Impact of FII and FDI On Indian Stock Market: A Project Report

A project Report
On
Impact of FII and FDI on Indian stock market
Submitted to
GUJARAT TECHNOLOGICAL UNIVERSITY
Submitted by:
Komal H. vasani (097030592001)
Ankita B. Khakhkhar (097030592106)
UNDER THE GUIDENCE OF

Mr. Nishant Dhruv
DEPARTMENT OF MANAGEMENT
ATMIYA INSTITUTE OF TECHNOLOGY AND SCIENCE
RAJKOT
ACADEMIC YEAR: 2009-2011

DECELARATION
We KOMAL H. VASANI & ANKITA B. KHAKHKHAR students of MBA , here by
declare that Our project work, presented in this report is our original work & has been
carries out under the supervision of Nishant Dhruv of ATMIYA INSTITUTE OF
TECHNOLOGY & SCIENCE ,GUJRAT TECHNOLOGICAL UNIVERSITY,
RAJKOT.
The Objective Of The research undertaken is to get specialized Knowledge in the
particular field, Which Further sharpen the skill and add practicality in the specialization.
This work has not been previously submitted to any other university for any
other examination.
Date :- (SIGNATURE OF STUDENT)
Place :-
KOMAL H. VASANI
ANKITA B. KHAKHKHAR
I
AKNOWLEDGEMENT
To acknowledge is very great way to show your gratitude towards
the Persons who have contributed in your success in one or other way.
“We cannot determine milk of how many cows feed our body.” – Anon
We believe an ocean is filled by drops and each and every drop should count,
Similarly we should count favor of all my helpers here but this not possible. So
Forgive us for the same.
We would like to thank Gujarat Technological University for introducing this subject
in our course which gives us practical knowledge about specified Industry.
Especially, we would like to Thank Nishant Dhruv, our mentor who guided us in our
work.
Thanking you,
Yours Faithfully,
II
PREFACE
“Knowledge is the ocean that cannot be fathomed the deeper you go, the
more you see its unbounded profundity”
Change in occurring at an accelerated rate. Today is not like yesterday and
tomorrow will not like be today‟s market is how to succeed in the dynamic environment
that surrounds the corporate world. MBA one of those professional courses which help
students to keep pace the changing trends in business and its surrounding environment.
The subject „Practical Studies‟ particularly helps students to know the actual
corporate world, the anxieties and stress associated with the job which cannot be
understood sitting in a classroom.
As students of MBA we are required to do a survey in any unit of national or
international repute, so as to gain practical knowledge about the prevailing market
conditions, for this purpose, we have chosen “ Impact of FII and FDI on Indian Stock
market” as in this globalization world we can not ignore impact of globalization .
DATE :
PLACE : RAJKOT KOMAL H. VASANI
ANKITA B. KHAKHKHAR
III
TABLE OF CONTENT
DECLARATION I
ACKNOWLEDGEMENT II
PREFACE III
CHAPTER 1 THEORETICAL BACKGROUND
1.1 INTRODUCTION 1
1.2 FORMS OF FOREIGN INVESTMENT 2
1.3 FACTORS INFLUENCING FOREIGN INVESTMENT DECISIONS: 3
1.4 IMPACT OF FII ON STOCK MARKET 4
CHAPTER 2 INDUSTRY PROFILE
2.1 INVESTMENT IN INDIAN MARKET 6
2.2 INTERNATINAL PORTFOLIO FLOWS 7
2.3 FOREIGN INSITUTIONAL INVESTOR 8
2.4 FINANCIAL INSTRUMENTS AVAILABLE FOR FII INVESTMENTS 8
2.5 FOREIGN DIRECT INVESTMENT 9
2.6 BRIEF PROFILE OF IMPORTANT INSTITUTIONS
2.6.1 RESERVE BANK OF INDIA 13
2.6.2 SECURITY EXCHANGE BOARD OF INDIA 14
2.6.3 BOMBAY STOCK EXCHANGE 15
CHAPTER 3 LITERATURE REVIEW 20

CHAPTER 4 RESEARCH METHODOLOGY
4.1 TITLE OF THE STUDY 25
4.2 STATEMENT OF THE PROBLEM 25
4.3 OBJECTIVES OF THE STUDY 25
4.4 RESEARCH TYPE 25
4.5 REASEARCH DESIGN 25
4.6 SOURCES OF DATA COLLECTION 26
4.7 SAMPLE SIZE 26
4.8 HYPOTHESIS 26
CHAPTER 5 ANALYSIS AND INTERPRETATION
5.1 TREND ANALYSIS OF FII IN INDIA: 27
5.2 TREND ANALYSIS OF FDI IN INDIA: 33
5.3 RELATIONSHIP BETWEEN FII AND SENSEX: 38
5.4 RELATIONSHIP BETWEEN FDI AND SENSEX: 48
CHAPTER 6 FINDINGS & SUGGESTIONS:
6.1 FINDINGS 59
6.2 SUGGESTIONS 61
6.3 LIMITATION OF THE STUDY 62
6.4 SCOP OF THE FUTURE STUDY 62
REFERENCES: 63
ANNEXTURE: 64
LIST OF TABLE:
TABLE:1 SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS 10
TABLE-2 SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS 12
TABLE:3 THE BSE SENSEX 16
TABLE:4 BIGGEST STOCK MARKET CRASHES IN INDIA 18
TABLE:5 TRENDS IN FII INVESTMENT (YEAR: 2006) 28
TABLE: 6 TRENDS IN FII INVESTMENT (YEAR: 2007) 29
TABLE:9 TRENDS IN FII INVESTMENT (YEAR: 2010) 32
TABLE: 10 TRENDS IN FDI IN INDIA IN 2006 33
TABLE:15 FII AND SENSEX IN 2006 38

TABLE:20 FDI AND SENSEX IN 2006 49
TABLE 23 FDI AND SENSEX IN 2009 55
TABLE 24 FDI AND SENSEX IN 2010 57
LIST OF CHARTS
CHART:1 TOP 10 INVESTING COUNTRIUES 11
CHART:2 SECTORS ATTRACTING HIGHEST FDI 13
CHART:3 FII TREND IN 2006 28
CHART:8 TRENDS IN FDI IN INDIA IN 2006 33
CHART:13 FII AND SENSEX IN 2006 38

CHART:18 FDI AND SENSEX IN 2006 49
ABRIVIATION
FII: FOREIGN INSTITUTIONAL INVESTMENT
FDI: FOREIGN DIRECT INVESTMENT
SENSEX: SENSETIVITY INDEX
RBI: RESERVE BANK OF INDIA
BSE: BOMBAY STOCK EXCHANGE

CHAPTER 1
1.1 THEORETICAL BACKGROUND
When people think about globalization, they often first think of the increasing
volume of trade in goods and services. Trade flows are indeed one of the most
visible aspects of globalization. But many analysts argue that international
investment is a much more powerful force in propelling the world toward closer
economic integration. Investment, often alters entire methods of production
through transfers of know-how, technology and management techniques, and
thereby initiates much more significant change than the simple trading of goods.
Over the past ten years, foreign investment has grown at a significantly more rapid
pace than either international trade or world economic production generally. From
1980 to 1998, international capital flows, a key indication of investment across
borders, grew by almost 25% annually, compared to the 5% growth rate of
international trade. This investment has been a powerful catalyst for economic
growth.
But as with many of the other aspects of globalization, foreign investment is raising
any new questions about economic, cultural and political relationships around the
world. Flows of investment and the rules that govern or fail to govern it can have
profound impacts upon such diverse issues as economic development,
environmental protection, labor standards and economic stability.
1
1.2 Forms of Foreign Investment
International investment or capital flows fall into four principal categories:
Commercial loans: These primarily take the form of loans by banks to foreign
businesses or governments.
Official flows: This category refers generally to the forms of development assistance
given by developed countries to developing ones.
Foreign Direct Investment (FDI): This category refers to international investment in
which the investor obtains a lasting interest in an enterprise in another country. FDI is
calculated to include all kinds of capital contributions, such as the purchases of stocks,
as well as the reinvestment of earnings by a wholly owned company incorporated
abroad (subsidiary), and the lending of funds to a foreign subsidiary or branch. The
reinvestment of earnings and transfer of assets between a parent company and its
subsidiary often constitutes a significant part of FDI calculations. An investor's
earnings on FDI take the form of profits such as dividends, retained earnings,
management fees and royalty payments.
Foreign Portfolio Investment (FPI): FPI is a category of investment instruments that
are more easily traded, may be less permanent, and do not represent a controlling
stake in an enterprise. These include investments via equity instruments (stocks) or
debt (bonds) of a foreign enterprise which does not necessarily represent a long-term
interest. The returns that an investor acquires on FPI usually take the form of interest
payments or non-voting dividends. Investments in FPI that are made for less than one
year are distinguished as short-term portfolio flows. Until the 1980s, commercial
loans from banks were the largest source of foreign investment in developing
countries. However, since that time, the levels of lending through commercial loans
have remained relatively constant, while the levels of global FDI and FPI have
increased dramatically. Over the period 1991 - 1998, FDI and FPI comprised 90% of
the total capital flows to developing countries.
Similarly, when viewed against the tremendous and growing volume of FDI and FPI,
the funds provided in the past by governments through official development
assistance, or lending by commercial banks the World Bank or IMF, are diminishing
in importance with each passing year. When one talks about the recent phenomenon
2
of globalization therefore, one is referring in large part to the effects of FDI and FPI,
and these two instruments will therefore be the primary focus of this issue brief.
1.3 Factors Influencing Foreign Investment Decisions:
India has been ranked at the second place in global foreign direct investments in 2010
and will continue to remain among the top five attractive destinations for international
investors during 2010-12 period, according to United Nations Conference on Trade
and Development (UNCTAD) in a report on world investment prospects titled, 'World
Investment Prospects Survey 2009-2012'. There are many favourable factors in the
indian economy that are tempting foreign investors to invest in india.
High national economic growth rates

