 * 0.202563 28.52035 3.841465 0.0000

77
None:
Null Hypothesis: There are no cointegrating relation between Information Technology Index and
FII Investments.
Alternative Hypothesis: There are cointegration relation between Information Technology Index
and FII Investments.
Since probability is lesser than 0.05, and the trace statistics at 65.42 is more thana the critical
FII investments would have a similar effect on the Information Technology Index prices.
At most 1:
Null Hypothesis: There is no one cointegrating relation between Information Technology Index
and FII Investments
Alternative Hypothesis: There is one cointegration relation between Information Technology

Index and FII Investments.
Information Technology Index prices.
78
CHAPTER-V
FINDINGS, SUGGESTIONS
& CONCLUSIONS
CHAPTER – V
FINDINGS, SUGGESTIONS, & CONCLUSIONS
5.1 Findings of the Study

From the study conducted on the FII inflows into the Indian equity market there came out to be
several findings which are as follows:
During the period of study that is from January 2013 up to December 2022 it was found that
there existed a general bullish sentiment of foreign institutional investors in the stock market
index Nifty 50 as well as the various stock market indices which for this study included the
Automobile, Banking, Pharmaceuticals, IT, FMCG, Telecom index.
All indexes saw a dip post the onset of the Covid-19 pandemic but this dip didn’t last long and
was followed by a major boom in all the sectors and industries as can be analysed from the
various graphs.
Further on analysing FII investment patterns and trends it can be noticed that FIIs have a general
incline towards equity over debt as over the years FIIs have invested heavily in the equity
segment.
It was also found that Nifty 50 was impacted by FII investments where FIIs role in fluctuating
the market index is limited to 88.6%. Other factors such the GDP, RBI Repo rate, DII
investments and retail investors also play a crucial role in determining the future trend of the
market.
As for the sectoral indexes it is determined that the indexes had the following impact on their
value due to FII inflows:
Automobile Index: The automobile index is majorly influenced by FII movements. According to
the results obtained 95.1% of the fluctuations in Automobile Index is due to FII movements.
FMCG Index: The FMCG index is also significantly influenced with FII movements. According
to the results obtained 74.3% of the fluctuations in the FMCG index is due to FII movements.
79
Banking Index: The Banking index is majorly influenced by FII movements. According to the
results obtained 93.6% of the fluctuations in Banking Index is due to FII movements.
IT Index: The IT index is very strongly influenced by FII movements. According to the results
obtained 98.8% of the fluctuations in the Banking Index is due to FII movements which indicates
that FII movements are one of the major price movers.
Telecom Index: The Telecom Index is moderately influenced by FII movements. According to
the results obtained 63.9% of the fluctuations in the Telecom Index is due to FII movements. The
other factors such as DII movements, retail investors, the economy and the market sentiments are
other factors influencing the Index.
Pharmaceutical Index: The Pharmaceutical index is very strongly influenced by FII movements.
According to the results obtained 93.7% of the fluctuations in the Pharmaceutical Index is due to
FII movements which indicates that FII movements are one of the major price movers.
Further on conducting the Granger Casualty test it was found that for all the variables under
study i.e., Nifty 50 and the six sectoral indices along with their respective FII Investments didn’t
have any short-term relationship among themselves, i.e., in the short run FII investments inflows
and outflows didn’t have a direct effect of the index price movements in the short run.
But on further analysis we found using Johannsen’s Cointegration that all the six sectoral indices
and the Nifty 50 index had a long-term association with their respective FII investment inflows
and outflows, i.e., an increase in inflow of the FII investments would lead to an increase in the
index price values and similarly a decrease in FII inflows or an increase in the outflows would
lead to a decrease in the index price values.
80
5.2 Recommendations and Suggestions
Post the analysis of the collected data and enumerating the findings of the research, several
recommendations and suggestions can be collaborated, which are as follows:
Consider a broader time horizon: Numerous studies including this particular research have
concentrated on the short-term effects of FII investments on the Indian stock market which are
