impact of fii on stock market

BACKGROUND In the late 1980s India suffered an acute financial crunch. At that time Indian foreign exchange stood at mere US $1.2 bn hi h ould a el fi a e eeks’ worth of imports. And India had to pledge its gold reserve with IMF to secure a loan of just US $457 mn. The gross fiscal deficit of the government rose from 9.0% of GDP in 1980-81 to 10.4 percent in 1985-86 and to 12.7% in 1990-91. Since these deficits had to be met by borrowings, the internal debt of the government accumulated rapidly, rising from 35% of GDP at the end of 1980-81 to 53% of GDP at the end of 1990-91. According to India Report, Astaire Research A Bala ce of Payments crisis in 1991 pushed the country to near bankruptcy. In return for an IMF bailout, gold was transferred to London as collateral, the rupee devalued and economic reforms were forced upon India. That low point was the catalyst required to transform the economy through badly needed reforms to unshackle the economy. Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies broken, the economy was opened to trade and investment, private sector enterprise and competition were encouraged and globalization was slowly embraced. The reforms process continues today and is accepted by all political parties, but the speed is often held hostage oalitio politi s a d ested i te ests. Thus it was decided to open up the economy, the economic policies were liberalized and private sector was given the freedom to participate in the Indian economy more effectively. The Indian market was integrated with the world economy and international investors were invited to participate in India. Co se ue tl , the o ittee o the efo s of the fi a ial s ste u de the chairmanship of Mr M. Narsimham Rao was made which sought for reforms in the financial sector. One of its recommendation included developing an active government securities market and strengthening the open market operations as an instrument of monetary policy. And thus this reform paved way for foreign investments which were at that time the need of the hour. As a result of this, Indian stock market witnessed metamorphic changes and a transition-from a dull to a highl uo a t sto k a ket. I p o ed a ket su eilla e s ste , trading mechanism and introduction of new financial instruments made it a centre of attraction for the international investors. Until the s, I dia’s de elop e t st ateg as fo used o self-reliance and Import-substitution. Current account deficits were financed largely through debt flows and official development assistance. There was a general disinclination towards foreign investment or private commercial flows. Since the initiation of the efo p o ess i the ea l s, ho e e , I dia’s poli sta e has ha ged substantially, with a focus on harnessing the growing global foreign direct investment (FDI) and portfolio flows. The broad approach to reform in the external sector after the Gulf crisis was delineated in the Report of the High Level Committee on Balance of Payments (Chairman: C. Rangarajan). It recommended: • A compositional shift in capital flows away from debt to non-debt creating flows; • Strict regulation of external commercial borrowings, especially short-term debt; • discouraging volatile elements of flows from non-resident Indians (NRIs); • Gradual liberalisation of outflows; • Disintermediation of Government in the flow of external assistance. Introduction to FII Since 1990-91, the Government of India embarked on liberalization and economic reforms with a view of bringing about rapid and substantial economic growth and move towards globalization of the economy. As a part of the reforms process, the Government under its New Industrial Policy revamped its foreign investment policy recognizing the growing importance of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalization of the Indian economy. Simultaneously, the Government, for the first time, permitted portfolio investments from abroad by foreign institutional investors in the Indian capital market. The entry of FIIs seems to be a follow up of the recommendation of the Narsimhan Committee Report on Financial System. While recommending their entry, the Committee, however did not elaborate on the objectives of the suggested policy. The committee only suggested that the capital market should be gradually opened up to foreign portfolio investments. From September 14, 1992 with suitable restrictions, FIIs were permitted