Exchange rate stability
General macroeconomic stability
Levels of foreign exchange reserves held by the central bank
General health of the foreign banking system
Liquidity of the stock and bond market
Interest rates
The ease of repatriating dividends and capital
Taxes on capital gains
Regulation of the stock and bond markets
The quality of domestic accounting and disclosure systems
The speed and reliability of dispute settlement systems
The degree of protection of investor's rights
3
1.4 Impact of FII on stock market:
The FIIs are major institutional investors in Indian capital market. Movement in the
sensex has clearly been driven by the behavior of foreign institution investors. The
presence of foreign institution investor in the sensex companies and their active
trading behaviors‟, their role in determining the share price movements must be
considerable. Indian stock markets are known to be known narrow and shallow in the
sense that there are few companies whose shares are actively traded. Although there
are 4700 companies listed with stock exchange. FIIs can also affect the behavior of
other retail investors, who tend to follow the FIIs when making their investment
decision.
These features of Indian stock markets induce a high degree of instability for four
reasons:
First: Increase in investment by FIIs cause sharp price increase. It would provide
additional incentives for FII investment and this encourages further investment so that
there is a tendency for any correction of price unwaeabted by price earnings ratios to
be delayed. And when the correction begins it would have to lead by an FII pullout
and can take the form of extremely sharp decline in the share prices.
Second: As and when FIIs are attracted to the market by expectations of a price
increase that tend to be automatically realized, the inflow of foreign capital can result
in an appreciation of the rupee. This increases the return earned in foreign exchange,
when rupee assets are sold and the revenue converted into dollars. As a result, the
investments turn even more attractive triggering an investment twisting that would
imply a sharper fall when any correction begins.
4
Third: The growing realization by the FIIs of the power they wield in what are
shallow markets, encourages speculative investment aimed at pushing the market up
and choosing an appropriate moment to exit. This implicit manipulation of the market
if resorted to often enough would obviously imply a substantial increase in volatility.
Fourth: In volatile markets, domestic speculators too attempt to manipulate markets
in periods of unusually high prices.
FIIs hold a much higher percentage of shares that are normally available for trading in
the market therefore to judge the real influence of the FIIs on the share prices of
sensex companies, it is important to see what percentage of free-floats shares are
controlled by FIIs.
It shows that average equity holding by FIIs is more than 20% in the sensex
companies. It also shows that investor groups, FIIs are the biggest non-promoter
shareholders of the sensex companies.
5
CHAPTER 2
INDUSTRY PROFILE
2.1 INVESTMENT IN INDIAN MARKET:
India is believed to be a good investment despite political uncertainty, bureaucratic
hassles, and shortages of power and infrastructure deficiencies. India presents a vast
potential for overseas investment and is actively encouraging the entrance of foreign
players into the market. No companies, of any size, aspiring to be a global player can,
for long ignore this country, which is expected to become one of the top three
emerging economies.
Success in India:
Success in India will depend on the correct estimation of the country's potential;
underestimation of its complexity or overestimation of its possibilities can lead to
failure. While calculating, due consideration should be given to the factor of the
inherent difficulties and uncertainties of functioning in the Indian system. Entering
India's marketplace requires a well-designed plan backed by serious thought and
careful research. For those who take the time and look to India as an opportunity for
long-term growth, not short-term profit- the trip will be well worth the effort.
Market potential:
India is the fifth largest economy in the world (ranking above France, Italy, the United
Kingdom, and Russia) and has the third largest GDP in the entire continent of Asia. It
is also the second largest among emerging nations. (These indicators are based on
purchasing power parity). India is also one of the few markets in the world, which
offers high prospects for growth and earning potential in practically all areas of
business. Despite the practically unlimited possibilities in India for overseas
6
businesses, the world's most populous democracy has, until fairly recently, failed to
get the kind of enthusiastic attention generated by other emerging economies.
Diverse Market:
The Indian market is widely diverse. The country has 17 official languages, 6 major
religions, and ethnic diversity as wide as all of Europe. Thus, tastes and preferences
differ greatly among sections of consumers. Therefore, it is advisable to develop a
good understanding of the Indian market and overall economy before taking the
plunge.
2.2 INTERNATIONAL PORTFOLIO FLOWS:

International portfolio flows, as opposed to foreign direct investment (FDI) flows,
refer to capital flows made by individuals or investors seeking to create an
internationally diversified portfolio rather than to acquire management control over
foreign companies. Diversifying internationally has long been known as a way to
reduce the overall portfolio risk and even earn higher returns. Investors in developed
countries can effectively enhance their portfolio performance by adding foreign stocks
particularly those from emerging market countries where stock markets have
relatively low correlations with those in developed countries.
International portfolio flows are largely determined by the performance of the stock
markets of the host countries relative to world markets. With the opening of stock
markets in various emerging economies to foreign investors, investors in industrial
countries have increasingly sought to realize the potential for portfolio diversification
that these markets present.
7
It is likely that for quite a few years to come, FII flows would increase with global
integration. The main question is whether capital flew in to these countries primarily
as a result of changes in global (largely US) factors or in response to events and
indicators in the recipient countries like its credit rating and domestic stock market
return. The answer is mixed – both global and country-specific factors seem to matter,
with the latter being particularly important in the case of Asian countries and for debt
flows rather than equity flow.
2.3 FOREIGN INSTITUTIONAL INVESTORS
The term foreign institutional investment denotes all those investors or investment
companies that are not located within the territory of the country in which they are
investing. These are actually the outsiders in the financial markets of the particular
company. Foreign institutional investment is a common term in the financial sector of
India. The type of institutions that are involved in the foreign institutional investment
are as follows:
Mutual Funds
Hedge Funds
Pension Funds
Insurance Companies.
2.4 Financial instruments available for FII investments:
Securities in primary and secondary markets including shares, debentures and
warrants of companies, unlisted, listed or to be listed on a recognized stock exchange
in India
Units of mutual funds;
8
Dated Government Securities;
Derivatives traded on a recognized stock exchange;
Commercial papers.
2.5 FOREIGN DIRECT INVESTMENT:

Foreign direct investment (FDI) or foreign investment refers to long term
participation by country A into country B. It usually involves participation in
management, joint-venture, transfer of technology and expertise. There are two types
of FDI: inward foreign direct investment and outward foreign direct investment,
resulting in a net FDI inflow (positive or negative) and "stock of foreign direct
investment", which is the cumulative number for a given period. Foreign investment
can be a significant driver of development in poor nations. It provides an inflow of
foreign capital and funds, in addition to an increase in the transfer of skills,
technology, and job opportunities.
9
TABLE:1
SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS
(Financial years): Amount ` in crores (US$ in million)
Ran Country 2008-09 2009-10 2010-11 Cumulative %age to

ks (April- (April- ( April- Inflows total
March) March) Jan.) (April ’00 - Inflows
Jan. ‘11) (in terms of
US $)
1. MAURITI 50,899 49,633 27,970 238,876 42 %

US (11,229) (10,376) (6,129) (53,369)
2. SINGAPO 15,727 11,295 6,817 51,964 9%

RE (3,454) (2,379) (1,504) (11,694)
3. U.S.A. 8,002 9,230 5,001 42,190 7%

(1,802) (1,943) (1,092) (9,371)
4. U.K. 3,840 3,094 2,300 28,298 5%

(864) (657) (503) (6,387)
5. NETHER 3,922 4,283 4,752 24,877 4%

LANDS (883) (899) (1,048) (5,535)
6. JAPAN 1,889 5,670 6,180 23,075 4%

(405) (1,183) (1,367) (5,082)
7. CYPRUS 5,983 7,728 3,458 21,235 4%

(1,287) (1,627) (755) (4,655)
8. GERMAN 2,750 2,980 545 13,013 2%

Y (629) (626) (119) (2,918)
9 FRANCE 2,098 1,437 3,149 10,068 2%

(467) (303) (690) (2,220)
10. U.A.E. 1,133 3,017 1,503 8,526 1%

(257) (629) (326) (1,875)
TOTAL FDI 123,025 123,120 77,902 570,105 -

INFLOWS * (27,331) (25,834) (17,080) (127,369)
10
CHART:1
MAURITIUS
Top 10 investing countries
SINGAPORE
20% U.S.A.
42% U.K.
1% NETHERLANDS
2%
JAPAN
2%
CYPRUS
4% GERMANY
FRANCE
4% U.A.E.
4%
5% others
7% 9%
11
TABLE-2
SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS:
Ranks Sector 2008-09 2009-10 2010-11 Cumulati % age to

(April- (April- ( April- ve total
March) March) Jan.) Inflows Inflows
(April ’00 (In terms
- of US$)
Jan. ‘11)
1. SERVICES SECTOR 28,516 20,776 13,652 118,923 21 %
(financial & non- (6,138) (4,353) (2,987) (26,597)
financial)
2. COMPUTER 7,329 4,351 3,225 47,340 8%
SOFTWARE & (1,677) (919) (708) (10,644)
HARDWARE
3. TELECOMMUNICA 11,727 12,338 6,041 46,746 8%
TIONS (2,558) (2,554) (1,332) (10,262)
(radio paging, cellular
mobile, basic telephone
services)
4. HOUSING & REAL 12,621 13,586 4,791 42,163 7%
ESTATE (2,801) (2,844) (1,048) (9,405)
5. CONSTRUCTION 8,792 13,516 4,540 40,233 7%
ACTIVITIES (2,028) (2,862) (1,006) (9,059)
(including roads &
highways)
6. AUTOMOBILE 5,212 5,754 5,375 26,198 5%
INDUSTRY (1,152) (1,208) (1,191) (5,788)
7. POWER 4,382 6,908 4,711 25,715 4%
(985) (1,437) (1,033) (5,680)
8. METALLURGICAL 4,157 1,935 4,632 18,073 3%
INDUSTRIES (961) (407) (1,011) (4,141)
9. PETROLEUM & 1,931 1,328 2,471 13,585 2%
NATURAL GAS (412) (272) (541) (3,120)
10. CHEMICALS 3,427 1,707 1,739 13,007 2%
(other than fertilizers) (749) (362) (382) (2,876)
12
CHART:2
SERVICE SECTOR
SECTORS ATTRECTING HIGHEST FDI

