1Department of Business Management, Osmania University, Hyderabad.
2Department of Commerce and Business Management, Kakatiya University, Warangal.
The gradual liberalization of Indian economy has resulted in substantial inflow of Foreign Capital into India. Simultaneously, dismantling of trade barriers has also facilitated the integration of domestic economy with world economy. With the globalization of trade and relatively free movement of financial assets, risk management through derivative products has become a necessity in India, like in other developed and developing countries.
Globalization hadled to widespread liberalization and implementation of financial market reforms in many countries, mainly focusing on integrating the financial markets with the global markets. Indian Capital Market has also undergone metamorphic reforms in the past few years. Every segment of Indian Capital Market viz primary and secondary markets, derivatives, institutional investment and market intermediation has been impacted by these changes, which have significantly improved the transparency, efficiency and integration of Indian markets with the global markets. This is one of the prime reasons why the foreign portfolio investments have been increasingly adopted into the Indian markets.
A significant part of these portfolio flows to India comes in the form of Foreign Institutional Investors' (FIIs') investments. Ever since the opening of the Indian equity markets to foreigners, FII net investments have steadily grown. Thus, we can see that there has been a consistent rise in the FII inflows into the country.
In this context, the paper is a modest attempt to assess the importance of foreign portfolio investments in India relative to other major forms and to study the relationship between foreign institutional investments and trends in the Indian Derivative markets. This paper summarizes the theoretical and empirical research on the role of Financial Institutions investment in Indian Financial Derivatives Market.
