Indian Capital Market - Impact of FII on Indian Stock Market

Abstract

Objectives: The objective of the paper is study the importance of FII money for Indian stock market. It focuses on the global integration of economies and its effects on the Indian economy and stock market. Methods/Statistical analysis: The paper covers the statistical analysis of FII (Foreign Institutional investor) flows and its impact on the index from 2008 to 2013, where the focus is Global financial crisis of 2008 and Euro zone crisis of 2011. The empirical analysis has been done using statistical tools. The impact of the FII flows during the two crises has been analyzed. The researchers have used t-test, correlation, regression analysis to identify the relation between FII and Indian stock market. Findings: The coefficient of correlation is 0.41 shows positive correlation and proves that there is significant relationship between the FII flows and the index. The t-test shows the value of 2.34 which means the null hypothesis is rejected and FII is the dominant player in the Indian stock market. Using regression, the forecast shows, what would be index value with a given level of FII flows? If the FII flows are Rs. 1,000 million then the index value comes to 16,864 and if the flows are increased to Rs. 2,000 million then the value of index comes to 17441. This shows that more the FII flows, higher is the value of the index. The intercept value of the index comes to 16,287 which means that if there are no FII flows (which is independent variable) then the value of the Index would be 16,287 (dependent variable. The value of 16,287 shows that how steep can the index fall if the FII are not putting their money. Applications/Improvements: The safety net, wherein the investors get the protection, should be made mandatory. There should be an early education of the finance and stock market so that investors understand it better Keywords: Euro Zone Crisis, Foreign Institutional Investor, Global Financial Crisis, Indian Economy, Stock Market