limited to a maximum period of 10 years. While this is significant, it may also be beneficial to
examine the long-term impact of foreign investments on the economy as a whole, taking into
account aspects such as employment, productivity, and economic growth.
Examine the impact of sectoral investments: FII investments may have a distinct influence on
different sectors of the Indian stock market. As a result, research on the sectoral impact of FII
investments, as well as the impact of these investments on the entire stock market, proves to be
extremely beneficial. Very few researches have been conducted to test the sectoral impact of FII
investments. This study also focuses on just six major stock sectoral indices, while over 24 Nifty
sectoral indices exist in the market. Thus, the immense scope for future research still exists in
this field. This can aid in determining which industries are more vulnerable to FII investments
and how this may evolve over time.
Examine the role of institutional investors: In addition to FII investments, other institutional
investors in the Indian stock market include domestic mutual funds, pension funds and Insurance
companies. It may be beneficial to examine the interaction between FII and other institutional
investments, as well as the influence of these investments on market volatility and liquidity.
Evaluate the impact of policy changes: Tax regulations, foreign investment standards, and trade
policies implemented by the Indian government can all have an impact on FII investments in the
Indian stock market. Further research could examine policy changes’ influence on FII
investments and how it affects the Indian stock market.
Investigate the effect of ESG considerations: Investors are becoming more concerned about
environmental, social, and governance (ESG) issues. Future research might look into the
81
influence of ESG factors on FII investments in India, as well as the impact of these investments
on company behaviour and market outcomes.
5.3 Conclusion
Over the years, the stock market has seen numerous factors leading to its fluctuations. Post
implementation of financial reforms in the Indian stock market in 1991, a number of changes
have occurred. India is becoming one of the most appealing markets for international
institutional investors (FIIs). Since then, the country has received significant portfolio
investments.
It is evident to see that FII investments have gradually increased over the last ten years. This
demonstrates a rise in the FIIs' confidence. It cannot be argued that FIIs considerably impact the
fluctuations of Indian stock market indexes. If one looks at the total FII equity trade, FIIs have a
constantly expanding effect on the stock market.
In India, FIIs and Nifty movements are closely linked, and FIIs exercise influence over market
attitudes and pricing trends. This is because other market players regard FIIs as perfect in their
market assessments and tend to follow FII judgements.
First of all, it is evident from the research that FII investments substantially impact the Indian
stock market, especially in terms of short-term swings. Foreign capital inflows can cause steep
gains in market liquidity, stock values, and large outflows that put bearish pressure on prices.
The long-term impact of FII investments on the Indian stock market, on the other hand, is less
obvious, with mixed evidence about their potential to boost economic growth and financial
stability, as understood from previous literature.
Second, the research indicated that the impact of FII investments varied according to various
circumstances, such as macroeconomic conditions, global market trends, and government
regulations. Thus, pointing out changes in interest rates, exchange rates, and trade regulations as
some of the other factors that could have a big impact on FII investments and the Indian stock
market.
Lastly, it is important for investors to realise that while FII investments provide many benefits,
such as greater liquidity, market efficiency, and access to foreign capital, there are risks
82
associated with relying too much on foreign investments. This includes exposure to global
economic shocks, speculative bubbles, and capital flight during market stress.
Overall, the research can help conclude that the impact of FII investments on the Indian stock
market is a complicated and diverse field with contradictory opinions and ideologies, thus
making it critical to analyse the link between these two aspects with complexity.
83
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84
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APPENDIX
Granger Casualty Test:
Nifty 50
Pairwise Granger Causality Tests

