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The IUP Journal of Applied Finance

Influence of FII Flows on Indian Stock Market: An Empirical Study

Article Details

Pub. Date	: April, 2022
Product Name	: The IUP Journal of Applied Finance
Product Type	: Article
Product Code	: IJAF040422
Author Name	: Butala C Ajmera and Frenki R Chauhan
Availability	: YES
Subject/Domain	: Finance
Download Format	: PDF Format
No. of Pages	: 12

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Abstract

This paper examines the impact of Foreign Institutional Investors (FIIs) on the Indian stock market. Secondary data was collected for a period of 15 years from 2006-07 to 2021-2022 and analyzed using descriptive statistics, correlation matrix, multiple regression and structural equation model. Descriptive statistics shows that the mean of Sensex is very high, followed by equity flow, debt, debt-VRR and hybrid. The highest variance has been found in equity, followed by debt, hybrid, Sensex and debt-VRR. Skewness is the highest in debt-VRR, followed by hybrid, debt, Sensex and equity. Sensex has a negative and insignificant relationship with equity flow, whereas debt-VRR has a positive and significant relationship at 10% level of significance. Hybrid and debt have a significant relationship. Multiple regression model has been used to examine the impact of FIIs on Sensex. The dependent variable is Sensex and the independent variables are equity, debt, hybrid and debt-VRR. The regression model indicates that adjusted R2 is 0.154, which means that all independent variables have caused 15.40% variance in Sensex during the study period. However, all the independent variables have insignificantly impacted Sensex.

Introduction

Indian people can start a business very easily in India with their own capital. But to sustain the business in a developing economy is a bit difficult. Even for capital, Indian businessmen can take help from foreign investors, besides domestic investors. Moreover, the value of foreign currency is very high as compared to Indian rupees, so there is an advantage of exchange rate. Even SEBI has made rules for foreign investors. SEBI has also created enough infrastructure for foreign investors. Even our economy is open for Foreign Institutional Investors (FIIs) because they come with huge funds.

Manmohan Singh, as finance minister in 1992, reduced certain barriers to industrial development and announced three economic reforms for the Indian economy. Thereafter, the FIIs were allowed to invest in all securities traded on the primary and secondary markets, including shares, debentures, mutual funds, bonds, and warrants in India.

It is believed that FIIs' participation in stock provides stability to the stock market. Besides, their participation helped to increate infrastructure in stock market. FIIs have been