Impact of Foreign Fund Flows on Volatile Indian Stock Market

Abstract

This study examines the impact of foreign funds flows in terms of FDI and FPI on Indian stock market. Foreign fund flows in and out of Indian stock markets are now an ample portion of the market activity because FDI influences the growth directly and FPIs investment affects the growth indirectly by improving equity market performance of the host country. This study is based on yearly time series data for the period from 1992-93 to 2019-20. While analysing the data, descriptive statistics, correlation analysis, ADF unit root test, co integration and Wald test have been used. There is a positive relationship of FDI and FPI with Sensex. The volatility of Sensex is influenced by prior volatility and foreign fund flows. The Johansen co integration test results indicate that all the variables have a long-run relationship of the same order. The Wald test results confirm that there is a significant short-run causal relationship of FDI and FPI with Indian stock market. These findings suggest that volatility of Indian stock market and foreign flows have increased over the period of study.