Abstract
Foreign Institutional Investors (FII) are one of the determinants of the performance of the major market indices. In the month of June, 2005, there were around 500 FII's operating and 1300 sub accounts 1. The above figure envisages the magnitude of the enormity of the contribution of FII in the stock marker performance index. India can take pride to call itself the second developing economy (after China) and that is the primary reason of FII inflows in India. FII's were allowed to invest in India from September 1992 and SEBI had shown its bland approach by incorporating regulations on FII's only in 1995. In this article the authors explore the regulatory loopholes relating to the issue of Participatory notes - a leading source of volatility in the Indian stock market and suggest necessary corrective measures.
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