Determinants of fiis in India (An application of regression analysis)

Foreign funds are indispensable for the economic development of any developing country and India is no exception to it. A developing country like India which was heavily dependent on official assistance and debt capital for the want of foreign exchange, suffered from balance of payment crises in the early 1990s.This crises forced the government agencies to look for an alternative source of foreign capital, consequently, economic reforms took place and foreign investors were allowed to invest in Indian financial markets. Since then, due to promising situation of Indian economy and its strong fundamentals, India has remained the favourite investment destination of FIIs. But these foreign investors are very sensitive towards the events which take place domestically and internationally. Therefore, their investment behavior changes with each event and they infuse billions of dollars with each positive happening and withdraw their money in bulk with each negative event. Hence, it becomes quite necessary to understand the factors affecting FIIs behavior. The present study is done with the objective of finding the probable determinants of FIIs flow in India from policy perspectives. In this study the regression analysis has been used to find out the determinants of FIIs in India. The findings of the study has revealed that BSE Sensex is positive determinant of FIIs inflow in India, whereas, the gold prices are the negative determinants.