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ABSTRACT
The growing participation of FIIs in Indian stock market has raised eyebrows of many Indians. Their influence on stock markets in India has been widely debated and remained a hot topic in media. This paper examines the relationship between Indian stock market and FIIs investment in India and finds that both, Indian stock market and FIIs influence each other; however, their timing of influence is different.
Keywords: FIIs, stock markets, investments, cause-effect, India, etc.
INTRODUCTION:
Some of the market pundits believe that FIIs are responsible for rise or fall in the Indian stock market. Consequently, we see the headlines like, 'FIIs drive Sensex to 2-month high' or 'FII selling drives down stock prices for 3rd day-Volatility may continue, say market players' etc which use to appear in business newspapers, most frequently. This raises a question as to whether FIIs are really a cause or effect of the rise or fall in the Indian stock market.
One of the most important features of the development of stock market in India in the last 20 years has been the growing participation of FIIs. Since September, 1992 when FIIs were allowed to invest in India, the no. of FIIs has grown over a period of time. At end-march 2009, there were 1626 FIIs registered with SEBI. (Table 1)
This is not unusual as most of the developing economies might be experiencing the same patterns. The increasing role of FIIs has brought in the development of our stock markets as well such as expansion of the business in securities, increased depth and breadth of the market, etc.
FIIs contribute to almost 13% of the entire market capitalization at National Stock Exchange in India. If we talk of FIIs investment, this has been continuously grown over years except 1998-99 and 2008-09 when FIIs sold more than they purchased in Indian stock market. (Table 2)
The net cumulative investments by FIIs stood at USD 89.3 billion at the end of March, 2010. Because of their war chests of money, the role of FIIs can't be ignored. FIIs have dynamic portfolios across countries which they use to restructure and rebalance depending on the market conditions, definitely, with a motive to increase their gains. Because of their size of investment...