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Influence of Foreign Institutional Investments (FIIs) on the Indian stock market

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  • Vardhan, Harsh
  • Sinha, Pankaj

Abstract

The study examines influence of FIIs on the Indian equity market and its role in integration with US equity market. It provides insight for policy formulation in order to move towards greater liberalized FII’s policy regime for regaining FIIs confidence in the Indian equity market. The time line from January 1999 to December 2010 has been partitioned into smaller time frames due to existence of structural breaks in order to capture clear picture of dynamic relationships between variables in the sub - periods. The daily data has been analyzed by Vector Autoregressive framework using different VAR models for determining existence of short term and long run relationships during sub periods and for ascertaining causality between emerging relationships between FIIs, Sensex and other key variables. Despite global recessionary condition both purchase and sales of FIIs have steadily increased due to gradual economic liberalization and it has substantially picked up the pace during the last five years. It was observed for 1/3/1999 to 31/7/2003 period that FII inflows and out flows are significantly influenced by the returns in the domestic equity market. The exchange rate has no effect on the inflows of FIIs; however the outflows are influenced by the change in the exchange rate. SENSEX returns bring change in the exchange rates. Change in the exchange rate affects the outflow of FIIs. The US equity market has no influence on FII’s inflows but has marginal influencing role on its outflows.

Suggested Citation

  • Vardhan, Harsh & Sinha, Pankaj, 2014. "Influence of Foreign Institutional Investments (FIIs) on the Indian stock market," MPRA Paper 53611, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:53611
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    References listed on IDEAS

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    Cited by:

    1. Saif Siddiqui & Preeti Roy, 2021. "Asymmetric Effects of Exchange Rate and Its Relationship with Foreign Investments: A Case of Indian Stock Market," Vision, , vol. 25(4), pages 415-427, December.
    2. Sumit Kumar Maji & Arindam Laha & Debasish Sur, 2020. "Dynamic Nexuses between Macroeconomic Variables and Sectoral Stock Indices: Reflection from Indian Manufacturing Industry," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 45(3), pages 239-269, August.
    3. Monica Singhania & Neha Saini, 2018. "Determinants of FPI in Developed and Developing Countries," Global Business Review, International Management Institute, vol. 19(1), pages 187-213, February.

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    More about this item

    Keywords

    Foreign Intuitional Investments (FIIs); Structural change; VAR;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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