This document examines the contribution of foreign institutional investment to the Indian stock market from 2007-2012. It analyzes the correlation between foreign institutional investment (FII) inflows and the BSE Sensex and S&P CNX NIFTY indices. The study finds a positive but moderate correlation between FII inflows and the two indices, with FII influencing around 15-16% of their movements. However, the study concludes that while FII have some impact, other factors like economic conditions and government policies have a greater influence on the Indian stock market.

1. By:
Anantha B
10TUCMA002

2. Introduction:
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.

3. 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.
Objectives of the study
Following are the objectives of the study:
• To study the scope and trading mechanism of Foreign
Instititutional 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

4. Limitations of the study
1. The project has been prepared in two months, so due to time
limitations depth analysis of such a wide concept may contain some
lacuna. IN this report impact of FII on the stock market has been
analyzed considering BSE Sensex ans S&P CNX NIFTY. But only these two
may not depict exact picture of the entire stock market.
2. The data for calculation is taken on monthly basis. The data on daily
basis can give more positive results.
3. The secondary data that I have used in this study may not give true
picture of the concern.
4. For calculation purpose I have used only Correlation and Regression
methods. Only these two methods may not give accurate information
about the impact of FII on stock market

5. 1 FINDINGS
After the analysis following are the findings of the study:
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.
4. The R-square statistics shows that the value of BSE Sensex is
dependent 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 is
dependent 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 unexplained
variables are also influencing the Indices. There may be many other
factors on which a stock index may depend i.e. Government policies,
budgets, bullion market, inflation, economic and political condition of

6. 2 CONCLUSION
The main objective of this study was to determine impact of Foreign
Institutional Investments on Indian stock market. To test this we have
employed methodology of Karl Pearson’s Co-efficient of Correlation and
regression analysis. Correlation was used to know there was positive effect
or negative effect. Regression was used to find the extent of impact of FII
over the stock market.
According to Data analysis and findings, it can be concluded that FII do
have any significant impact on the Indian Stock Market but there are other
factors like government policies, budgets, bullion market, inflation,
economical and political condition, etc. do also have an impact on the
Indian stock market. There is a positive correlation between stock indices
and FIIs but FIIs didn’t have high significant impact on Indian Stock Market.
The null hypothesis is rejected. BSE Sensex and S&P CNX NIFTY showed
positive correlation with FII from 2007 and 2012. Also the coefficient of
determination is less in all the case. It shows the absence of linear relation
between FII and stock index. This does not mean that there is no relation
between them.
One of the reasons for absence of any linear relation can also be due to the
sample data. The data was taken on monthly basis. The data on daily basis
can give more positive results (may be). Also FII is not the only factor
affecting the stock indices. There are other major factors that influence the
bourses in the stock market.
But Foreign Institutional Investment in developing countries like India

7. SUGGESTIONS
After the analysis of the project study, following suggestions can be
made:
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.
4) We have to modernize and also have to save our culture. Similarly
the laws should be such that it would protect domestic investors and also
promote trade in country through FIIs.
5) Encourage industries to grow to make FIIs an attractive junction
to invest.