to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India. While presenting the Budget for 1992-93, the then Finance Minister Dr. Manmohan Singh had announced a proposal to allow reputed foreign investors, such as Pension Funds etc., to invest in Indian capital market. To operationalise this policy announcement, it had become necessary to evolve guidelines for such investments by Foreign Institutional Investors (FIIs). Foreign Institutional Investors (FII) means an institution established or incorporated outside India which proposes to make investment in securities in India. They are registered as FIIs in accordance with Section 2 (f) of the SEBI (FII) Regulations 1995. FIIs are allowed to subscribe to new securities or trade in already issued securities. Currently, entities eligible to invest under the FII route are as follows:  As FII: Overseas pension funds, mutual funds, investment trust, asset management company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts, charitable societies, a trustee or power of attorney holder incorporated or established outside India proposing to make proprietary investments or with no single investor holding more than 10 per cent of the shares or units of the fund.  As Sub-accounts: The sub account is generally the underlying fund on whose behalf the FII invests. The following entities are eligible to be registered as subaccounts, viz. partnership firms, private company, public company, pension fund, investment trust, and individuals. FIIs registered with SEBI fall under the following categories:  Regular FIIs- those who are required to invest not less than 70 % of their investment in equity-related instruments and 30 % in non-equity instruments.  100 % debt-fund FIIs- those who are permitted to invest only in debt instruments. The Foreign Institutional Investors (FIIs) have emerged as remarkable players in the Indian stock market and their growing contribution adds as an important feature of the development of stock markets in India. As a result, the Indian Stock Markets have reached new heights and became more volatile making the researches work in this dimension of establishing the link between FIIs and Stock Market volatility. Hence, it’s a i te esti g topi to as e tai the ole of FIIs i Indian Stock Market. –With rapid changes in the economy because of liberal economic policies and fast pace changes due to globalisation, Indian market has become a focus point for foreign investors. Organisations tend to target for large volume of trade in this era of globalisation. Trade flows are indeed one of the most visible aspects of globalization. International investment is a powerful source in propelling the world toward closure economic integration FII refers to the investment made by resident of one country in the financial capital and asset of another country. It facilitates and persuades large productivity and help in shaping up balance of payments. FII flows in India have continuously grown in importance. A major development in our country post 1991 has been liberalization of the financial sector, especially that of capital markets. Our country today has one of the most prominent and followed stock exchanges in the world. Further, India has also been consistently gaining prominence in various international forums, though we still have a long way to go. LITERATURE REVIEW Jatinder Loomba, (2012) attempted to testify the behavior of FII trading and its effect on Indian stock market.He observed that in the course of capital market liberalization, foreign capital has become increasingly significant source of finance and institutional investors are growing their influence in developing markets. He concluded that the Indian stock markets have come in age where there were significant developments in the last 15 years make the markets at par with the developed markets. Karan Walia, Dr. Rimpi Walia, Monika Jain, (2012) examined the contribution of foreign institutional investment in sensitivity index (Sensex). Also attempts to understand the behavioral pattern of FII during the period of 2001 to 2010 and examine the volatility of BSE Sensex due to FII. They found that the FIIs are influencing the sensex movement to a greater extent. Further it is evident that the sensex has increased when there are positive inflows of FIIs and there were decrease in sensex when there were negative FII inflows. Dr. Manjinder Kaur, Dr. Sharanjit S. Dhillon, (2015) found that the study found