A Study on Impact of FII on BSE and NSE

INTRODUCTION

Foreign Institutional Investors (FII) plays a crucial role in any country‘s development. The 21st century has shown immense volatilities of the securities exchange and the different indicators (Sensex and Nifty) as far as its highest and lowest points are concerned. They play a vital role for Indian markets growth, particularly when there is hardly any growth in the market of equity assets, especially under the mutual fund industry and when premium collection is not growing in the insurance sector for a long period of time. With the help of this research, have tried to analyze the impact of Foreign Institutional Investment on indexes (Sensex and Nifty). We have tried to understand the pattern and fluctuations of FII during 2019 and analyse the changes in BSE Sensex and NSE Nifty due to Foreign Institutional Investment.

It was found that Foreign Institutional Investments were comparatively higher in the developing economies, which provide investors with the opportunity of higher growth potential than mature economies provide. This is one of the primary reasons why foreign investors are attracted to invest in India, which has a high rate of growth in their economy and financially beneficial opportunities to invest in. FIIs can be an important source of capital for the nations especially developing nations, yet many developing nations, such as India, have placed limits on the total amount of assets that foreign investors can buy in the country and the number of equities shares they can buy, in a single company. This study is often fascinated by how Foreign Institutional Investors play a vital role in shaping up the Indian economy and wanted to have an in-depth analysis on what level do these investments have an impact on the Indian Stock Market even after so many prevalent restrictions such as ceiling limit on their investment.

The Primary objectives of our project are the following: • To analyze the effect of Foreign Institutional Investment on Nifty and Sensex. • To analyze the changes being occurred in Indian stock market due to Foreign Institutional Investment. • To study the behavioral pattern of Foreign Institutional Investment on Indian market for the year 2019.

The research comprises information derived from the secondary data i.e., from Sensex, Nifty and FII investment. This was a natural choice for inclusion in the study, as it is the most popular market share and widely used by market participants for norms. This study covered the 2019 period data. The major source of our DATA was Secondary Data. The source of our data collection was Daily Net FII and the Daily SENSEX and NIFTY website. The project is limited to equities and debt only and does not consider areas, GDR, and corporate debt offering. All the important findings are included in our report which transmits the important points, which were gathered during the study. We have used Regression and Correlation Techniques for the purpose of analyzing the data.

It is basically a data base from which sample can be drawn to study the research objectives. In the present research National Stock Exchange and

This study focuses only on Foreign institutional investment and Indian stock market so, the sampling units are drawn from FII and Indian stock market. The indices of FIIs investments, BSE SENSEX, NIFTY 50 have been used as sample for this study.

In the project all possible efforts have been made to reduce the limitations yet there are certain limitations which could not be controlled. The study is having few limitations listed below: i. The time duration for the study is very less due to which some aspects are remaining unexplored. ii. The study only includes the equity and debts only. iii. The study is based on secondary data, which is collected from websites, magazines, newspapers etc.

In the present study Regression and Correlation have been used to analysis the data.

Regression analysis is statistical analysis tool which is used to examine the relationship, between two or more dependent and independent variables. In the present project regression model has been used to examine the cause-and-effect relationship between Foreign Institutional Investments and Indian stock indices. Regression line: ŷ = α + βx For specific dependent variable: Yi = α + βXi + €i The columns include: i. Coefficient- For least squares estimates. ii. Standard error- The least squares estimate of the std. error. iv. P value- for the hypothesis test to know its significance. v. Lower 95%- the lower boundary value for Confidence interval vi. Upper 95%- the upper boundary value for Confidence value

Karl Pearson ‗s correlation examines the relationship between the FIIs equity investment pattern and Indian stock indices. It calculates the degree of relationship between FII investments and BSE & NSE indices to know whether there is positive or negative relationship between them. Formula for the same is:

Standard Deviation The Standard Deviation is the measure of spread of the data or the degree to which observations are deviated from the mean.

It refers to as degree of unpredictable change in variable over a period. Mean Mean obtained by calculating the sum of all observations in the data set and divide them with total number of observations.

