Impact of Foreign Investments on Indian Stock Market An Empirical Study

FDI and FII have become instruments of international economic integration, stimulation and a major catalyst to development. Fast growing economies like Singapore, China, and Korea etc have registered the incredible growth at onset of FDI. Promoting FDI to supplement the domestic capital, human skills and technology for accelerated domesticate economic growth has been the objective of the Government of India since the inception of LPG in 1991. Superior and sophisticated technology has helped India greatly. Industries have been marching ahead riding on the incoming superior and advanced technology. FDI not only influences the stock market by creating positive sentiments in the market participants, they also play a vital role in the employment creation in different sectors. Being a long-term investment FDI plays a major role in bringing the stability to the country‘s economy. The Foreign Institutional Investors (FIIs) have emerged as noteworthy players in the Indian stock market and their growing contribution adds as an important feature of the development of stock markets in India. FIIs are more volatile in nature and more profit driven investment. Hence, FDI is more desirable for any country, not to undermine the impact of FII. This paper attempts to develop a study to find the relationship and impact of FDI & FII on Indian stock market using the statistical measures-correlation coefficient and multi regression for 14 years data spanning from 2000 to 2014. Sensex and Nifty are considered as the representative of stock market. The analysis of the current study provides the evidence of strong positive correlation between FDI & Sensex and FDI & nifty. It also provides the evidence of moderate positive correlation between FII activity and effects on Indian Capital Market. Both FDI and FII determine the trend of Indian stock market.