that a bi-directional causality exists between stock prices (Sensex) and net investment of Foreign Institutional Investors (FIIs). The study also concluded that FIIs investment is a major factor behind both financial and macroeconomic instability in India. Dr. Mayur Shah investigated the Flow of FII has advanced significantly in last 13 years from the year 2001 to year 2013 and there is a correlation between such FII flows and changes in stock market indices like nifty. R-square is also found to be very low means other factors might be contributing towards volatility of Indian stock market. As the correlation is not found to be strong some other factors can have impact and relations with stock market. The main purpose of the paper done by Dr. Hojatallah Goudarzi and Dr. C.S.Ramanarayana, (2010) was to investigated the cointegration and causality between the Indian stock market and foreign institutional investment (FII) in India during world financial turmoil of 2008. The cointegration and causal relationship using Engle-Granger (1987), Johansen (1991, 1995a) and Granger (1969) methodologies were investigated .The study found that BSE500 stock index and FII series are cointegrated and causality between them is bilateral. Vikram K. Joshi* & Miss Richa Saxena,(2011) analyzed the impact of variation in FII on Sensex and to study the degree of relationship between them in various FII movement scenarios. They found that the daily transaction of FII is the reason behind the volatility in the stock markets and has strong impact on the various macro-economic variables and the economy as a whole. Vishal Kumar, Dr. Rameshwar Singh & Vipin Kumar, (2013) concluded that Foreign Institutional Investors as key determents of Indian stock market which is supported by examining the empirical relation between stock market return and FIIs flows. Results of the study shows the linkages between the FIIs inflows and the performance of SENSEX are robust and significant. Bashir Ahmad Joo and Zahoor Ahmad Mir, (2014) implied the statistical tools like mean, variance, standard deviation, skewness and correlation analysis to examine the impact of FIIs impact on Indian stock market volatility. In addition to these tools, GARCH model is also used to study the impact of FIIs capital flows on stock market volatility. The study revealed that there is significant relationship between FIIs capital flows and stock market volatility. Moreover, FIIs investment has statistically significant influence on volatility of NIFTY and SENSEX, used as proxy to Indian stock market. M.S.Ramaratnam, R.Jayaraman and V. Krishnamoorthy, attempted to find the correlation between net FII flows and the select market index of sensex and also assessed the FII investment and movement of sensex on the basis of empirical data and also tests any significant difference exists in terms of FII investment towards equity and debt through application of t-test. They found that there is significant impact of FIIs on the BSE-Sensex and further the study finds that there is a good relationship between the variables of FII investment made by FIIs significantly differs in terms of equity and debt segment. Shilpa Maggo, (2014) analysed the trend of FII flows in India for the period 199394 to 2011-12 by observing the annual data. She also examined the growth rate of Gross FII flows as well as FII flows in equity and debt market in India using Multiple Regression analysis. The Results of trend analysis revealed that since 1993 FII flows have always been positive in India except for the years 1998-99 and 2008-09. Growth rate analysis shows that growth rate of FII flows in equity market is more than that of debt market. FIIs Trends in India Table 1: FII Investment in Indian Capital Market (Rs in Crore) Financia l Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 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 2013-14 2014-15 2015-16 2016-17 * *Till July 2016 Equity Debt Total net FIIs 13 5127 4796 6942 8546 5267 -717 9670 10207 8072 2527 39960 44123 48801 25236 53404 -47706 110221 110121 43738 140033 79709 111333 -14172 29573 0 0 0 0 29 691 -867 453 -273 690 162 5805 1759 -7334 5605 12775 1895 32438 36317 49988 28334 -28060 166127 -4004 1028 13 5127 4796 6942 8575 5958 -1584 10122 9933 8763 2689 45765 45881 41467 30840 66179 -45811 142658 146438 93726 168367 51649 277461 -18176 30601 Change in FIIs investment s 5114 -331 2146 1633 -2617 -7542 11706 -189 -1170 -6074 