IMPACT OF FII ON CAPITAL MARKET
(An Empirical Study On Indian Capital Markets)
A RESEARCH PROJECT ON
Submitted to: Yamini Karmarkar (HOD MMS-5Yrs, IIPS) Verma sem.
Submitted by: Purnendra IM-98-047 MMS-7th
This project, in a way, reveals the dependence of Indian capital markets on the FIIs investment for the period starting from January 1993 to September 2001. I have applied a simple linear model to estimate the effect of FII on the stock index. The data analysis tools used in the research is correlation and regression. I have taken seven indices to study the impact of FII on Indian bourses. Two of these indices are Sensex and Nifty while other five are industry specific index of BSE. These seven indices give the close picture of Indian stock exchanges. The FII s started investing in Indian capital market from September 1992. I have taken average monthly data of FIIs and monthly closing index of all the indices
Any accomplishment requires the effort and this work is no different. I am extremely grateful to Ms. Yamini Karmarkar (HOD MMS5Yrs., IIPS), for providing me an opportunity to undertake this research project on the impact of FII on Indian capital market. Her invaluable support, teaching and guidance helped me to complete this project successfully. I express my sincere thanks to all my friends who helped me in completing this project. - Purnendra Verma
This research project studies the relationship between FIIs investment and stock indices. For this purpose I selected India’s two major indices i.e. Sensex and S&P CNX Nifty. These two indices, in a way, represent the picture of India’s stock markets. I also selected the five industry specific indices of BSE i.e. BSE CD, BSE CG, BSE FMCG, BSE HC and BSE IT so as to further observe the effect of FII on particular industry. So this project reveals the impact of FII on the Indian capital market. There may be many other factors on which a stock index may depend i.e. Government policies, budgets, bullion market, inflation, economic and political condition of the country, FDI, Re./Dollar exchange rate etc. But for my study I have selected only one independent variable i.e. FII. This study uses the concept of correlation and regression to study the relationship between FII and stock index. The FII started investing in Indian capital market from September 1992when the Indian economy was opened up in the same year. Their investments include equity only. The sample data of FIIs investments consists of monthly average from January 1993 to September 2001 with 105 observations.
Objective: The objective of my research is to find the relationship between the FIIs investment and stock index. I have also analyzed the impact of FII on specific industrial sector indices. Null Hypothesis (Ho): The various BSE indices and S&P CNX Nifty index does not rises with the increase in FIIs investment. Hypothesis (H): The various BSE indices and S&P CNX Nifty index rises with the increase in FIIs investment.
Problem: What is the impact of FIIs investment on the Indian capital market? Hypothesis: The various indices of BSE and NSE Nifty rises with the
increase in FIIs investment. What to observe? For my research purpose I selected six indices of BSE i.e. Sensex, BSE CD, BSE CG, BSE FMCG, BSE HC and BSE IT and one index of NSE i.e. S&P CNX Nifty. The sample data of FIIs investments consists of the monthly average from January 1993 to September 2001 with 105 observations. The sample data of Nifty and Sensex consists of the monthly closing index January 1993 to September 2001 with 105 observations while the past three years data has been taken for other BSE indices with 33 observations in each case. How to observe? The data regarding indices of BSE was taken from the site of BSE and BSE yearbook 2001. I got the data on FIIs investment from Reserve Bank of India’s site. The data of NSE Nifty index was obtained from...
Bibliography: • • • • • • • www.bseindia.com www.nseindia.com www.rbi.org.in www.equitymaster.com www.etintelligence.com Journal of Financial Research Journal of Management Research
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Vikalpa IIM, Ahmedabad ICFAI Reader ICFAI, Hyderabad Basic Econometrics by Damodar Gujrati Fundamentals of Mathematical Statistics by S.C.Gupta
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