Date: 02/24/23 Time: 16:46
Sample: 2008M01 2022M12
Lags: 2
Null Hypothesis: Obs F-Statistic Prob.
DGROSS_PURCHASE does not Granger Cause DNIFTY 177 0.40468 0.6678

DNIFTY does not Granger Cause DGROSS_PURCHASE 1.67126 0.1910
Automobile Index
Date: 02/24/23 Time: 13:45
Sample: 2012M01 2022M12
Lags: 2
DAUTOMOBILE_INDEX does not Granger Cause DTOTAL 129 0.01751 0.9826

DTOTAL does not Granger Cause DAUTOMOBILE_INDEX 2.16912 0.1186
FMCG

Date: 02/24/23 Time: 14:06
Sample: 2012M01 2022M12
Lags: 2
DPRICE does not Granger Cause DTOTAL 86 129 0.88633 0.4148

DTOTAL does not Granger Cause DPRICE 0.22320 0.8003
Date: 02/24/23 Time: 14:00
Sample: 2012M01 2022M12
Lags: 2
DTOTAL does not Granger Cause DPHARMA 129 1.01278 0.3662

DPHARMA does not Granger Cause DTOTAL 1.61207 0.2036
Bank Index
Date: 02/24/23 Time: 14:23
Sample: 2012M01 2022M12
Lags: 2
DTOTAL does not Granger Cause DBANK 129 0.37238 0.6899

DBANK does not Granger Cause DTOTAL 0.14999 0.8609
Telecom Index

Date: 02/24/23 Time: 15:25
Sample: 2012M01 2022M12
Lags: 2
DTOTAL does not Granger Cause DPRICE 129 1.32426 0.2697

87
DPRICE does not Granger Cause DTOTAL 0.99483 0.3727
Information Technology Index

Date: 02/24/23 Time: 14:16
Sample: 2012M01 2022M12
Lags: 2
DTOTAL does not Granger Cause DPRICE 129 0.15522 0.8564

DPRICE does not Granger Cause DTOTAL 0.31105 0.7332
88

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IMPACT OF FOREIGN INSTITUTIONAL INVESTOR ON THE INDIAN STOCK

MARKET WITH REFERENCE TO SECTORAL INDICES

Submitted to CHRIST (Deemed to be University) in partial fulfilment of the

Dr. Muthu Gopalakrishnan. M

INSTITUTIONAL INVESTOR ON THE INDIAN STOCK MARKET WITH

REFERENCE TO SECTORAL INDICES” submitted to CHRIST (Deemed to be

Bachelor of Business Administration (Honors) is a record of original and independent study

Dr Muthu Gopalkrishnan. M, Associate Professor, School of Business and Management,

similar titles of recognition to any candidate of any University.

Register Number: 2023219

student of Bachelor of Business Administration (Honors) of CHRIST (Deemed to be

OF FOREIGN INSTITUTIONAL INVESTORS ON THE INDIAN STOCK MARKET

WITH REFERENCE TO SECTORAL INDICES” in partial fulfilment of the requirements

submitted is true and original to the best of my knowledge.

Head of the Department

School of Business and Management

Christ (Deemed to be University)

Bannerghatta Road, Hulimavu

This is to certify that the Dissertation titled “IMPACT OF FOREIGN INSTITUTIONAL

INVESTORS ON THE INDIAN STOCK MARKET WITH REFERENCE TO

SECTORAL INDICES” submitted to CHRIST (Deemed to be University), in partial fulfilment

(Honors) is a record of original study undertaken by Kushagra Sati (Registration Number:

Management at CHRIST ( Deemed to be University ), Bengaluru, under my supervision and

Diploma/Associateship/ Fellowship or other similar titles of recognition to any candidate of this

or any other University or Institution.

School of Business and Management

Christ (Deemed to be University)

Bannerghatta Road, Hulimavu

I express my special thanks to Dr Muthu Gopalakrishnan KM, Assistant Professor, School of

Registration Number: 2023219

Table Description Page No.

4.2 ANOVA (Nifty 50) 48

4.3 Coefficients (Nifty 50) 49

4.4 Correlation Model Summary (Automobile Index) 50

4.23 Results of the Granger Causality Test 64

1.1 Stock Exchange

1.3 The Bombay Stock Exchange (BSE)

Figure 2: NIFTY 50 2002-2022 Source –

1.5.1 Impact of Foreign Institutional Investors on the Indian Stock Market

Gross Purchase Gross Sales

Figure 3: FII Gross Purchase and Sales

1.5.2 Timeline of FII Investment

The following entities/funds are eligible to get registered as FII:

 Asset Management Companies

FIIs registered with SEBI fall under the following categories:

1.5.4 Investment Opportunities for FII

Domestic Institutional Investments

Gross Purchase Gross Sales

Figure 4: DII Gross Purchase and Sales

1.7 Automobile Index

Figure 5: NIFTY Automobile Index

1.8 FMCG Index

igure 6: NIFTY FMCG Index

1.10 Telecom Index

Figure 8: NIFTY Telecom Index

Figure 9: NIFTY Banking Index

1.12 Information Technology Index

ure 10: NIFTY Information Technology Index

1.14 Relevance of Research

1.15 Scope of the Research

1.16 Research Objective:

1.17 Research Question:

1.18 Limitations of Study

2.2 Literature Review