43076 116 -4414 -10627 35339 -111990 188469 3780 -52712 74641 -116718 225812 -295637 48777 % change -6.45602 44.74562 23.52348 -30.519 -126.586 -739.015 -1.86722 -11.7789 -69.3142 1601.934 0.253469 -9.62054 -25.6276 114.5882 -169.223 -411.406 2.649694 -35.9961 79.63745 -69.3236 437.205 -106.551 -268.359 Graph 1: Year wise FIIs Net Investment FIIs Net Investment (INR Crores) 300000 250000 200000 150000 100000 50000 0 -50000 -100000 YEAR Source: Table 1 In a major step towards globalization of our markets, the government allowed Foreign Institutional Investors such as Mutual funds, Pension funds, Investment trusts, Asset management companies to invest in tradable securities in the p i a a d se o da ’s a ket u de the guideli es issued go e e ti September 1992. However, these have invested from January, 1993 only. The net inflow has risen from Rs. 5127 crores in 1993-94 to Rs.277461 crores in 2014-15 with relative ups and downs during the period as per the above table. During the period of 20 years there has been increase in eleven years while decline in the rest years. It may be concluded that there are significant variations in the yearly inflow of FIIs into the Indian capital market during 1993-94 to 2015-16. During the initial year 1992-93, the FII flows started in September 1992, which amounted to Rs. 13 crores because at this moment government was framing policy guidelines for FIIs. However, within a year, the FIIs rose to 5127 i.e. 99.76% of 1992-93 during 1993-94 because government had opened door for Investment in India. Thereafter, the FII inflows witnessed a dip of 6.45%. However, the year 1995-1996 witnessed a turnaround, gliding up the contribution by FII to enormous amount of Rs. 6942 crores. Investments made by FIIs during 1996-1997 rose a little i.e. 23.52% of that of the preceding year. This period was ripe enough for FII Investments as that time the Indian economy posted strong fundamentals, stable exchange rate expectations and offered investment incentives and congenial climate for investment of these funds in India. In 1997 several changes were made to the SEBI regulations to diversify the foreign institutional investor base and to further facilitate inflow of foreign portfolio investment. The changes had also aimed at facilitating investment in debt securities through FII route. During 1997-98, FII inflows posted a fall of 30.05 %. This slack in investments by FIIs was primarily because of the S-East Asian Crisis and the months of volatility experienced during November 1997 and February 1998. This was primarily due to the economic sanctions imposed on India by Japan, US and other industrialized economies. These economic sanctions were the result of the testing of series of nuclear bombs by India in May 1998. FII investment posted a year-on-year decline of 1.86 % in 2000-01, 11.78 % in 2001-02 and 69.31 % in 2002-03. Investments by FIIs rebounded from depressed levels from the year 2003-04 and witnessed an unprecedented surge. FIIs flows were recycled to India following readjustment of global portfolios of institutional investors, triggered by robust growth in Indian economy and attractive valuations in the Indian equity market as compared with other emerging market economies in Asia. Several factors were responsible for increasing confidence of FIIs on the Indian stock market which include:  Strong economic fundamentals and attractive valuations of companies.  Improved regulatory standards, high quality of disclosure and corporate governance requirement, accounting standards, shortening of settlement cycles, efficiency of clearing and settlement systems and risk management mechanisms.  Product diversification and introduction of derivatives.  Strengthening of the rupee dollar exchange rate and low interest rates in the US The slowdown in 2004-05 was on account of global uncertainties caused by hardening of crude oil prices and the upturn in the interest rate cycle. The resumption in the net FII inflows to India from August 2004 continued till end 2004-05. The inflows of FIIs during the year 2004-05 was Rs. 45881 crore. During 2006-07 the foreign institutional investors continued to invest large funds in Indian securities market. Strong FII flows had been a key characteristic of the Period prior to December 2007. However, 2008-09 saw the highest FII outflow in any financial year since inception. This could be attributed to the global financial meltdown. The total net outflow of FII