Influence of FIIs (Foreign Institutional Investors) in Indian stock market: an overview

Foreign institutional investors have gained a significant role in Indian stock markets. The Foreign Institutional Investors (FIIs) have emerged as important players in the Indian equity market in the recent past. This study makes an attempt to develop an understanding of the dynamics of the trading behavior and the factors influencing FIIs and returns in the Indian equity market by analyzing the secondary data. The dawn of 21^st century has shown the real dynamism of stock market and the various benchmarking of Sensex/Nifty in terms of its highest peaks and sudden falls. The present study is an attempt to determine the impact of Foreign Institutional Investments (FIIs) on Indian stock market as India has emerged as one of the most attractive investment destinations in Asia In this context present paper examines the contribution of foreign institutional investment in Indian Stock Market FII, because of its short-term nature, can have bidirectional causation with the returns of other domestic financial markets such as money markets, stock markets, and foreign exchange markets. Hence, understanding the determinants of FII is very important for any emerging economy as FII exerts a larger impact on the domestic financial markets in the short run and a real impact in the long run. Also attempts to understand the recent trends of FII during the period of 2001 to 2012 and examine the volatility of BSE/NSE due to FII. The data for the study uses the information obtained from the secondary resources like website of BSE, NSE and SEBI. This paper attempts to study the impact of foreign institutional investment on stock market and Indian economy. Being India part of BRICS and part of emerging economy FIIs play an important role in growth and sustainable development of Indian economy. This paper attempts to present the correlation between FII and BSE/NSE as well as Market capitalization through use of Karl Pearson Correlation test.