This document summarizes a study on the impact of foreign institutional investments (FIIs) on the Indian stock market. The study analyzed FII investment trends, SEBI regulations on FIIs, and the relationship between FII flows and stock market performance from 2000-2013. Statistical analysis found a significant positive correlation between FII investments and the BSE Sensex and Nifty indices, though this relationship weakened at shorter timeframes and during the 2008-2009 recession period. The study concluded that while FIIs have impacted the Indian stock market, other economic factors also influence market movements.

1. A STUDY ON FII’S AND ITS IMPACT ON STOCK
MARKET
WORK CARRIED OUT FOR SBICAPS SECURITIES
Faculty Guide
Dr. B.
Charumathi
Presented by: Uday Doyal

2. Company Profile
 SBICAP Securities Ltd (SSL) is a 100% subsidiary of SBI Capital Markets Ltd
 SBI Capital Markets Ltd. commenced broking activities in March 2001
 SBICAP Securities Ltd. (SSL) is a company, which has been formed to take over the broking
operations of SBI Capital Markets Ltd
 It is an Depository participant, dealing with trading, demat and other allied services.

3. Objective of the Study
 To study SEBI regulations on FIIs
 To study the trend of FII investment in Indian equity and debt market
 To examine the relationship between the FII investment and Indian Stock
Market

4. Research Methodology
Research Type Analytical
Source: NSE,BSE ,SEBI & Indiainfoline database
Tools Used: •Correlation
•Regression
•ANOVA
Package Used: Ms Excel and Statistical Package for Social Science (SPSS)
Period of Study: •Year 2000-Year 2013 (till March)
•Year 2008 & 2009 (Monthly)
•Year 2012-13 (July’12 to June’13)-Daily
Hypotheses H0: No significant relationship between FII & Stock Market
H1: There is significant relationship between FII & Stock
Market

5. What is FII ?
 According to SEBI, “a Foreign Institutional Investor ("FII") is as an
institution established or incorporated outside India which proposes to
make investment in India in securities of companies incorporated in
India (Indian Companies).”
FDI vs FII
 Foreign direct investment (FDI) is a direct investment into production or
business in a country by a company in another country, either by buying a
company in the target country or by expanding operations of an existing
business in that country
 FII is allowed to invest upto 10% of the paid up capital of a company, which
implies that any investment above 10% will be construed as FDI, though
officially such a definition does not exist.

6. Advantage of FII inflows
To reduction in
information
asymmetries
Attracting
foreign capital
improves the
breadth
and depth of
Indian markets
financial innovation
and
development of
hedging
instruments
rupee appreciates.
Advantage

7. SEBI regulations for FII
A Foreign Institutional
Investor may invest only
in the following:-
 securities in the primary
and secondary markets
including shares,
 units of schemes floated
by domestic mutual
funds including Unit
Trust of India,
 dated Government
Securities;
 derivatives traded on a
recognized stock
exchange
Every FII/sub-account is required to
appoint a domestic Indian custodian to
hold in custody its Indian securities.
Custodian of Securities is a registered
and regulated entity by SEBI.
An FII can also invest in India on behalf of
a sub-account which is registered as a
sub-account under Section 2 (k) of the
SEBI (FII) Regulations, 1995.

8. FII in India
The regulations for foreign investment in India
have been framed by the Reserve Bank of India
in terms of Sections 6 and 47 of the Foreign
Exchange Management Act, 1999.
SEBI has been registering FIIs and
monitoring investments made by them
through the portfolio investment route
under the SEBI (FII) regulations 1995.
India, the second fastest growing economy
after China, has recently seen positive foreign
institutional investor (FII) inflows driven by the
sound fundamentals and growth opportunities
FII was allowed since September
1992, however, Investment by them were
first made in January 1993

9. FII in India
-10000
0
10000
20000
30000
40000
50000
-100,000.00
-50,000.00
0.00
50,000.00
100,000.00
150,000.00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13*
Equity Debt

10. FII Net Investment (Equity + Debt)
0.00
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
140,000.00
160,000.00
180,000.00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13*
FII Net Investment
Net Investment

11. FII Vs SENSEX
for the year 2000-2013*
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
-100,000.00
-50,000.00
0.00
50,000.00
100,000.00
150,000.00
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Net Investment BSE Sensex
*till march 2013