was Rs.45, 811 crore in 2008-09 as against a net inflow of Rs.66, 179 crore in 2007-08. This was the highest net outflow for any financial year so far. , in 2008, the BSE Sensex fell almost 50% due to the global financial meltdown, wiping out the gains of 2007. The year 2008 has seen the biggest ever FIIs sell-off for the Indian markets. FIIs made a record investment in the Indian equity market in 2009, surpassing the 2007 inflows. The total net inflow of FII was Rs.1, 42, 658 crore as against an outflow of FII was Rs.45, 811 crore in 2008-09. This was one of the highest net inflow for any financial year so far. FIIs made a record investment in the Indian equity market in 2010-11, surpassing the 200910 inflows. The total net investment of FII was Rs 1, 46,438 crore as compared to of Rs.1, 42, 658 crore in 2009-10. The total net inflow of FII was Rs 93,725 crore in 2011-12 compared to 1, 46,438 crore in 2010-11 decreased by 36%. Again FIIs flows increase to Rs 168367 crore in 2012-13. In 2012, FIIs infused money into the Indian market mainly on account of easing inflation, a relaxing of foreign investor est i tio s a d the RBI’s poli o es But, There was again outflow of FII in 201314 about Rs 116718 crore. After the formation of NDA government in 2014 and policies made by the Prime Minister Mr Narendra Modi, FIIs again continue to invest in India, as inflow rise to Rs 277461 crore. Now as per latest data till July 2016 amount of inflow is Rs 30601 crore. % change in FIIs % change 2000 1500 1000 500 0 -500 YEAR -1000 Source: Table 1 The above table shows the percentage change in FIIs between years 19952015. It can be clearly concluded that there is very high rate of fluctuation in FII between this periods. Highest negative percentage change was observed in financial year 1999 - 2000 i.e. 739.0151% because of the repercussions of South-East Asian Crisis, and other reasons behind their withdrawal from the market in 1998-99 were depreciation of rupee as a consequence of nuclear tests, political instability in economy which hurt the confidence of FIIs and they exited from Indian market. The next negative percentage change was observed in financial year 2008-2009 and 2009-2010 i.e. 169.223% and 411.406% respectively. After the global crises of 2008-09 foreign investors shown to invest money in Indian economy. Graph 3: % of FIIs from Different Countries Source: Annual report of SEBI 2015 From the above mentioned it is revealed that number of FIIs from USA is about 35% therefore any economic destabilization in USA causes heavy turmoil in Indian Stock Market. After USA numbers of FIIs are from Europe is about 23% (U.K., Luxemburg, and Ireland) which also causes the volatility in the Indian stock market and after Europe numbers of FIIs from Asia is about 16% (Mauritius, South Korea, Japan and Singapore) also causes the volatility in the Indian stock market. Trends of SENSEX NIFTY & FIIs 300000 30000 250000 25000 150000 15000 100000 FIIS SENSEX/NIFTY 200000 20000 50000 10000 0 5000 -50000 0 -100000 YEAR SENSEX Close Nifty Close FIIs From the above chart it is evident that FIIs and Nifty, FIIs and Sensex move in the same direction that is there exists a positive correlation between the BSE Sensex and FII fund flows and between NSE Nifty and FII fund flows. It can be observed that FIIs have significant influence on the sentiments and price trends in the Indian equity market. The table also shows that the rise of Sensex in 2007 was largely fuelled by the money pumped in by the FIIs which led to the market touching 20,000, but in 2008, with the global economy in doldrums, the FIIs were net sellers and took the market down. FIIs pulling money from the market has resulted in a fall as There were many instances in the last decade where FIIs pulled out money from the stock market and at both these times the stock market went down. The pull-out was fairly severe in 2008, and the market fall was very bad as well. The pull-out resulted in the fall of stock prices, as a result the Sensex fell from its closing peak of 20,0873 on Jan 8,2008 to less than 10,000 by Oct 17,2008Again in 2010, Sensex touched 20,000 when FII were at its peak. DETERMINANTS OF FII FLOW IN INDIA · Risk: Whenever risk in home market increases, the foreign investors would start to pull out their money to their home country thereby creating a deficiency of funds in domestic market, so to attract the foreign investment domestic interest rate would increase