Harish S N- Impact of FIIs on Indian Stock Market

7/24/2019 Harish S N- Impact of FIIs on Indian Stock Market

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Impact of FIIs on Indian

Stock MarketPrepared to present in the BIMS National Conference

2016

By

Harish S N

Research scholar UGC- Senior research scholar Dept. Business Administration

Mangalore University

Karnata a


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Introduction

S!"CK MARK#! A pu$lic mar et %or the trading o% company stoc and

derivatives at an agreed price. A place &here people can $uy and sell portions o%

$usinesses called stoc s. !he stoc s are listed and traded on stoc e'changes

&hich are entities o% a corporation or mutualorgani(ation.

!hough a num$er o% other e'changes e'ist) *S# andBS# are the t&o most signi%icant stoc e'changes in+ndia.


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,++s +nstitutional +nvestor is any investor that is

registered in a country or outside o% the onein &hich it is currently investing.

!he term ,oreign +nstitutional +nvestorsre%ers to outside investors investing in the%inancial mar ets o% +ndia.

!here are /010 ,++s and 21 %oreign $ro ersregistered to Securities 3 #'change Boardo% +ndia.


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4o& ,++ started in +ndia5

+ndia opened its stoc mar et to %oreigninvestors in Septem$er /667.

since /662) received port%olio investment%rom %oreigners in the %orm ,++ in e8uities

+n order to trade in +ndian e8uity mar et%oreign corporation need to register &ith S#B+as ,++ and shall comply &ith the #'changeControl Regulations o% RB+.


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Literature Review 9e have revie&ed several studies on ,++s and its

impact on +ndian stoc mar et. ,or instance)

Rao (1999) Chakrabarthi (2001) Chaitanya (200 ) !"#$antra% and &ind" (200') , &atra

(200') a# (200 ) *o"ma+ a##athiatta and !abir (200,)

and re-ie$ed many more./


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Literature Review fndings A ew research studies are avor and

argued that FIIs are positively impacton Indian stock market.

On contrary, several research studiesare proved that FIIs are adverselyimpacts the Indian stock market.

here ore, this study analyses theimpact o FIIs on Indian stock market.
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!hy there is need o FII "

FII #ows supplements and augmenteddomestic savings and domestic investmentwithout increasing the oreign de$t o our

country %apital in#ows to the e&uity market

increase stock prices, lower the cost oe&uity capital and encourage theinvestment $y Indian frms

he e'pert group opines that FII in#owshave some savings like eatures
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(ow they per orm

The degree of olatility can !e attri!uted to thefollo"ing reasons#

!he increase in investment $y ,++s increases stoc

indices the stoc prices and encourages %urtherinvestment . +n this event &hen any correction ta es place the stoc prices decline and there &ill $e pullout $y the ,++s in a large num$ers as earning per

share declines !he ,++s manipulate the situation o% $oom in such amanner that they &ait till the inde' rises up to acertain height and e'it at an appropriate time. !his

tendency increases the volatility %urther


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,++s +nvestments. Appreciation o% the rupee :

4igher %ore' reserves . Creating &ealth . Direct e%%ect on +n%lation.

I$pact of %II&s on Indian Stoc' Mar'et


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Appreciation o the Rupee) aking a closer

look at the unds #ow, FIIs $ring dollars toIndia which get converted into rupees inthe inter*$ank oreign e'change market.As the supply o dollars increase, the lawo demand*supply starts operating andthe rupee appreciates vis--vis the dollar .

(igher ore' reserves )+o, higher oreigndollar- in#ows into India usually translate

into more rupee li&uidity in the system. his increases the money supply and

acilitates easy availa$ility o creditloans rom $anks



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Creating &ealth: ,++ %lo&s also aid in lo&ering the

cost o% $orro&ings. !he easy availa$ility o% credit andthe lo&er $orro&ing costs increase consumptiondemand %or housing) dura$les) cars and real-estate.!his higher demand o%ten leads to greater pu$lic andcorporate investments) resulting in higher economicgro&th .

Direct e%%ect on +n%lation :!his positive &ealth e%%ect

also o%ten leads to higher consumption and greaterdemand %or other asset classes such as gold) real-estate etc.) &hich) in turn) %uels economic gro&th andin%lation. 4igher ,++ %lo&s can) thus) $e seen to help

create &ealth through higher asset prices



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Impact O FIIs On Indianarkets

+n the past %our years there has $een more than;0/ trillion &orth o% ,++ %unds invested in +ndia.

!he present do&n%all o% the mar et too isin%luenced as these ,++s are ta ing out some o%their invested money.

,or long-term value investors) there


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!hy FII called good riend orgood time / volatile in nature

In the Indian stock markets movement o thestock depends on the limited no o stocks

As FIIs purchase and sell these stocks there

is a high degree o volatility in the stockmarket I any set o development encourages

out#ow o capital that will increase thevulnera$ility o the situation in the stockmarket

In India there have $een fve such incidentsin the recent past


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FII #ows in India.I R crores

Financia# ear 0&uity 1e$t otal

%hange ine&uity

2 %hange ine&uity

199 39' 3,456 7 3,456 * *199'39 8,69: 7 8,69: *;;4 *:.83:75199 39, :,985 7 :,985 5,48: 88.683:5199,394


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FIIs as ma=or cause o market crash >an 54 to >an 59 577


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+n the past %our years there has $een more than;0/ trillion &orth o% ,++ %unds invested in +ndia.!his has $een one o% the ma=or reasons on the $ullmar et &itnessing unprecedented gro&th &ith theBS# Sense' rising 77/> in a$solute terms in thisspan

!hough there is a lot o% value in this mar et and%undamentally there is a lot o% upside in it. ,orlong-term value investors) there


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he FII #ow in India rom5777*74 to 574;*48.


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he ?+0 ?i ty Inde'movements


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!he a$ove %igures sho& that the movement o% ,++ and *S#ni%ty indices are highly depends on each other. !he ,++s helps %orli8uidity in the e8uity mar et and $oost the con%idence in the

mar et. +t can $e o$served that ,++s have signi%icant in%luence on thesentiments and price trends in the +ndian e8uity mar et investors.4a$itually) domestic investors tend to %ollo& ,++s moves as they

perceive the ,++s to $e intelligent investors &ith deep assessment o%the mar ets. Such ?herd mentality< ampli%ies the role o% the ,++s inthe +ndian stoc mar et. !hus the emerging mar et li e +ndia gets

$ene%its %rom the ,++s. 4o&ever the natures and o$=ectives o% ,++sare not to promote the +ndian capital mar et and economy. ,++s havetheir o&n interest and strategies to operate in the e8uity mar et. !he

past empirical studies and evidence that they pre%ers %ast e'ist in theadverse conditions and ,++s helps to create the panic movements inthe mar et.


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%onclusion Our study reveals that ?+0 ?i ty has moderate

level o relationship with FII@s investment. ?+0 ni ty inde' moves in direction o FII@s

investment and FIIs huge amount on #ow canchange the prices o stocks.

0merging market re&uired the FIIs or e cient#ow o capital and to e'tend the li&uidity.

he +0BI has taken imitativeness to increase

the FII+ and to attract more FIIs to the Indianmarket to improve the price e ciency andli&uidity o the capital markets.


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hank you

Documents

Harish S N- Impact of FIIs on Indian Stock Market