12. FII Vs Nifty
for the year 2000-2013*
0
1000
2000
3000
4000
5000
6000
7000
-100,000.00
-50,000.00
0.00
50,000.00
100,000.00
150,000.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Net Investment Nifty Closing Value
*till march 2013

13. Analysis using SPSS
Analysis FII & SENSEX FII & Nifty
Correlation 0.675 0.678
R2
0.456 .460
Sig. Level 0.008 0.008
The variables are correlated Positively.
There exists significant relationship between FII & Indian Stock
Market

14. 0
5000
10000
15000
20000
25000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
6000
7000
2-Jul-12
16-Jul-12
30-Jul-12
13-Aug-12
27-Aug-12
10-Sep-12
24-Sep-12
8-Oct-12
22-Oct-12
5-Nov-12
19-Nov-12
3-Dec-12
17-Dec-12
31-Dec-12
14-Jan-13
28-Jan-13
11-Feb-13
25-Feb-13
11-Mar-13
25-Mar-13
8-Apr-13
22-Apr-13
6-May-13
20-May-13
3-Jun-13
17-Jun-13
Net FII Investment BSE
FII & Sensex
Data collected on daily basis 2012-13*
*July 2012-June 2013

15. FII & Nifty
Data collected on daily basis 2012-13*
0
1000
2000
3000
4000
5000
6000
7000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
6000
7000
2-Jul-12
9-Jul-12
16-Jul-12
23-Jul-12
30-Jul-12
6-Aug-12
13-Aug-12
20-Aug-12
27-Aug-12
3-Sep-12
10-Sep-12
17-Sep-12
24-Sep-12
1-Oct-12
8-Oct-12
15-Oct-12
22-Oct-12
29-Oct-12
5-Nov-12
12-Nov-12
19-Nov-12
26-Nov-12
3-Dec-12
10-Dec-12
17-Dec-12
24-Dec-12
31-Dec-12
7-Jan-13
14-Jan-13
21-Jan-13
28-Jan-13
4-Feb-13
11-Feb-13
18-Feb-13
25-Feb-13
4-Mar-13
11-Mar-13
18-Mar-13
25-Mar-13
1-Apr-13
8-Apr-13
15-Apr-13
22-Apr-13
29-Apr-13
6-May-13
13-May-13
20-May-13
27-May-13
3-Jun-13
10-Jun-13
17-Jun-13
24-Jun-13
Net FII Investment NSE
*July 2012-June 2013

16. Analysis using SPSS
Analysis FII & SENSEX FII & Nifty
Correlation 0.232 0.247
R2
0.054 0.061
Sig. Level 0.000 0.000
Correlation coefficient is very low. Only 6% of data are influenced
There exists significant relationship between FII & Indian Stock
Market

17. FII & Sensex
for the year 2008 & 2009(Month wise)
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
18,000.00
20,000.00
-20,000.00
-15,000.00
-10,000.00
-5,000.00
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
FII SENSEX

18. Analysis using SPSS
Analysis FII & SENSEX
Correlation 0.342
R2
0.117
Sig. Level 0.102
Correlation coefficient is positive. Only 11% of data are
influenced
There exists no significant relationship between FII & Indian
Stock Market

19. Findings
 Major portion of FII investments have come through the primary market, than
through buying via secondary markets
 The FII over a longer time frame has greater impact on Stock market when
compared to short time frame.
 FII can explain only about 50% of the movement of stock market.
 In the year 2008-09, US economy was under recession , this might be cause of
declining FII in 2008.
 In the year 2012-13, Indian economy have undergone many swings like running
inflation rate, falling rupee, rise in gold price. This all factors have greater impact on
stock market movement than FII.
 Market size, Political scenario, Labour cost and productivity, Liberalized Trade
Policy, Infrastructure, Incentives and Operating conditions and Disinvestment
policy were the causes of FIIs investment in India.

20. Conclusion
 FII invest in bulk .This cause herding behaviour among the DII’s .
 FII investment in any company’s stock assumed to have growth potentials.
 When FII sells more and purchase less the significance level gets reduce and thereby
reducing the association between FII and Stock Market