thereby to ensure that the above equality is restored. · Inflation: At the time of high inflation, the real return on fixed income securities like bonds and fixed deposits declines. Thus a bond which gives say around 8% interest rate actually gives a real return of just 1% if the inflation is 7%. If the inflation increases further, the real return would decline more. · Good News /Bad News: If say there is some bad news in the nation, which affects that is decreases the asset price, which in turn decreases the return and hence FII would withdraw from the market. However on the other hand, if there is good news, asset prices would increase; thereby increasing return and hence FII would be attracted. But the sensitivity with which investors withdraw is greater than with which they invest i.e. they would be more cautious while investing than at the time of withdrawing. This is primarily due to their basic nature of being risk averse, thus they would react more vigorously to bad news than to good news. · GDP of India: Both have more or less direct relationship. The reason is change in capital account. When interest rates were high India was attracting lot of investments so the credit balance was high for that period. It kept on increasing form 2003-04 to 2007-08 and interest rates also kept on increasing from 2003-04 to 2007-08. Besides there are various other factors like rules and regulation, taxation, govt. policies etc. Impact of FII on Economic Indicators in India-FII flow affects the economy of country · Balance of Payment: A net positive swing in invisibles (due to increase in software exports and remittances sent by Indians working abroad) and increase in investments (both FDI and FII), has been improving the Balance of Payment (BOP) of the Indian economy and increasing the demand of rupee in the international currency market. In view of this the RBI had been following a policy of buying dollars (by selling rupee) in the international market, thereby avoiding an appreciation of rupee viz-a-viz the dollar. · Currency Fluctuation: FIIs convert Dollars to Rupees to invest in Indian MarketsFII money comes in India at high Dollar rates. FII money would go out when Dollar dips to low values. · Stock Market: Mathematicians and Statisticians use a measure known as the correlation coefficient, which is used to depict a relationship between two variables mathematically. This coefficient ranges from minus 1 to plus 1. So, if we consider two variables, and the coefficient is -1, it means that when one moves up, the other moves down in the same proportion. When it is 1, it means when one moves up or down, the other also moves in the same manner, and when it is zero, it means there is no correlation. So when one moves up (or down), the e’s no way to figure out how the other variable will behave. So basically, one can compute the correlation coefficient between the Sensex and FII flows. Objectives of Study To study the trends and patterns of foreign capital flow into India in the form of FIIs.  To find relation between FIIs & Sensex.  To find relation between FIIs & Nifty  To examine whether FIIs have any influence on SENSEX and NIFTY Scope of Study The study takes 20 years data into consideration. To study the impact of FII on Indian stock market, Sensex and Nifty was selected in the study, as it is the most systematic stock market indices and widely used by market participants for benchmarking. Research Methodology: Data Collection: This study is based on secondary data. In this research data is collected from official website of BSE and SEBI. CNX Nifty data is downloaded from the websites of NSE. Monthly closing index value are taken. The current study considers 20 years data starting from Jan 1996 to 2016 (till July). Analytical tools and technique: In order to analyze the collected data the statistical tools such as correlation and regression is used. The correlation coefficient (a value between -1 and +1) tells you how strongly two variables are related to each other. A correlation coefficient of +1 indicates a perfect positive correlation. As variable X increases, variable Y increases. A correlation coefficient of -1 indicates a perfect negative correlation. As variable X increases, variable Z decreases. A correlation coefficient near 0 indicates no correlation The regression analysis is a statistical technique used to evaluate the effects of Independent variables on a single dependent variable. In