COM PUTER HARDWARE AND
SOFTWARE
TELECOM M UNICATIONS
21%
HOUSING & REAL ESTATE
33%
CONSTRUCTION
AUTOM OBILE INDUSTRY
POWER SECTOR
8%
M ETALLURGICAL INDUSTRIES
2% 8%
2% PETROLEUM & NATURAL GAS
3% 7%
4%
5% 7%
CHEM ICALS
OTHERS
2.6 BRIEF PROFILE OF IMPORTANT INSTITUTIONS:
A brief profile of important institutions included in the study is given below.
2.6.1 RESERVE BANK OF INDIA:
India's Central Bank - the RBI - was established on 1 April 1935 and was nationalized
on 1 January 1949. Some of its main objectives are regulating the issue of bank notes,
managing India's foreign exchange reserves, operating India's currency and credit
system with a view to securing monetary stability and developing India's financial
structure in line with national socio-economic objectives and policies.
The RBI acts as a banker to Central/State governments, commercial banks, state
cooperative banks and some financial institutions. It formulates and administers
monetary policy with a view to promoting stability of prices while encouraging higher
production through appropriate deployment of credit. The RBI plays an important role
13
in maintaining the exchange value of the Rupee and acts as an agent of the
government in respect of India's membership of IMF. The RBI also performs a variety
of developmental and promotional functions.
The first concern of a central bank is the maintenance of a soundly based commercial
banking structure. While this concern has grown to comprehend the operations of all
financial institutions, including the several groups of non-bank financial
intermediaries, the commercial banks remain the core of the banking system. A
central bank must also cooperate closely with the national government. Indeed, most
governments and central banks have become intimately associated in the formulation
of policy.They are often responsible for formulating and implementing monetary and
credit policies, usually in cooperation with the government. they have been
established specifically to lead or regulate the banking system.
2.6.2 SECURITUIES AND EXCHANGE BOARD OF INDIA:
In 1988 the Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently upgraded
as a fully autonomous body (a statutory Board) in the year 1992 with the passing of
the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In
place of Government Control, a statutory and autonomous regulatory board with
defined responsibilities, to cover both development & regulation of the market, and
independent powers has been set up.
The basic objectives of the Board were identified as:
To protect the interests of investors in securities;
14
To promote the development of Securities Market;
To regulate the securities market and
For matters connected therewith or incidental thereto.
Since its inception SEBI has been working targetting the securities and is attending to
the fulfillment of its objectives with commendable zeal and dexterity. The
improvements in the securities markets like capitalization requirements, margining,
establishment of clearing corporations etc. reduced the risk of credit and also reduced
the market.SEBI has introduced the comprehensive regulatory measures, prescribed
registration norms, the eligibility criteria, the code of obligations and the code of
conduct for different intermediaries like, bankers to issue, merchant bankers, brokers
and subbrokers, registrars, portfolio managers, credit rating agencies, underwriters
and others. It has framed bye-laws, risk identification and risk management systems
for Clearing houses of stock exchanges, surveillance system etc. which has made
dealing in securities both safe and transparent to the end investor.
2.6.3 Bombay Stock Exchange:
the BSE SENSEX is a value-weighted index composed of 30 stocks and was started
on January 1, 1986. The Sensex is regarded as the pulse of the domestic stock markets
in India. It consists of the 30 largest and most actively traded stocks, representative of
various sectors, on the Bombay Stock Exchange. These companies account for around
15
fifty per cent of the market capitalization of the BSE. The base value of the Sensex
is 100 on April 1, 1979, and the base year of BSE-SENSEX is 1978-79 As of 5 April
2011, market capitalisation of Sensex was just under $600 billion.
TABLE:3 The BSE SENSEX consists of the following companies:
1 Bajaj Auto Limited,
2 Bharti Airtel Ltd.,
3 Bharat Heavy Electricals Ltd.,
4 Cipla Ltd.,
5 DLF Ltd.,
6 HDFC,
7 HDFC Bank Ltd.,
8 Hero Honda Motors Ltd.,
9 Hindalco Industries Ltd.,
10 Hindustan Unilever Ltd.,
11 ICICI Bank Ltd.,
12 Infosys Technologies Ltd.,
13 ITC Ltd.,
16
14 Jaiprakash Associates Ltd.,
15 Jindal Steel & Power Ltd.,
16 Larsen & Toubro Ltd.,
17 Mahindra & Mahindra Ltd.,
18 Maruti Suzuki India Ltd.,
19 NTPC Ltd.,
20 ONGC Ltd.,
21 Reliance Industries Ltd.,
22 Reliance Communications Ltd.,
23 Reliance Infrastructure Ltd.,
24 State Bank of India,
25 Sterlite Industries (India) Ltd.,
26 Tata Motors Ltd.,
27 Tata Power Company Ltd.,
28 Tata Steel Ltd.,
29 Tata Consultancy Services Ltd.,
17
30 Wipro Ltd.
At regular intervals, the Bombay Stock Exchange (BSE) authorities review and
modify its composition to be sure it reflects current market conditions. The index is
calculated based on a free float capitalization method; a variation of the market cap
method. Instead of using a company's outstanding shares it uses its float, or shares that
are readily available for trading. The free-float method, therefore, does not include
restricted stocks, such as those held by promoters, government and strategic investors.
Sensex falls
Some major single-day falls of the Sensex have occurred on the following dates
TABLE : 4 BIGGEST STOCK MARKET CRASHES IN INDIA
January 21, 2008 --- 1,408.35 points
Oct 24, 2008---1070.63 points
March 17, 2008 --- 951.03 points
July 6, 2009 --- 870 points
January 22, 2008 --- 857 points
February 11, 2008 --- 833.98 points
May 18, 2006 --- 826 points
October 10, 2008 --- 800.10 points
18
March 13, 2008 --- 770.63 points
December 17, 2007 --- 769.48 points
January 7, 2009 --- 749.05 points
March 31, 2007 --- 726.85 points
October 6, 2008 --- 724.62 points
October 17, 2007 --- 717.43 points
September 15, 2008 --- 710.00 points
January 18, 2007 --- 687.82 points
November 21, 2007 --- 678.18 points
August 16, 2007 --- 642.70 points
August 17, 2009 --- 626.71 points
June 27, 2008 --- 600.00 points
February 24, 2011 --- 545.92 points
November 12, 2010 --- 432 Points
November 16, 2010 --- 444.55 Points
February 04, 2011 --- 441.92 Points
November 19, 2010 --- 345.20 Points
19
CHAPTER 3
LITERATURE REVIEW
Gupta Rajnarayan (March 2010) (5) has studied on reaction of stock market towards
flow of FII and he recognized the fact that the growth of the major share price indices
in India since liberalization is wonder watching. There is a marked disagreement
among economists and business experts on the cause of this surge. Some opine that
the stock market is guided solely by international factors and especially by flows of
foreign Institutional investment. On the other hand, there are people who believe that
the stock market boom reflects strong fundamentals of the economy in addition to
international factors. The present study attempts to identify the key variables -
domestic and international, that affect share prices. Empirical investigation shows,
however, that both domestic and international factors govern the movement of
SENSEX, the most widely referred share price index of the country. The Power of FII
to influence the capital market of the country can‟t be exaggerate but the bourses if
the country are governed by the performance of the country's own economy.
Syed Khaja Safiuddin ( January 2010) (8) has studied on Foreign Direct Investment
Inflows in India-Opportunities and Benefits He found that since the last decade of the
twentieth century, due to liberalization of policies and globalisation, the Foreign
Direct Investment (FDI) inflows are on an increasing trend. Foreign Direct Investment
(FDI) and liberalization/globalisation has been one of the most fascinating and hot
topics among researchers in the field of international trade and commerce. It is an
important form of fast international expansion to increase ownership of assets, drive
location-specific advantages and acquire additional knowledge. FDI in industrial
20
sectors in India has become a point of discussion due to various reasons. Starting
from the service sector, information technology, telecommunication sector,
manufacturing etc there is a continuous fluctuation in FDI inflows over the years.
Earlier FDI was the target for manufacturing industries, automobile industries,
transportation industry etc., but since a couple of years Service Sector has been seen
attracting the highest FDI inflows The present study is conducted to study the Sector-
wise FDI inflows in India and the reasons for industrial sectors attracting the highest
FDI inflows. The study is conducted from 2000-2009.
Faeth Isabel (February 2009) (4) studied on Determinants of Foreign Direct
Investment – A Tale Of Nine Theoritical Models. He reviews nine theoretical models
of foreign direct investment (FDI). Discussed are early studies of determinants of FDI
(1) as well as determinants of FDI based on the neoclassical trade theory (2),
ownership advantages (3), aggregate variables (4), the ownership, location and
internalization advantage framework (5), horizontal and vertical FDI models (6), the
knowledge-capital model (7), diversified FDI and risk diversification models (8) and
policy variables (9). From each of the nine theories, the relevant determinants of FDI
are derived. Empirical studies indicate the importance of these determinants in the
real world. The paper shows that there is not one single theory of FDI, but a variety of
theoretical models attempting to explain FDI and the location decision of
multinational firms. Therefore, any analysis of determinants of FDI should not be
based on a single theoretical model. Instead, FDI should be explained more broadly
by a combination of factors from a variety of theoretical models such as ownership
advantages or agglomeration economics, market size and characteristics, cost factors,
transport costs, protection, risk factors and policy variables.
21
Anokye m. Adam and George Twenboal (2009) (1) has studied on Foreign Direct
Investment and Stock Market Development by Using multivariate cointegration and
error correction model they examines the impact of Foreign Direct Investment (FDI)
on the stock market development in Ghana it indicates that there exists a long-run
relationship between FDI, nominal exchange rate and stock market development in
Ghana. We find that a shock to FDI significantly influence the development of stock
market in Ghana.
Bellak Christian, Leibeecht Markus and Riedle Aleksandra (March 2008) (2) they
analyze the determinants of Foreign Direct Investment (FDI) across selected Central
and Eastern European Countries (CEECs) focusing on labour costs. We propose a
labour cost measure which is relevant for the location decisions of Multinational
Enterprises. A panel-gravity model approach is used to empirically assess the impact
of market-related and cost-related location factors. Our dataset comprises bilateral
net-FDI flows between seven home and eight host countries for the period of 1995–
2003. Results suggest that higher unit labour costs as well as higher total labour costs
affect FDI negatively, whereas higher labour productivity impacts positively on FDI.
Our results support the choice of unit labour costs as the proper measure of labour
costs, not least to avoid an omitted variable bias resulting from the exclusion of labour
productivity. Standardised beta coefficients imply that all cost factors taken together
(distance, taxes, labour costs) exert a considerable influence upon the decision to
invest in the CEECs. In order to compensate for the rising wage costs in many CEECs,
future public policy should contribute to improvements in labour productivity via
investments in production-related infrastructure.
22
Kulwant Rai & N R Bhanumurthy (March 2007) (6) studied on Determinants of
Foreign Institutional Investment in India:The role of Return, Risk and Inflation his
study tries to examine the determinants of Foreign Institutional Investments in India,
which have crossed almost US$ 12 billions by the end of 2002. Given the huge
volume of these flows and its impact on the other domestic financial markets
understanding the behavior of these flows becomes very important at the time of
liberalizing capital account. In this study, by using monthly data, we found that FII
inflow depends on stock market returns, inflation rate (both domestic and foreign) and
ex-ante risk. In terms of magnitude, the impact of stock market returns and the ex-ante
risk turned out to be major determinants of FII inflow. This study did not find any
causation running from FII inflow to stock returns as it was found by some studies.
Stabilizing the stock market volatility and minimizing the ex-ante risk would help in
attracting more FII inflow that has positive impact on the real economy
B. V. Phani , Chinmoy Ghosh and John Harding (August 2004) (3) has done study on
The Effect of Liberalization of Foreign Direct Investment (FDI) Limits on Domestic
Equity Prices: Evidence from the Indian Banking Sector .he concluded that Foreign
Direct investment (FDI) limits were liberalized in India to allow more than fifty-
onepercent ownership of private sector banks in February, 2002. Portfolios of private
sector and government owned banks posted significant and large value gains
surrounding the announcement ,the gains by private sector banks being almost double
that by government banks. The analyses how that the price increase is higher for
smaller banks that have less debt, are less efficient, less productive, and burdened
with non-performing assets. We conclude the evidence is consistent with the
23
hypothesis that the valuation gains reflect the vulnerability to and premium of
potential takeover of the inefficient banks following the liberalization.
Rajesh Chakrabarti (December 2001) (7)has studied on FII Flows to India:Nature and
Causes. He concluded that Since the beginning of liberalisation FII flows to India
have steadily grown in importance. In this paper we analyse these flows and their
relationship with other economic variables and arrive at the following major
conclusions: (a) While the flows are highly correlated with equity returns in India,
they are more likely to be the effect than the cause of these returns; (b) The FIIs do
not seem to be at an informational disadvantage in India compared to the local
investors; (c) The Asian Crisis marked a regime shift in the determinants Of FII
flows to India with the domestic equity returns becoming the sole driver of these
flows since the crisis. Given the thinness of the Indian market and its susceptibility to
manipulations, FII flows can aggravate the equity market bubbles, though they do not
actually start them.
24
CHAPTER 4
RESEARCH METHODOLOGY
4.1 TITLE OF THE STUDY:
“THE IMPACT OF FOREIGN INSTITUTIONAL INVESTMENTS AND
FOREIGN DIRECT INVESTMENT ON EQUITY STOCK MARKET IN INDIA”.
4.2 STATEMENT OF THE PROBLEM:

