Global Economic Crisis and Indian Economy: An Empirical Analysis of Role of FIIs Investment Behaviour

Abstract

This paper seeks to examine as to what extent the India's increasing dependency on FIIs has transferred the economic shocks to the national economy. The selected time period is from April 2006 to Oct 2013. The time period includes the pre-crisis period, crisis period and post crisis period. The empirical analysis, which includes trend analysis as well as regression analysis, suggests that there is significant impact of the FIIs investment on Indian stock market as well as on exchange rate. It was external sector which caused heavy effect of the recent global financial crisis on the Indian economy. The higher selling of securities by FIIs caused rupee depreciation due to higher demand for dollar. An important implication of the finding is that the selling practices of securities are important variable in itself instead of the volume of the net investment. When the sale is high, no matter that purchase is also high, there happens crash in the stock market which shows the investors’ attitude towards the future risk.