this research project impact of FII is on the Sensex is done on the monthly data of last 20 years. In which FII is independent variable and Sensex is dependent variable. Similarly, For Nifty impact of FII is on the Nifty is done on the monthly data of last 20 years. In which FII is independent variable and Nifty is dependent variable. Correlation and Regression is calculated with the help of SPSS (Statistical Package for Social Sciences) Software. FINDINGS FIIs AND SENSEX Hypothesis: (1) H0: There is no significant impact of FIIs inflow on the stock market index (BSE-Sensex) movement (2) HA: There is significant impact of FIIs inflow on the stock market index (BSE-Sensex) movement Table 1.1 Descriptive Statistics Mean Std. Deviatio n N sensex 11623.8 862 8131.64 788 247 fii 4585.15 99 10300.6 7791 247 Table 1.2 Correlations Pearson Correlation sensex fii sensex 1.000 .394 fii .394 1.000 sensex . .000 fii .000 . sensex 247 247 fii 247 247 Sig. (1-tailed) N Table 1.3 model summaryb Model 1 R R square Adjusted r square .394a .155 .152 Std. Error of the estimate 7489.919 16 Table 1.4 anovaa Model Sum of Df squares Mean square Regression 252220172 1 8.188 252220172 44.960 .000b 8.188 Residual 137442278 245 00.095 56098888.9 80 Total 162664295 246 28.283 A. Dependent variable: sensex B. Predictors: (constant), fii F Sig. Table 1.5 coefficientsa Model Unstandardized coefficients B T Sig. 19.544 .000 6.705 .000 Std. Error Beta (constant) 10198.57 521.830 1 Fii .311 1 Standardized coefficients .046 .394 a. Dependent variable: sensex The above table exhibits the correlation and regression values of the independent variable fiis on the dependent variables of sensex. R square is the coefficient of simple determination. It expresses the extent of variation in the dependent variable as explained uniquely or jointly by the independent variables. The value of r square ranges from 0 to 1. From the table 1.2, the value of r square for fii and sensex is 0.155, implying that 15.5% of the change in dependent variable was explained by the independent variable. This further indicates that apart from fii factor some other major factors are responsible for the changes happen in the stock market. The regression equatio se se se = α + β fii + € sho s that fo e e unit change i β that is fii the e is . u it ha ge i that is se se se . The alue of α (alpha) is 10198.571 which show that the other factors are more responsible for this relationship. The anova (table 1.4) shows the significant level of 5% indicating that there is model fit for linear regression model. The table 1.5 shows that the t value is 6.705 which is greater than the table value, the null hypothesis is rejected at 5% level of significance indicating that there is significant impact of fiis inflow on the stock market index (bse-sensex) movement. Further to find out the relationship between fiis investment and bse-sensex, pearson correlation test is carried out. From the table 1.2, it is established that the correlation between net fiis investment and bse-sensex index is 0.39. This shows that there is good relationship between the both variables and further both variables are positively correlated. Further the correlation is significant at 1% level. FIIs AND NIFTY Hypothesis: (1) h0: there is no significant impact of fiis inflow on the stock market index (nsenifty) movement (2) ha: there is significant impact of fiis inflow on the stock market index (nse-nifty) movement Table 2.1 descriptive statistics Mean Std. Deviation N Nifty 3500.0696 2442.16585 247 Fii 4585.1599 10300.6779 247 1 Table 2.2 correlations Pearson correlation Nifty Fii Nifty 1.000 .394 Fii .394 1.000 Nifty . .000 Fii .000 . Nifty 247 247 Fii 247 247 Sig. (1-tailed) N Table 2.3 model summaryb Model R Adjusted R square square 1 .394a .155 .152 Sum squares of Df r Std. Error of the estimate 2249.25131 Table 2.4 anovaa Model 227699607.6 1 Regression 27 1 Residual 1239487211. 245 708 Total 1467186819. 