Stock market, being vital institution, facilities economic development and its
fluctuation influenced by many known and unknown variables so here the attempts
has been made to find the impact of foreign institutional investment and foreign direct
investment on SENSEX
4.3 OBJECTIVES OF THE STUDY:

To study the activities such as investments and sales by the FIIs in the recent
past.
Analyze the trends of Foreign Institutional Inflows.
To Know the flow of FII and FDI in the economy.
Examine whether FIIs and FDI have any influence on Equity Stock Market.
To know the volatility of stocks due to FIIs and FDIs
4.4 Research type:

The research type here is exploratory Research. Data used from various sources.
4.5 REASEARCH DESIGN:
The Research is carried out by taking the data of Sensex ,FII and FDI and the attempts
are made to find out the relationship between stock market i.e. sensex and flow of FII
and FDI in the economy Then if we find that there is relation between movement of
stock market and flow of FII and FDI then attempts are made to find out rational
25
behind it. And afterwards attempts are made to find out the ways to minimise such
effect.
4.6 SOURCES OF DATA COLLECTION:

The main source of obtaining necessary data for the study was Secondary Data. This
study is empirical in nature and hence secondary data is used to conduct the research.
The data was collected from the Internet by exploring the Secondary sources available
on websites.
Secondary Data: The secondary data constitutes of daily FII flows data and FDI data
which was collected from Money Control and Equity Master, and sensex movement
which is collected from BSE web site.
4.7 SAMPLE SIZE:

The sample size is taken only SENSEX that is BSE-30
4.8 HYPOTHESIS:
Null Hypothesis (Ho): There is no influence of FIIs and FDIs on the equity stock
market
Alternative Hypothesis (H1): There is an influence of FIIs and FDIs on
Stock indexes.
26
CHAPTER 5
ANALYSIS AND INTERPRETATION
Portfolio flows – often referred to as “hot money” – are notoriously volatile compared
to other forms of capital flows. Investors are known to pull back portfolio investments
at the slightest hint of trouble in the host country often leading to disastrous
consequences to its economy. They have been blamed for exacerbating small
economic problems in a country by making large and concerted withdrawals at the
first sign of economic weakness.
5.1 TREND ANALYSIS OF FII IN INDIA:

The term "trend analysis" refers to the concept of collecting information and
attempting to spot a pattern, or trend, in the information. Although trend analysis is
often used to predict future events, it could be used to estimate uncertain events in the
past. In statistics, trend analysis often refers to techniques for extracting an
underlying pattern of behavior in a time series which would otherwise be partly or
nearly completely hidden by noise.Trend analysis is done for five years that is 2006,
2007, 2008, 2009, 2010..
27
TABLE:5 TRENDS IN FII INVESTMENT (YEAR: 2006)
Equity (Rs. crores)

Gross Gross Net
Month purchase sales Investment
Jan-06 35206.10 31837.70 3368.10
Feb-06 35603.10 28031.20 7572.20
March-06 53578.70 47046.40 6532.20
Apr-06 37302.88 39645.83 -2342.95
May-06 43817.67 55376.28 -11558.61
Jun-06 37864.81 37073.19 791.62
Jul-06 24188.43 24802.7 -614.17
Aug-06 25413.72 23374.74 2039.18
Sep-06 29856.31 26723.78 3132.53
Oct-06 35041.05 31913.91 3127.14
Nov-06 48988.23 45944.90 3043.33
Dec-06 34057.68 34968.79 -911.11
CHART:3 FII TREND IN 2006
FII trend in 2006
10000
7572.2
6532.2
5000
FII inflow (RS in cr)
3368.1 3132.53 3127.14 2918.75

2039.18
791.62
0
J a n. - Fe b. - M ar . - A pr - 0 6 M a y - 0 6 J un- 0 6 J ul - 0 6 A ug- 0 6 Se p- 0 6 Oc t - 0 6 N ov - 0 6 D e c - 0 6
-614.17
06 06 06 -2342.95 -911.11
-5000
-10000
-11558.6
-15000
Months
In year 2006 we can see mixed trend for first three years it is positive and then sharp
negative trend can be seen because of stock market crash in May 2006, then slow and
steady positive growth can be se
28
TABLE: 6 TRENDS IN FII INVESTMENT (YEAR: 2007)
MONTHS Equity (Rs. crores)

Gross purchase Gross sales Net Investment
Jan-07 45676.03 46109.29
-433.26
Feb-07 46048.78 46311.30
-262.52
March-07 46767.61 47302.23
-534.62
April-07 43,647.59 41,913.05 1734.54
May-07 46,316.28 46,436.25 -119.97
June-07 45,673.87 47,035.12 -1361.25
July-07 69,757.41 61,888.56 7868.85
Aug-07 52,479.43 64,817.90 -12338.5
Sep-07 67,664.52 51,306.56 16357.96
Oct-07 122,384.57 114,368.33 8016.24
Nov-07 83,268.52 96,957.78 -13689.3
Dec-07 71,453.70 78,273.50 -6819.8
CHART:4
FII Trend in 2007

20000 16357.96
15000
FII inflow( RS in cr)
7868.85 8016.24
10000
- 262.52 1734.54
5000
0
J a n- 0 7 F e b- 0 7 M a r- 0 7 A pr- 0 7 M a y- J un- 0 7 J ul- 0 7 A ug- 0 7 S e p- 0 7 O c t - 0 7 N o v- D ec-07
-5000 07
- 12338.5 07
- 433.26 - 119.97
-10000 - 534.62 - 1361.25 - 6819.8
-15000 - 13689.3
-20000
Months
At the begning of year 2007 NET FII is negative because of high selling pressure
due to further crash in stock market in April, Auguest, October, November, December.
29
Gross Net
purchase Gross sales Investment
Jan-08 97,579.50 127,027.01 -29,447.51
Feb-08 64,267.47 68,318.59 -4,051.12
March-08 68,472.59 72,236.39 -3,763.80
April-08 59,546.97 62,083.85 -2,536.88
May-08 58,982.92 65,678.51 -6,695.59
June-08 60,693.06 73,360.22 -12,667.16
July-08 62,050.69 66,654.69 -4,604.00
Aug-08 62,050.69 66,654.69 -4,604.00
Sep-08 65,932.27 78,435.01 -12,502.74
Oct-08 48,413.60 64,067.10 -15,653.50
Nov-08 28,093.92 33,552.88 -5,458.96
Dec-08 29,362.68 28,327.87 1,034.81
CHART:5
FII trend in 2008
5000 1034.81
0
Jan-08 F eb- M ar- A pr-08 M ay- Jun-08 Jul-08 A ug- Sep- Oct-08 N o v- D ec-
-5000 08 08 08 08 08 08 08
-10000 -2536.88 -4604
-4051.12 -3763.8 -12667.2

