ABSTRACT

Foreign Institutional Investors have gained a significant role in Indian stock markets.

The dawn of 21st century has shown the real dynamism of stock market and the various

benchmarking of sensitivity indices (BSE Senex and S&P CNX NIFTY) in terms of highest

peaks and sudden falls. In this context present project examines the contribution of foreign

institutional investment in Indian Stock Market.

Also attempts to understand the behavioural pattern of FII during the period March-

2007 to February 2012 and examine the volatility of both indices due to FII. The data for the

information obtained from the secondary sources like website of BSE Sensex. We have

attempted to explain the impact of foreign institutional investment on stock market and Indian

economy. Also attempts present the correlation and regression between FII and both BSE

Sensex and S&P CNX NIFTY.

Objectives of the study

• To study the scope and trading mechanism of Foreign Institutional investors in India.

• To find the impact of net investments made by foreign institutional investors on S&P

CNX NIFTY.

• To find the impact of net investments made by foreign institutional investors on BSE

Sensex.

• To find the trend of foreign institutional investment

Methodology

The impact of FII inflows on Indian stock market is to be determined. For this purpose

the secondary data is taken on monthly basis from the website. To know the impact of inflows

the Karl Pearson’s Co-efficient of correlation and Regression analysis have been used. It would

show whether the impact is positive or negative and how much the Indian stock market would

vary with respect to FII. For the purpose of calculation SPSS and MS-Excel software have

been utilised.

Major Findings

1. There is a positive correlation between FII inflows and Indian Stock Market.

2. From the data interpretation and analysis we can come to the conclusion that the correlation

between the net investment made by foreign institutional investors and the values of the BSE

Sensex is 39% and hence the inflow made by FII affects the BSE Sensex. The data collected is

from March 2007 to February 2012.

3. From the data interpretation and analysis we can come to the conclusion that the correlation

between the net investment made by foreign institutional investors and the values of the S&P

CNX NIFTY is 39.6% and hence the inflow made by FII affects the S&P CNX NIFTY in a

moderate way. The data collected is from March 2007 to February 2012.

Suggestions

1) Simplifying procedures and relaxing entry barriers for business activities and providing

investor friendly laws and tax system for foreign investors.

2) Allowing foreign investment in more areas. In different industries indices the FIIs

should be encouraged through different patterns like futures, options, etc.

3) Somewhere, a restriction related to the track record of Sub- Accounts is also to be

made on the investors who withdraw money out of the Indian stock market who have invested

with the help of participatory notes.