246 335 A. Dependent variable: nifty Mean square F 227699607 45.008 .627 5059131.4 76 Sig. .000b Table 2.5 coefficientsa Model Unstandardized coefficients B Standardized T coefficients Sig. Std. Error Beta (constant) 3071.815 156.707 Fii .093 19.602 .000 1 .014 .394 6.709 .000 a. Dependent variable: nifty. The above table exhibits the correlation and regression values of the independent variable fiis on the dependent variables of nifty. R square is the coefficient of simple determination. It expresses the extent of variation in the dependent variable as explained uniquely or jointly by the independent variables. The value of r square ranges from 0 to 1. From the table 2.2, the value of r square for fii and nifty is 0.155, implying that 15.5% of the change in dependent variable was explained by the independent variable. This further indicates that apart from fii factor some other major factors are responsible for the changes happen in the stock market. The regression equation y (bse sensex) = α + β fii + € sho s that fo e e u it ha ge i β that is fii the e is .093 unit ha ge i that is se se se . The alue of α alpha is 3071.815 which show that the other factors are more responsible for this relationship. The anova (table 2.4) shows the significant level of 5% indicating that there is model fit for linear regression model. The table 2.5 shows that the t value is 6.709 which is greater than the table value, the null hypothesis is rejected at 5% level of significance indicating that there is significant impact of fiis inflow on the stock market index (nse-nifty) movement. Further to find out the relationship between fiis investment and nse-nifty pearson correlation test is carried out. From the table 2.2, it is established that the correlation between net fiis investment and nse-nifty index is 0.394. This shows that there is good relationship between the both variables and further both variables are positively correlated. Further the correlation is significant at 1% level. Conclusion From all the discussions and data analysis, we conclude that FIIs have major impact on Indian Capital market. The correlation coefficient between FII and Sensex for both analyses is positively correlated It is clear that major falls in stock market were after effects of withdrawal of money by FIIs. So there is a direct relation between the FII's money flow and the movement of SENSEX. The biggest fall in stock markets occurred in 2008. The Correlation Test also establishes the degree of association between the FII and Sensex and the analysis indicates the impact of FIIs on Indices. As we know the FII is not only the sole factor that influences the SENSEX and NIFTY movement. The SENSEX is also influenced by other factors like company specific factors, speculative trading, interest rate prevailing in the market, political factors, government policies related to specific sectors etc. which cause a significant change in the market. References http://www.bseindia.com/ https://www.cdslindia.com https://www.nseindia.com/ https://www.rbi.org.in/ http://www.sebi.gov.in/sebiweb/ Joo Bashir Ahmad and Zahoor Ahmad Mir, 2014, Impact of fiis investment on volatility of Indian stock market: an empirical investigation , Journal of Business & Economic Policy, Vol. 1, No. 2 K. Joshi Vikram and Richa Saxena, 2011, Analytical study of impact of fii on Indian stock market with special reference to BSE Sensex , SMS Varanasi, Vol. Vii, No. 2 Kulshrestha Hemkant, 2014, Impact of foreign institutional investors (fiis) on Indian capital market , International Journal of Research in Business Management, Vol. 2, Issue 3 Kumar Vishal, Dr. Rameshwar Singh & Vipin Ku a , , Foreign Institutional I esto s as ke Dete i a ts of I dia “to k Ma ket: A E pi i al “tud , ANVESHANAM- The Journal of Management VOL. II, NO. 1 Loomba Jatinder, 2012, Do fiis impact volatility of Indian stock market , International Journal of Marketing, Financial Services & Management Research, Vol.1 Issue 7 Maggo “hilpa, , T e d A al sis of FII Flo s i I dia , The International Journal of Business & Management, Vol 2 Issue 6 Mohanamani.P and Dr T.sivagnanasithi, 2012, Impact of foreign institutional investors on the Indian capital market , Journal of Contemporary Research in Management, Vol. 7; No. 2 Ramaratnam M.S, R. Jayaraman and V. Krishnamoorthy, 2013, Impact of fii on the Indian stock market: study with special reference to BSE-Sensex , Abhinav National Monthly Refereed Journal of Research in Commerce & Management, Volume No.2, Issue No.4 Rastogi S.K, Nazaquat Husain, 2015, Volatility trends and their relationship with fiis in Indian sto k a ket , Int. J. Of Trade & Commerce-IIARTC, Vol. 4, No. 1 Shirodkar, Rohan. R, 2012, Role a d i pa t of fii’s o Indian capital market , Bha ati Vid apeeth’s I stitute Of Ma age e t & I fo atio Te h olog Shrivastav Anubha, 2013, A study of influence of fii flows on Indian stock market , Gyanpratha – Accman Journal Of Management, Volume 5, Issue 1