-15000 -6695.59
-5456.12
-12502.7 -5458.96
-15653.5
-20000
-25000
-30000 -29447.5
-35000
Months
stock market crash in 2007 shows it impact in 2008 and creates high selling pressure
so in 2008 negative trend of FII can be seen.
30
Gross purchase Gross sales Net Investment
Jan-09 28,447.81 33,620.63 -5,172.82
Feb-09 22,066.26 24,899.69 -2,833.43
March-09 31,646.90 32,330.47 -683.57
April-09 38,871.53 33,311.43 5,560.10
May-09 73,016.96 59,130.87 13,886.09
June-09 61,767.47 61,852.61 -85.14
July-09 58,990.29 60,354.89 -1,364.60
Aug-09 45,722.53 49,489.56 -3,767.03
Sep-09 62,872.65 49,541.22 13,331.43
Oct-09 63,964.86 63,964.73 0.13
Nov-09 48,761.93 47,053.86 1,708.07
Dec-09 45,029.99 40,789.13 4,240.86
CHART:6
FII trend in 2009

15000 13886.09 13331.43
10000
5560.1
4240.86
5000
1,708.07
0.13
0
Jan-09 F eb-09 M ar-09 A pr-09 M ay-09 Jun-09 Jul-09 A ug-09 Sep-09 Oct-09 N o v-09 D ec-09
-5000 -1364.6
-2833.43 -683.57 -85.14
-5172.82 -3767.03
-10000
Months
After the negative flow of FII in last 2 years in year 2009 positive flow of FII can be
seen . however in first three months selling by FII is continue.
31
Gross Net
purchase Gross sales Investment
Jan-10 56,109.18 63,325.85 -7,216.67
Feb-10 39,001.43 40,944.90 -1,943.47
March-10 59,692.57 44,900.24 14,792.33
April-10 55,061.05 52,393.68 2,667.37
May-10 49,588.04 61,659.16 -12,071.12
June-10 51,878.01 44,164.06 7,713.95
July-10 52,571.21 44,030.15 8,541.06
Aug-10 56,120.24 48,582.94 7,537.30
Sep-10 74,920.16 52,444.52 22,475.64
Oct-10 77,706.10 63,318.04 14,388.06
Nov-10 79,726.26 74,375.39 5,350.87
Dec-10 52,683.49 53,405.68 -722.19
CHART:7
FII trend in 2010
25,000.00 22,475.64
20,000.00
14,792.33 14,388.06
15,000.00
7713.95 8,541.06 7,537.30
10,000.00 5,350.87
2667.73
5,000.00
0.00
Jan-10 F eb-10 M ar-10 A pr-10 M ay-10 Jun-10 Jul-10 A ug-10 Sep-10 Oct-10 N o v-10 D ec-10
-5,000.00
-1,943.47 -722.19
-10,000.00 -7,216.67
-12,071.12
-15,000.00
Months
In year 2010 positive flow can be seen but at the slow and steady rate.
32
5.2 TREND ANALYSIS OF FDI IN INDIA:
TABLE: 10 TRENDS IN FDI IN INDIA IN 2006:
Foreign Direct
Investment
Months ( Rs in CR.)
Jan.-06 2141
Feb.-06 563
Mar.-06 5515
Apr-06 2,972
May-06 2,443
Jun-06 2,405
Jul-06 5,235
Aug-06 2,878
Sep-06 4,222
Oct-06 7,718
Nov-06 5,157
Dec-06 9,108
CHART:8
Foreign Direct Investment
10000
9,108
9000
7,718
8000
7000
6000 5515
5,235
FDI (RS in cr)
5,157
5000 FDI
4,222
4000
2,878
2,972
3000 2,443 2,405
2141
2000
1000 563
0
Jan.-06 Feb.-06 Mar.-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
MONTHS
In the year 2006 FDI increases every month and reaches up to 9,108cr. Which is the
significant high in the year.
33
Foreign Direct
Investment
Months ( Rs in cr)
Jan-07 8,515
Feb-07 3,081
Mar-07 16,896
Apr-07 6,928
May-07 8,642
Jun-07 5,048
Jul-07 2,849
Aug-07 3,394
Sep-07 2,876
Oct-07 8,008
Nov-07 7,353
Dec-07 6,146
CHART:9
18,000 16,896
16,000
14,000
FDI (Rs in cr)
12,000
10,000 8,515 8,642 8,008 7,353
6,928 FDI
8,000 6,146
6,000 3,081 5,048
2,8493,394 2,876
4,000
2,000
0
Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
07 07 07 07 07 07 07 07 07 07 07 07
Months
In the year 2007 FDI is highest in the month of March that is 16,806 cr. And lowest in
the month of July that is 2,849 cr.
34
Foreign
Direct
Investment
MONTHS (Rs in cr)
Jan-08 6,960
Feb-08 22,529
Mar-08 17,932
Apr-08 15,005
May-08 16,563
Jun-08 10,244
Jul-08 9,627
Aug-08 9,995
Sep-08 11,676
Oct-08 7,284
Nov-08 5,305
Dec-08 6,626
CHART:10
25,000 22,529
FDI inflw ( rs in cr)
20,000 17,932 16,563

15,005
15,000
10,244 11,676
9,627 9,995 FDI
10,000 6,960 7,284 6,626
5,305
5,000
0
Jan- Feb- Mar- Apr- May- Jun- Jul-08 Aug- Sep- Oct- Nov- Dec-
08 08 08 08 08 08 08 08 08 08 08
Months
In 2008 all the months FDI is significantly high it reaches to 22,520 cr in the month
of February.
35
Foreign Direct
Investment
Months (Rs in cr)
Jan-09 13,346
Feb-09 7,329
Mar-09 10,023
Apr-09 11,708
May-09 10,168
Jun-09 12,335
Jul-09 17,045
Aug-09 15,796
Sep-09 7,326
Oct-09 10,895
Nov-09 8,081
Dec-09 7,185
CHART:11
18,000 17,045
15,796
16,000
FDI inflow (Rs in cr)
13,346
14,000 11,708 12,335
10,895
12,000 10,023 10,168
10,000 7,326 8,081
7,329 7,185 FDI
8,000
6,000
4,000
2,000
0
09 09 09 09 09 09 09 09 09 09 09
Months
in year 2009 average FDI flow is increased it is incresing in each and every months.
36
Foreign Direct
Investment
Months (Rs in cr)
Jan-10 9,386
Feb-10 7,955
Mar-10 5,497
Apr-10 9,697
May-10 10,135
Jun-10 6,429
Jul-10 8,359
Aug-10 6,196
Sep-10 9,754
Oct-10 6,185
Nov-10 7,328
Dec-10 9,094
CHART:12
12,000
9,697 10,135 9,754
9,386 9,094
FDI inflow( rs in cr)
10,000
7,955 8,359 7,328
8,000 6,429 6,196 6,185
5,497
6,000 FDI
4,000
2,000
0
10 10 10 10 10 10 10 10 10 10 10
Months
In the year 2010 it can be seen that FDI is incresing at very fast rate in every months .
Which is the positive sign for the development of the economy.
37
5.3 RELATIONSHIP BETWEEN FII AND SENSEX:
TABLE:15 FII AND SENSEX IN 2006

FII Net % change in
Months inflow % Change in FII SENSEX SENSEX
Jan.-06 3368.1 - 9919.89 -
Feb.-06 7572.2 124.8211158 10370.24 4.53986889
Mar.-06 6532.2 -13.7344497 11279.96 8.772410282
Apr-06 -2342.95 -135.8677015 12,042.56 6.760662272
May-06 -11558.6 393.3353251 10,398.61 -13.65116719
Jun-06 791.62 -106.8487533 10,609.25 2.025655352
Jul-06 -614.17 -177.5839418 10,743.88 1.268986969
Aug-06 2039.18 -432.0220786 11,699.05 8.89036363
Sep-06 3132.53 53.61714022 12,454.42 6.456678106
Oct-06 3127.14 -0.172065391 12,961.90 4.074697979
Nov-06 2918.75 -6.66391655 13,696.31 5.665913176
Dec-06 -911.11 -131.2157602 13,786.91 0.661492037
CHART:13
FII and SENSEX in 2006
16000 10000
14000
5000
12000
FII net inflow
10000
SENSEX
0
8000
6000 -5000
4000
-10000
2000
0 -15000
Jan.- Feb.- Mar.- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov-
06 06 06 06 06 06 06 06 06 06 06 SENSEX
MONTHS FII NET INFLOW
38
Model R R Square
1 .663 .439
Co-relation (R) :
Co-relation is a measurement of the degree of relatedness of variables. Here, R is
0.663 which shows positive relationship between FII Flow and SENSEX movements .
Co-efficient of determination (R2)
Co-efficient of determination is the proportion of variability of the dependent variable
(SENSEX) accounted for or explained by independent variable (FII). If R2 is 1 than it
shows that variability of dependent variable (SENSEX) is accounted for by
independent variable (FII). Here R2 is 0.439 so, it shows that in the changes in
SENSEX movement 43.9% change is due to FII changes.
SLOP of regression:
Here slop of regression is 0.020 which shows that for every unit increase/decrease in
FII there is 0.020 unit of increase/decrease in sensex.
F test :
H0 : There is no any significant impact of flow of FII on movement of SENSEX.
H1 : there is significant impact of flow of FII on movement of SENSEX.
F calculated = 7.053
F tabular = 0.26
39
Fcal > Ftab
So, we reject our Ho that There is no any significant impact of flow of FII on
movement of SENSEX and hence we accept that there is significant impact of flow of
FII on movement of SENSEX.
% Change in % change in
Months FII Net inflow FII SENSEX SENSEX
Jan-07 -433.26 -52.44701518 14,090.92 2.205062628
Feb-07 -262.52 -39.40820754 12,938.09 -8.18136786
Mar-07 -534.62 103.6492458 13,072.10 1.035778851
Apr-07 1734.54 -424.44353 13,872.37 6.121969691
May-07 -119.97 -106.9165312 14,544.46 4.844810223
Jun-07 -1361.25 1034.658665 14,650.51 0.729143605
Jul-07 7868.85 -678.0606061 15,550.99 6.14640719
Aug-07 -12338.5 -256.8018198 15,318.60 -1.494374313
Sep-07 16357.96 -232.5765693 17,291.10 12.87650307
Oct-07 8016.24 -50.99486733 19,837.99 14.72948511
Nov-07 -13689.3 -270.7695877 19,363.19 -2.393387637
Dec-07 -6819.8 -50.18152864 20,286.99 4.770908099
40
CHART:14
25,000.00 20000
15000
20,000.00 10000
FII net inflow

