Foreign Institutional Investor’S Relationship With Indian Markets: A Review Of Literature

Foreign institutional investors (FII) are considered as the makers or breakers of the market, especially in India. Since their coming to India in back 1992, the profile of and investment by these investors has taken a tremendous shift. Hence with the rapid development in this, there is a dire need for in-depth research in all the areas concerning foreign institutional investors. This paper seeks to provide the systematic and comprehensive review of FII literature in the Indian context. Although broad areas of research were also there, only three specific issues covered almost all the anomalies of FIIs. These were summarized in the study as, impact of FII on Indian stock markets; the relation between stock market volatility and FIIs; determinants of FII. The overall conclusion is that, forecasting of FII flows is at the initial stages and there is not much impact of volatility on the FIIs. Also, more research is required in terms of determining the actual determinants of FII in India along with giving importance to factors like corruption, political stability, growth in the private sector, employability status and others. This paper revealed mixed findings i.e. around 60 percent of the studies established the bidirectional causal relationship between FIIs and the stock markets. Around 25 percent of the studies indicated exchange rate, call money rate and inflation rate were the major determinants of FII. Rest of the studies indicated either no impact or increase in volatility of the market with the allowing of FIIs in India.