Impact Of Foreign Institutional Investment On Stock Market

Published Date: 02 Nov 2017

IMPACT OF FOREIGN INSTITUTIONAL INVESTMENT ON STOCK MARKET

Background

FOREIGN INSTITUTIONAL INVESTOR: The term FII’s is definedbythe SEBI under:

"Means of an institution established or incorporated outside India which proposes to make

investments in Indian securities. Provides that a domestic assets management companies or

domestic portfolio manager who manages funds raised or collected or brought from outside India

for investment in India on the behalf of a sub-account, shall be deemed to be a FII’s"

Foreign Investment also refers to the investments made by residents of a country in the financial assets andproduction process of the another country.

Entities covered in the term ‘Foreign Institutional Investor’ include "Overseas pension funds, mutual funds, investments trust, asset management company, etc.

Foreign Institutional Investor can invest their own funds in it as well as invest on behalf of their overseas clients which are registered assuch with SEBI. These client accounts that the Foreign Institutional Investor manages are known as ‘sub-accounts’.

WHY FIIS REQUIRED?

Foreign Institutional Investor contribute for the foreign exchange inflow as therefunds from multilateral finance institutionsand Foreign direct investment are insufficient.

Following are the some advantages of Foreign Institutional Investor

• It helps in lowers cost of capital, access to cheap global credit.

• It also helps for the supplements domestic savings and investments.

• It also leads to higher asset prices in Indian market.

• And also led to considerable amount of reforms in capital market of financial sector.

INVESTMENTS BY Foreign Institutional Investor

There are two ways to invest for Foreign Institutional Investor

• EQUITY INVESTMENT

100 percent investments can be equity related instruments or up to 30 percent can be invested

in debt instruments i.e.70 percent (Equity Instruments): 30 percent (Debt Instruments)

• 100% DEBT

100 percent investment have made in debt securities.

Need For Research

To examine the stock market, which will help in investing in right stocks to gain profit.

To gain experience in online trading

OBJECTIVES

• To find out the relationship between the FIIs investment and stock market.

• To know the volatility of BSE Sensex due to FIIs.

• To study the behavioral pattern of FII in India during 2000 to 2010.

Scope Of Research

Contribution of FII’s in increase of Sensex and Indian Economy

REVIEW OF LITRATURE

1. Stanley Morgan (2002) examine that Foreign Institutional Investments have played a very important role in building up India Forex reserves, which have enabled to a host of economic reforms.FIIs now important investors for country’s economic growth despite

Sluggish domestic sentiment. The Morgan Stanley report notes that Foreign Institutional Investments strong influence short-term market movements during bear markets. However, the

Correlation between returns and flows reduces during bull markets as other market

participants raise their involvement reducing the influence of Foreign Institutional Investments s. Research byMorgan Stanley shows that the correlation between foreign inflows and market

returns is high during bear and weakens with strengthening equity prices due to

increased participation by other players.

2. Agarwal, Chakrabarti (2003) found their research that equity return

hassignificant and positive impact on the Foreign Institutional Investments. But gives the huge volume of investment, foreign investors may play a role of market makers and book their

profits.

3. P. Krishna Prasanna (2008) examine the contribution of FII’s particularly among company included in sensitivity indexofBombay Stock Exchange. Also examined the relationship between FII’s and firm specific characteristics on terms of ownershipstructure, financial performance & stock performance.

4. Gurucharan Singh (2004) highlighted that security market of India had come up a

long way in terms of infrastructure, adoption for best international practices and

Introduction of competition. Now, there is need to review stock exchanges and to

improve the liquidity position at various scraps listed on them. The study was conducted by

the World Bank (1997) reports that stock market liquidity improved in those

Emerging economies that they received more foreign investments.

5. AnandBansal& J.S. Pasricha (2009) said, the impact of market opening to Foreign Institutional Investments at Indian stock market behaviour. They has empirically analyze the change in the marketreturns and volatility after the entry of Foreign Institutional Investments to Indian capital market and found thatwhile there is no such significant change in the Indian stock market average returns.

Research Design

Descripted Research

Information Needed

The data for the study uses the information obtained from the secondary resources like website of BSE Sensex.

Research Instrument

Karl Pearson’ Coefficient of correlation test.

Methods Of Data Collection

Data collected from websites

Survey

FII’s investment and Sensex Relationship

FII’s and BSE Sensex correlation

Areas To Be Covered

Petroleum Sector (ONGC)