SENSEX
15,000.00 5000
0
10,000.00 -5000
5,000.00 -10000
-15000
0.00 -20000
07 07 07 07 07 07 07 07 07 07 07 07
MONTHS SENSEX
FII NET INFLOW
Model Summary
Model R R Square
1 .197 .039
Co-relation (R)
but as it is near to 0 we can say not so strong relationship.
41
SLOP of regression
F test :
F tabular = 0.539
Fcal < Ftab
So, we accept our Ho that There is no any significant impact of flow of FII on
movement of SENSEX

% change in % change in
Months FII net inflow FII SENSEX SENSEX
Jan-08 -29447.5 331.7941875 17,648.71 -13.0047878
Feb-08 -4051.12 -86.24290687 17,578.72 -0.396572894
Mar-08 -3763.8 -7.092359644 15,644.44 -11.00353154
Apr-08 -2536.88 -32.59790637 17,287.31 10.5013027
May-08 -6695.59 163.9301031 16,415.57 -5.042658459
Jun-08 -12667.2 89.18721128 13,461.60 -17.99492799
Jul-08 -4604 -63.65416193 14,355.75 6.642226778
Aug-08 -5456.12 18.50825369 14,564.53 1.454330146
Sep-08 -12502.7 129.1500187 12,860.43 -11.70034323
Oct-08 -15653.5 25.20095659 9,788.06 -23.89010321
Nov-08 -5458.96 -65.12626569 9,092.72 -7.103961357
Dec-08 1034.81 -118.9561748 9,647.31 6.099275024
42
CHART:15
20,000.00 5000
0
15,000.00 -5000
FII net inflow

SENSEX
-10000
10,000.00 -15000
-20000
5,000.00 -25000
-30000
0.00 -35000
08 08 08 08 08 08 08 08 08 08 08 08 SENSEX
MONTHS FII net inflow
Model Summary
Model R R Square
1 .512 .262
Co-relation (R) :
Co-efficient of determination (R2) :
43
SLOP of regression
Here slop of regression is -0.42 which shows that for every unit increase/decrease in
FII there is -0.42 unit of increase/decrease in sensex.
F test :
F tabular = 0.089
Fcal > Ftab
So, we Reject our Ho that There is no any significant impact of flow of FII on
movement of SENSEX and hence we accept that there is significant impact of flow of
FII on movement of SENSEX

% change in
Months FII net inflow % change in FII SENSEX SENSEX
Jan-09 -5172.82 -599.8811376 9,424.24 -2.312250772
Feb-09 -2833.43 -45.22465502 8,891.61 -5.651702418
Mar-09 -683.57 -75.87482309 9,708.50 9.187200068
Apr-09 5560.1 -913.3914595 11,403.25 17.45635268
May-09 13886.09 149.7453283 14,625.25 28.25510271
Jun-09 -85.14 -100.6131316 14,493.84 -0.898514555
Jul-09 -1364.6 1502.771905 15,670.31 8.117034547
Aug-09 -3767.03 176.0537887 15,666.64 -0.023420085
Sep-09 13331.43 -453.8976329 17,126.84 9.320441396
Oct-09 0.13 -99.99902486 15,896.28 -7.184979833
Nov-09 1,708.07 1313800 16,926.22 6.479125934
Dec-09 4240.86 148.2837354 17,464.81 3.181986291
44
CHART:16
20,000.00 15000
10000
FII net inflow

15,000.00
SENSEX
5000
10,000.00
0
5,000.00
-5000
0.00 -10000
09 09 09 09 09 09 09 09 09 09 09 09
SENSEX
MONTHS
Fii net inflow
Model Summary
Model R R Square
1 .031 .001
Co-relation (R) :
Co-efficient of determination (R2):
45
SLOP of regression:
F test :
F tabular = 0.924
Fcal < Ftab
movement of SENSEX .
FII net % change in

Months inflow % change in FII SENSEX SENSEX
Jan-10 -7,216.67 -270.1699655 16,357.96 -6.337601153
Feb-10 -1,943.47 -73.06971221 16,429.55 0.437646259
Mar-10 14,792.33 -861.1298348 17,527.77 6.684419232
Apr-10 2667.73 -81.96545101 17,558.71 0.176519888
May-10 -12,071.12 -552.486571 16,944.63 -3.497295644
Jun-10 7713.95 -163.9041779 17,700.90 4.463183911
Jul-10 8,541.06 10.72226291 17,868.29 0.94565813
Aug-10 7,537.30 -11.75217128 17,971.12 0.575488757
Sep-10 22,475.64 198.1921908 20,069.12 11.6742863
Oct-10 14,388.06 -35.98375842 20,032.34 -0.183266631
Nov-10 5,350.87 -62.81034413 19,521.25 -2.551324508
Dec-10 -722.19 -113.4966837 20,509.09 5.06033169
46
CHART:17
25,000.00 25,000.00
20,000.00
20,000.00
15,000.00
FII net inflow

SENSEX
15,000.00 10,000.00
5,000.00
10,000.00 0.00
-5,000.00
5,000.00
-10,000.00
0.00 -15,000.00
10 10 10 10 10 10 10 10 10 10 10 10
SENSEX
MONTHS
Fii net inflow
Model Summary
Model R R Square
1 .129 .017
Co-relation (R)
47
SLOP of regression
F test :
F tabular = 0.924
Fcal < Ftab
movement of SENSEX
5.4 RELATIONSHIP BETWEEN FDI AND SENSEX:
TABLE:20 FDI AND SENSEX IN 2006
% CHANGE % CHANGE
MONTHS FDI IN FDI Sensex IN SENSEX
jan.-06 2141 9919.89 -
Feb.-06 563 -73.70387669 10370.24 4.53986889
Mar.-06 5515 879.5737123 11279.96 8.772410282
Apr-06 2,972 -46.11060743 12,042.56 6.760662272
May-06 2,443 -17.79946164 10,398.61 -13.65116719
Jun-06 2,405 -1.555464593 10,609.25 2.025655352
Jul-06 5,235 117.6715177 10,743.88 1.268986969
Aug-06 2,878 -45.02387775 11,699.05 8.89036363
Sep-06 4,222 46.69909659 12,454.42 6.456678106
Oct-06 7,718 82.80435812 12,961.90 4.074697979
Nov-06 5,157 -33.18217155 13,696.31 5.665913176
Dec-06 9,108 76.61431065 13,786.91 0.661492037
48
CHART:18
FDI AND SENSEX in 2006
16000 10000
14000 9000
8000
12000
7000
FDI Inflow
SENSEX
10000 6000
8000 5000
6000 4000
3000
4000
2000
2000 1000
0 0
jan.- Feb.- Mar.- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
06 06 06 06 06 06 06 06 06 06 06 06
SENSEX
MONTH
FDI inflow
Model Summary
Model R R Square
1 .260 .068
Co-relation (R)
0.260 which shows positive relationship between FDI investment and SENSEX
movements . but as it is near to 0 we can say not so strong relationship.
(SENSEX) accounted for or explained by independent variable (FDI). If R2 is 1 than
it shows that variability of dependent variable (SENSEX) is accounted for by
independent variable (FDI). Here R2 is 0.068 so, it shows that in the changes in
SENSEX movement 0.68% change is due to FDI changes.
49
SLOP of regression
FDI there is 0.006 unit of increase/decrease in sensex.
F test :
H0 : There is no any significant impact of flow of FDI on movement of SENSEX.
H1 : there is significant impact of flow of FDI on movement of SENSEX.
F tabular = 0.440
Fcal > Ftab
So, we Reject our Ho that There is no any significant impact of flow of FDI on
movement of SENSEX and accept that there is significant impact of flow of FDI on
movement of SENSEX
FDI inflow % change in FDI % change in

MONTS inflow SENSEX SENSEX
Jan-07 8,515 -6.510759772 14,090.92 2.205062628
Feb-07 3,081 -63.81679389 12,938.09 -8.18136786
Mar-07 16,896 448.3933788 13,072.10 1.035778851
Apr-07 6,928 -58.99621212 13,872.37 6.121969691
May-07 8,642 24.74018476 14,544.46 4.844810223
Jun-07 5,048 -41.58759546 14,650.51 0.729143605
Jul-07 2,849 -43.56180666 15,550.99 6.14640719
Aug-07 3,394 19.12951913 15,318.60 -1.494374313
Sep-07 2,876 -15.26222746 17,291.10 12.87650307
Oct-07 8,008 178.4422809 19,837.99 14.72948511
Nov-07 7,353 -8.179320679 19,363.19 -2.393387637
Dec-07 6,146 -16.41506868 20,286.99 4.770908099
50
CHART:19
FDI AND SENSEX IN 2007
25,000.00 18,000
16,000
20,000.00 14,000
FDI Inflow
SENSEX
12,000
15,000.00
10,000
8,000
10,000.00
6,000
5,000.00 4,000
2,000
0.00 0
Jan- Feb- Mar- Apr- M Jun- Jul- A Sep- Oct- Nov- Dec-
07 07 07 07 ay- 07 07 ug- 07 07 07 07
07 07
SENSEX
MONTH
FDI Inflow
Model Summary
Model R R Square
1 .133 .018
Co-relation (R)
SENSEX movement 0.1% change is due to FDI changes.
51
SLOP of regression
F test :
F tabular = 0.681
Fcal < Ftab
So, we accept our Ho that There is no any significant impact of flow of FDI on
movement of SENSEX

