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  1. 1. By:Anantha B10TUCMA002
  2. 2. Introduction:Foreign Institutional Investors have gained a significant role in Indian stockmarkets. The dawn of 21st century has shown the real dynamism of stockmarket and the various benchmarking of sensitivity indices (BSE Senex andS&P CNX NIFTY) in terms of highest peaks and sudden falls. In this contextpresent project examines the contribution of foreign institutional investmentin Indian Stock Market.Also attempts to understand the behavioural pattern of FII during the periodMarch-2007 to February 2012 and examine the volatility of both indices dueto FII. The data for the information obtained from the secondary sources likewebsite of BSE Sensex. We have attempted to explain the impact of foreigninstitutional investment on stock market and Indian economy. Also attemptspresent the correlation and regression between FII and both BSE Sensex andS&P CNX NIFTY.
  3. 3. MethodologyThe impact of FII inflows on Indian stock market is to be determined. Forthis purpose the secondary data is taken on monthly basis from thewebsite. To know the impact of inflows the Karl Pearson’s Co-efficient ofcorrelation and Regression analysis have been used. It would showwhether the impact is positive or negative and how much the Indian stockmarket would vary with respect to FII. For the purpose of calculation SPSSand MS-Excel software have been utilised.Objectives of the studyFollowing are the objectives of the study:• To study the scope and trading mechanism of ForeignInstititutional investors in India.• To find the impact of net investments made by foreigninstitutional investors on S&P CNX NIFTY.• To find the impact of net investments made by foreigninstitutional investors on BSE Sensex.• To find the trend of foreign institutional investment
  4. 4. Limitations of the study1. The project has been prepared in two months, so due to timelimitations depth analysis of such a wide concept may contain somelacuna. IN this report impact of FII on the stock market has beenanalyzed considering BSE Sensex ans S&P CNX NIFTY. But only these twomay not depict exact picture of the entire stock market.2. The data for calculation is taken on monthly basis. The data on dailybasis can give more positive results.3. The secondary data that I have used in this study may not give truepicture of the concern.4. For calculation purpose I have used only Correlation and Regressionmethods. Only these two methods may not give accurate informationabout the impact of FII on stock market
  5. 5. 1 FINDINGSAfter the analysis following are the findings of the study:1. There is a positive correlation between FII inflows and Indian StockMarket.2. From the data interpretation and analysis we can come to theconclusion that the correlation between the net investment made byforeign institutional investors and the values of the BSE Sensex is 39%and hence the inflow made by FII affects the BSE Sensex. The datacollected is from March 2007 to February 2012.3. From the data interpretation and analysis we can come to theconclusion that the correlation between the net investment made byforeign institutional investors and the values of the S&P CNX NIFTY is39.6% and hence the inflow made by FII affects the S&P CNX NIFTY in amoderate way. The data collected is from March 2007 to February 2012.4. The R-square statistics shows that the value of BSE Sensex isdependent on FII to the extent of 15.2% and for the remaining 84.8%depends on other factors such as inflation, exchange rates, etc.5. The R-square statistics shows that the value of S&P CNX NIFTY isdependent on FII to the extent of 15.7% and for the remaining 84.3%depends on other factors.6. FIIs have less impact on Indian stock indices. Other unexplainedvariables are also influencing the Indices. There may be many otherfactors on which a stock index may depend i.e. Governmentpolicies, budgets, bullion market, inflation, economic and political
  6. 6. 2 CONCLUSIONThe main objective of this study was to determine impact of ForeignInstitutional Investments on Indian stock market. To test this we haveemployed methodology of Karl Pearson’s Co-efficient of Correlation andregression analysis. Correlation was used to know there was positive effector negative effect. Regression was used to find the extent of impact of FIIover the stock market.According to Data analysis and findings, it can be concluded that FII dohave any significant impact on the Indian Stock Market but there are otherfactors like government policies, budgets, bullionmarket, inflation, economical and political condition, etc. do also have animpact on the Indian stock market. There is a positive correlation betweenstock indices and FIIs but FIIs didn’t have high significant impact on IndianStock Market. The null hypothesis is rejected. BSE Sensex and S&P CNXNIFTY showed positive correlation with FII from 2007 and 2012. Also thecoefficient of determination is less in all the case. It shows the absence oflinear relation between FII and stock index. This does not mean that thereis no relation between them.One of the reasons for absence of any linear relation can also be due to thesample data. The data was taken on monthly basis. The data on daily basiscan give more positive results (may be). Also FII is not the only factoraffecting the stock indices. There are other major factors that influence thebourses in the stock market.But Foreign Institutional Investment in developing countries like India
  7. 7. SUGGESTIONSAfter the analysis of the project study, following suggestions can bemade:1) Simplifying procedures and relaxing entry barriers for businessactivities and providing investor friendly laws and tax system for foreigninvestors.2) Allowing foreign investment in more areas. In different industriesindices the FIIs should be encouraged through different patterns likefutures, 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 ofthe Indian stock market who have invested with the help of participatorynotes.4) We have to modernize and also have to save our culture. Similarlythe laws should be such that it would protect domestic investors and alsopromote trade in country through FIIs.5) Encourage industries to grow to make FIIs an attractive junctionto invest.