= 11381.32 + 0.013596 (X)

t-Test : Paired Two Sample for Means for BSE and FII H0: μ1 - μ2 = 0 H1: μ1 - μ2 ≠ 0 t-Test : Paired Two Sample for Means for NSE AND FII H0: μ1 - μ2 = 0 H1: μ1 - μ2 ≠ 0 with NSE and BSE. Hence there might be other factors available like inflation, government policies, investor‘s interests in Indian subsidiaries, etc. which might have more significant effect on the price fluctuations of NSE and BSE. • The standard deviation of BSE is the least. This means the fluctuations in the value of BSE was minimal when compared to other data. This gives us a clear picture of the volatility in the rice values of NSE, BSE and FII. • Also, it can be seen the standard deviation of FII is the highest. This is a clear indication that there were huge fluctuations in the value of Foreign Institutional Investment. • The regression line is hen found out which portrayed a linear trend with fluctuations. • A t-test is a type of inferential statistic used to determine if there is a significant difference between the means of two groups, which may be related in certain features. • The t-test here showed us that the data are having less relation within them.

CONCLUSION

The research has offered numerous useful points based on which we were able to find ways to strengthen the Indian Capital Market especially regarding the stock market. We have made some suggestions based on the findings on this study in this regard. Indian equity market return is the prime source of the FII net flows into India. The rate of FII flows into the country is governed by the performance of the domestic equity market and/ or foreign investors‘ expectations about this performance. A drop of return in the Indian equity market may result in a massive withdrawal of FII, which may result in quite disturbing consequences on the country‘s economy. Similarly, the rise in return would attract a lot of foreign capital to India. The behaviour of FIIs would cause variation in the country‘s foreign exchange reserve, and they may be outside the monetary authority‘s control. India should be accompanied by the improvements in the regulatory system of the financial sector to move towards liberalization and improve the economic conditions of the country. There is a need to work on stabilizing ups and downs in the domestic stock market. This market has undergone peaks and troughs since the starting of economic reforms, many a time because of non-fundamental factors such as speculation, sentiments, and manipulation of equity market to strengthen the domestic investor‘s base of the market. A survey by the - 185 - SEBI and NCAER showed that alleged malpractices like insider trading, low confidence in brokers and sub-brokers and company management/ auditors were the main causes behind lack of domestic saver‘s confidence in the equity market. The participation of domestic institutional investors specially pension funds should be ensured to strengthen the base of the domestic stock market and would also end the anomaly of the existing situation where foreign pension funds are major users of the Indian equity market on the other hand domestic pension funds are not. Government with their recent policies is trying to promote investment from within the country by citizens changing their approach from conservative to open approach this which increase domestic investment for the country. The stability of foreign institutional investment in India can be enhanced if FIIs are provided with the free passage to switch between equity and debt investments in India, depending on their view towards future equity returns. If greater flexibility is provided to FIIs to participate in the bond market, it will promote more balanced strategies and equity and debt mix. This will result into an increase in the foreign and domestic investment in the country. The FIIs impact the volatility of stock market return, as there prevails an opinion that FII destabilize the country‘s market. But our study provides vice-versa findings. It shows that FIIs are not ―villains‖ as the study suggested, as there is no impact of foreign institutional investor‘s arrival on Indian stock market and on its behaviour. So, it is suggested to establish flexible or temporary capital controls through either quantitative restrictions or price-based restriction so that impact of the external shocks such as financial crisis in some other country or great turbulence in international interest rate can be restricted. It is further suggested to move from quantitative restriction-based control to price –based contingent restriction. So, proper implementation of policies in the country can be ensured. Lastly, the regulatory authority must investigate professed restrictive practices by FIIs like price rigging. Once it is achieved, a built-in cushion against any possible destabilizing effects of sudden reversal of foreign inflows will decrease. Only then it would be possible to reap full benefits of capital market integration.

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Research Scholar, Department of Commerce, Central University of Karnataka, Kadaganchi, Karnataka