6,960
Jan-08 13.24438659 17,648.71 -13.0047878
22,529
Feb-08 223.6925287 17,578.72 -0.396572894
17,932
Mar-08 -20.40481158 15,644.44 -11.00353154
15,005
Apr-08 -16.32277493 17,287.31 10.5013027
16,563
May-08 10.3832056 16,415.57 -5.042658459
10,244
Jun-08 -38.15130109 13,461.60 -17.99492799
9,627
Jul-08 -6.023037876 14,355.75 6.642226778
9,995
Aug-08 3.822582321 14,564.53 1.454330146
11,676
Sep-08 16.8184092 12,860.43 -11.70034323
7,284
Oct-08 -37.61562179 9,788.06 -23.89010321
5,305
Nov-08 -27.16913784 9,092.72 -7.103961357
6,626
Dec-08 24.90103676 9,647.31 6.099275024
52
CHART:20
20,000.00 25,000
18,000.00
16,000.00 20,000
14,000.00
SENSEX
FDI Inflow
12,000.00 15,000
10,000.00
8,000.00 10,000
6,000.00
4,000.00 5,000
2,000.00
0.00 0
08 08 08 08 08 08 08 08 08 08 08 08
SENSEX
MONTH FDI Inflow
Model Summary
Model R R Square
1 .275 .076
Co-relation (R)
Co-efficient of determination (R2).
SENSEX movement 7.6 % change is due to FDI changes.
53
SLOP of regression
F test :
F tabular = 0.387
Fcal > Ftab
So, we Regect our Ho that There is no any significant impact of flow of FDI on
movement of SENSE and hence we accept that there is significant impact of flow of
FDI on movement of SENSEX

13,346
Jan-09 101.4186538 9,424.24 -2.312250772
7,329
Feb-09 -45.08466956 8,891.61 -5.651702418
10,023
Mar-09 36.75808432 9,708.50 9.187200068
11,708
Apr-09 16.81133393 11,403.25 17.45635268
10,168
May-09 -13.15339939 14,625.25 28.25510271
12,335
Jun-09 21.31195909 14,493.84 -0.898514555
17,045
Jul-09 38.18402919 15,670.31 8.117034547
15,796
Aug-09 -7.327662071 15,666.64 -0.023420085
7,326
Sep-09 -53.62116992 17,126.84 9.320441396
10,895
Oct-09 48.71689872 15,896.28 -7.184979833
8,081
Nov-09 -25.82836163 16,926.22 6.479125934
7,185
Dec-09 -11.08773667 17,464.81 3.181986291
54
CHART:21
20,000.00 20,000
SENSEX
15,000.00 15,000
FDI Inflow
10,000.00 10,000
5,000.00 5,000
0.00 0
Jan- Feb- Mar- Apr- M Jun- Jul- A S Oct- N D
09 09 09 09 ay- 09 09 ug- ep- 09 ov- ec-
09 09 09 09 09 SENSEX
FDI Inflow
MONTHS
Model Summary
Model R R Square
1 .220 .048
Co-relation (R)
55
SLOP of regression
Here slop of regression is - 0.051 which shows that for every unit increase/decrease in
F test :
F tabular = 0.493
Fcal > Ftab
So, we Regect our Ho that There is no any significant impact of flow of FDI on
movement of SENSE and hence we accept that there is significant impact of flow of
FDI on movement of SENSEX.
56
FDI inflow % change in % change in

MONTS FDI inflow SENSEX SENSEX
Jan-10 9,386 30.63326374 16,357.96 -6.337601153
Feb-10 7,955 -15.24611123 16,429.55 0.437646259
Mar-10 5,497 -30.89880578 17,527.77 6.684419232
Apr-10 9,697 76.40531199 17,558.71 0.176519888
May-10 10,135 4.516860885 16,944.63 -3.497295644
Jun-10 6,429 -36.56635422 17,700.90 4.463183911
Jul-10 8,359 30.02022087 17,868.29 0.94565813
Aug-10 6,196 -25.87630099 17,971.12 0.575488757
Sep-10 9,754 57.42414461 20,069.12 11.6742863
Oct-10 6,185 -36.59011688 20,032.34 -0.183266631
Nov-10 7,328 18.48019402 19,521.25 -2.551324508
Dec-10 9,094 24.09934498 20,509.09 5.06033169
CHART:22

25,000.00 12,000
20,000.00 10,000
FDI Infow
SENSEX
15,000.00 8,000
6,000
10,000.00
4,000
5,000.00 2,000
0.00 0
Jan- Feb- Mar- Apr- M Jun- Jul- A S Oct- N D
10 10 10 10 ay- 10 10 ug- ep- 10 ov- ec-
10 10 10 10 10
SENSEX
MONTHS FDI INFLOW
Model Summary
Model R R Square
1 .026 .001
57
Co-relation (R)
SLOP of regression
F test :
F tabular = 0.936
Fcal < Ftab
So, we accept our Ho that There is no any significant impact of flow of FDI on
movement of SENSEX
58
CHAPTER 6
FINDINGS & SUGGESTIONS:
6.1 FINDINGS
It is an accepted fact now that FIIs have significant influence on the movements of the
stock market indexes in India. If one looks at the total FII trade in equity in India and
its relationship with the stock market major indexes like Sensex it shows a steadily
growing influence of FIIs in the domestic stock market.
In the Indian stock markets FIIs have a disproportionately high level of influence on
the market sentiments and price trends. This is so because other market participants
perceive the FIIs to be infallible in their assessment of the market and tend to follow
the decisions taken by FIIs. This „herd instinct‟ displayed by other market participants
amplifies the importance of FIIs in the domestic stock market in India.
The findings of this study also indicate that Foreign Institutional Investors have
emerged as the most dominant investor group in the domestic stock market in India.
Particularly, in the companies that constitute the Bombay Stock Market Sensitivity
Index (Sensex).
Since FIIs are dominating the Indian Market, individual investors are forced to accept
the dictates of major FIIs and hence join the group by entering the Mutual Fund group.
Many Mutual Funds floated specific funds for the sectors favored by the FIIs. An
implication of MFs gaining strength in the Indian stock market could be that unlike
individual investors, whose monies they manage, MFs can create market trends
whereas the small individual investors can only follow the trends. The situation
becomes quite difficult if the funds gain a vested interest in certain sectors by floating
sector specific funds. One can even venture to say that the behavior of MFs in India
59
has turned the very logic that mutual funds invest wisely on the basis of well-
researched strategies and individual investors do not have the time and resources to
study and monitor corporate performance, upside
down. Thus, the entry of FIIs has not resulted in greater depth in Indian stock
market; instead it led to focussing on only a few sectors. Ultimately to provide a
level playing field, even the domestic investors had to be offered lower rates of
capital gains tax.
While it can be expected that foreign affiliated mutual funds would follow the
investment pattern of FIIs, it is important to note that many domestic ones also
Followed FIIs. The sectors favored by FIIs account for a substantial portion of the
net assets under control of many Mutual Funds. The Mutual funds are gaining
prominence in the Indian Stock market and that the share of foreign affiliated MFs is
growing, a number of Indian funds are following the investment strategies of
the foreign ones.
On the other hand if FII investments constitute a large share of the equity capital
of a financial entity, an FII pullout, even if driven by development outside the
country can have significant implications for the financial health of what is an
important institution in the financial sector of this country.
Similarly, if any set of developments encourages an unusually high outflow of FII
capital from the market, it can impact adversely on the value of the rupee and set
of speculation in the currency that can in special circumstances result in a currency
crisis. There are now too many instances of such effects worldwide for it be dismissed
on the ground that India's reserves are adequate to manage the situation.
60
6.2 SUGGESTIONS
Some of the steps that can be taken to help influence the choices made by foreign
institutional investors include:
1) The Government should cut its fiscal deficits, which would result in strengthening
the economy as a whole.
2) Creating infrastructure and other facilities to attract foreign investment. As
described earlier, an array of services can help promote foreign institutional
investment in India.
3) The ability of governments to prevent or reduce financial crises also has a great
impact on the growth of capital flows. Steps to address these crises include
strengthening banking supervision, requiring more transparency in international
financial transactions and ensuring adequate supervision and regulation of financial
markets.
4) An attempt should be made to bring down the inflation level to attract more foreign
institutional investments into India.
5 The Banking system needs to be strengthened which could be achieved by reducing
the number of Non Performing Assets.
6) The fact is that developing country like India has its own compulsions arising out
of the very state of their social, political and economic development. To attract
portfolio investments and retain their confidence, the host countries have to follow
stable macro-economic policies,
7) The provision for clear procedures must be followed in the event of disputes
between investors and host governments, to ensure that rules are adhered to and that
arbitration may be established by mutual consent.
61
6.3 LIMITATION OF THE STUDY:
The selected sample size is only from BSE 30.
The time duration of the research is short that‟s why the information is not covered
fully.
The study is general.
It is mainly based on the data available in various websites &other secondary sources.
The inference made is purely from the past year‟s performance.
Sufficient time is not available to conduct an in-depth study.
6.4 SCOP OF THE FUTURE STUDY:
Research work can be done by taking data of more than 5 years to provide better
result .
The resarch can be done on the movement of other stock indices like nifty-50, nifty
junior etc.
Different tools and techniques can be used to analyse the data of FII and FDI and its
effect on the stock market.
62
REFERENCES:
1) Anokye m. Adam and George Twenboal ; Foreign Direct Investment And Stock
Market Development ; Internationl Research journal of finance and economics.
2) Bellak Christian, Leibeecht Markus and Riedle Aleksandra ; determinants of

Foreign Direct Investment (FDI) ; Structural change and economic dynamics; vol.19
3) B. V. Phani , Chinmoy Ghosh and John Harding ; The Effect of Liberalization of

Foreign Direct Investment (FDI) Limits on Domestic Equity Prices ; Journal of
international economics; vol 51
4) Faeth Isabel; Determinants of Foreign Direct Investment – A Tale Of Nine

Theoritical Model; journal of economic survey; Vol 23
5) Gupta Rajnarayan ; Reaction of stock market towards flow of FII ; Finance India;
Vol.24
6) Kulwant Rai & N R Bhanumurthy ; Determinants of Foreign Institutional

Investment ; Atlantic Economic Journal; Vol. 33
7) Rajesh Chakrabarti ; FII Flows to India:Nature and Causes.;Money and finance ;

vol 2.
8) Syed Khaja Safiuddin ; Foreign Direct Investment Inflows in India ; Journal Of

Economic Surveys; Vol.23
9) http://www.indiainfoline.com/MarketStatistics/FII-Activity
10) http://dipp.nic.in/fdi_statistics/india_fdi_dec_2006.pdf
11) http://www.bseindia.com
63
ANNEXTURE:
Sensex data
Price/ Price/ Dividend

Month Open High Low Close
Earnings Bookvalue Yield
Jan 06 9,422.49 9,945.19 9,158.44 9,919.89 18.60 4.48 1.44
Feb 06 9,959.24 10,422.65 9,713.51 10,370.24 18.64 4.56 1.39
Mar 06 10,368.75 11,356.95 10,344.26 11,279.96 20.05 4.92 1.29
Apr 06 11,342.96 12,102.00 11,008.43 12,042.56 21.35 5.29 1.20
May 06 12,103.78 12,671.11 9,826.91 10,398.61 20.41 5.17 1.27
Jun 06 10,472.46 10,626.84 8,799.01 10,609.25 17.90 4.26 1.51
Jul 06 10,616.97 10,940.45 9,875.35 10,743.88 19.02 4.36 1.47
Aug 06 10,737.50 11,794.43 10,645.99 11,699.05 19.60 4.53 1.39
Sep 06 11,699.57 12,485.17 11,444.18 12,454.42 20.73 4.62 1.34
Oct 06 12,473.79 13,075.85 12,178.83 12,961.90 21.56 4.74 1.34
Nov 06 12,992.62 13,799.08 12,937.30 13,696.31 22.07 5.05 1.25
Dec 06 13,729.67 14,035.30 12,801.65 13,786.91 22.51 5.15 1.23
Jan 07 13,827.77 14,325.92 13,303.22 14,090.92 22.73 5.30 1.19
Feb 07 14,124.36 14,723.88 12,800.91 12,938.09 21.56 5.38 1.18
Mar 07 13,013.74 13,386.95 12,316.10 13,072.10 19.84 4.95 1.28
Apr 07 12,811.93 14,383.72 12,425.52 13,872.37 20.75 5.13 1.21
May 07 13,987.77 14,576.37 13,554.34 14,544.46 20.84 4.95 1.15
Jun 07 14,610.28 14,683.36 13,946.99 14,650.51 20.67 4.78 1.15
Jul 07 14,685.16 15,868.85 14,638.88 15,550.99 21.78 4.98 1.07
Aug 07 15,344.02 15,542.40 13,779.88 15,318.60 19.99 4.80 1.14
Sep 07 15,401.99 17,361.47 15,323.05 17,291.10 21.69 5.16 1.11
Oct 07 17,356.99 20,238.16 17,144.58 19,837.99 24.86 5.89 0.97
Nov 07 20,130.23 20,204.21 18,182.83 19,363.19 25.44 6.13 0.90
Dec 07 19,547.09 20,498.11 18,886.40 20,286.99 26.94 6.54 0.85
64
Jan 08 20,325.27 21,206.77 15,332.42 17,648.71 25.53 6.35 0.88
Feb 08 17,820.67 18,895.34 16,457.74 17,578.72 22.23 5.71 0.97
Mar 08 17,227.56 17,227.56 14,677.24 15,644.44 20.18 5.19 1.07
Apr 08 15,771.72 17,480.74 15,297.96 17,287.31 20.71 5.22 1.03
May 08 17,560.15 17,735.70 16,196.02 16,415.57 20.66 4.82 1.01
Jun 08 16,591.46 16,632.72 13,405.54 13,461.60 18.22 4.09 1.14
Jul 08 13,480.02 15,130.09 12,514.02 14,355.75 17.06 3.59 1.36
Aug 08 14,064.26 15,579.78 14,002.43 14,564.53 18.25 3.81 1.26
Sep 08 14,412.99 15,107.01 12,153.55 12,860.43 17.36 3.62 1.33
Oct 08 13,006.72 13,203.86 7,697.39 9,788.06 13.19 2.76 1.76
Nov 08 10,209.37 10,945.41 8,316.39 9,092.72 11.88 2.48 1.92
Dec 08 9,162.94 10,188.54 8,467.43 9,647.31 12.16 2.54 1.87
Jan 09 9,720.55 10,469.72 8,631.60 9,424.24 12.21 2.53 1.88
Feb 09 9,340.37 9,724.87 8,619.22 8,891.61 12.82 2.50 1.89
Mar 09 8,762.88 10,127.09 8,047.17 9,708.50 12.68 2.47 1.92
Apr 09 9,745.77 11,492.10 9,546.29 11,403.25 15.23 2.95 1.68
May 09 11,635.24 14,930.54 11,621.30 14,625.25 17.88 3.35 1.47
Jun 09 14,746.51 15,600.30 14,016.95 14,493.84 19.75 3.64 1.30
Jul 09 14,506.43 15,732.81 13,219.99 15,670.31 19.10 3.53 1.32
Aug 09 15,694.78 16,002.46 14,684.45 15,666.64 20.08 3.73 1.24
Sep 09 15,691.27 17,142.52 15,356.72 17,126.84 21.20 3.95 1.17
Oct 09 17,186.20 17,493.17 15,805.20 15,896.28 21.66 4.06 1.14
Nov 09 15,838.63 17,290.48 15,330.56 16,926.22 21.23 3.99 1.15
Dec 09 16,947.46 17,530.94 16,577.78 17,464.81 21.82 4.10 1.12
Jan 10 17,473.45 17,790.33 15,982.08 16,357.96 21.99 4.11 1.10
Feb 10 16,339.32 16,669.25 15,651.99 16,429.55 19.97 3.65 1.18
Mar 10 16,438.45 17,793.01 16,438.45 17,527.77 21.05 3.85 1.12
Apr 10 17,555.04 18,047.86 17,276.80 17,558.71 21.28 3.88 1.10
May 10 17,536.86 17,536.86 15,960.15 16,944.63 19.96 3.56 1.15
Jun 10 16,942.82 17,919.62 16,318.39 17,700.90 20.57 3.34 1.18
Jul 10 17,679.34 18,237.56 17,395.58 17,868.29 21.20 3.40 1.17
Aug 10 17,911.31 18,475.27 17,819.99 17,971.12 21.61 3.45 1.15
Sep 10 18,027.12 20,267.98 18,027.12 20,069.12 22.99 3.66 1.09
Oct 10 20,094.10 20,854.55 19,768.96 20,032.34 23.89 3.82 1.04
Nov 10 20,272.49 21,108.64 18,954.82 19,521.25 23.03 3.71 1.06
65
Dec 10 19,529.99 20,552.03 19,074.57 20,509.09 22.93 3.73 1.05
Jan 11 20,621.61 20,664.80 18,038.48 18,327.76 22.00 3.62 1.08
Feb 11 18,425.18 18,690.97 17,295.62 17,823.40 19.67 3.40 1.16
Mar 11 17,982.28 19,575.16 17,792.17 19,445.22 20.04 3.46 1.13
Apr 11 19,463.11 19,562.55 19,382.35 19,420.39 21.12 3.65 1.07
66

Impact of FII and FDI On Indian Stock Market: A Project Report

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Impact of FII and FDI On Indian Stock Market: A Project Report

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A project Report

UNDER THE GUIDENCE OF

ACADEMIC YEAR: 2009-2011

We KOMAL H. VASANI & ANKITA B. KHAKHKHAR students of MBA , here by

carries out under the supervision of Nishant Dhruv of ATMIYA INSTITUTE OF

TECHNOLOGY & SCIENCE ,GUJRAT TECHNOLOGICAL UNIVERSITY,

The Objective Of The research undertaken is to get specialized Knowledge in the

Date :- (SIGNATURE OF STUDENT)

To acknowledge is very great way to show your gratitude towards

Forgive us for the same.

in our course which gives us practical knowledge about specified Industry.

more you see its unbounded profundity”

Change in occurring at an accelerated rate. Today is not like yesterday and

understood sitting in a classroom.

As students of MBA we are required to do a survey in any unit of national or

international repute, so as to gain practical knowledge about the prevailing market

market” as in this globalization world we can not ignore impact of globalization .

PLACE : RAJKOT KOMAL H. VASANI

CHAPTER 1 THEORETICAL BACKGROUND

1.2 FORMS OF FOREIGN INVESTMENT 2

1.3 FACTORS INFLUENCING FOREIGN INVESTMENT DECISIONS: 3

1.4 IMPACT OF FII ON STOCK MARKET 4

CHAPTER 2 INDUSTRY PROFILE

2.1 INVESTMENT IN INDIAN MARKET 6

2.2 INTERNATINAL PORTFOLIO FLOWS 7

2.3 FOREIGN INSITUTIONAL INVESTOR 8

2.4 FINANCIAL INSTRUMENTS AVAILABLE FOR FII INVESTMENTS 8

2.5 FOREIGN DIRECT INVESTMENT 9

2.6 BRIEF PROFILE OF IMPORTANT INSTITUTIONS

2.6.1 RESERVE BANK OF INDIA 13

2.6.2 SECURITY EXCHANGE BOARD OF INDIA 14

2.6.3 BOMBAY STOCK EXCHANGE 15

CHAPTER 3 LITERATURE REVIEW 20

4.1 TITLE OF THE STUDY 25

4.2 STATEMENT OF THE PROBLEM 25

4.3 OBJECTIVES OF THE STUDY 25

4.4 RESEARCH TYPE 25

4.5 REASEARCH DESIGN 25

4.6 SOURCES OF DATA COLLECTION 26

4.7 SAMPLE SIZE 26

CHAPTER 5 ANALYSIS AND INTERPRETATION

5.1 TREND ANALYSIS OF FII IN INDIA: 27

5.2 TREND ANALYSIS OF FDI IN INDIA: 33

5.3 RELATIONSHIP BETWEEN FII AND SENSEX: 38

5.4 RELATIONSHIP BETWEEN FDI AND SENSEX: 48

CHAPTER 6 FINDINGS & SUGGESTIONS:

6.3 LIMITATION OF THE STUDY 62

6.4 SCOP OF THE FUTURE STUDY 62

TABLE:1 SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS 10

TABLE-2 SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS 12

TABLE:3 THE BSE SENSEX 16

TABLE:4 BIGGEST STOCK MARKET CRASHES IN INDIA 18

TABLE:5 TRENDS IN FII INVESTMENT (YEAR: 2006) 28

TABLE: 6 TRENDS IN FII INVESTMENT (YEAR: 2007) 29

TABLE: 7 TRENDS IN FII INVESTMENT (YEAR: 2008) 30

TABLE: 8 TRENDS IN FII INVESTMENT (YEAR: 2009) 31

TABLE:9 TRENDS IN FII INVESTMENT (YEAR: 2010) 32