A STUDY ON

“A STUDY ON FDI AND FII & THEIR IMPACT ON INDIAN STOCK MARKET”

INDIAN BULLS SECURITIES LTD

STAGE-1
INTRODUCTION

REVIEW OF LITERATURE

RESEARCH GAP

SCOPE OF THE STUDY

OBJECTIVE OF THE STUDY

HYPOTHESIS

RESEARCH METHODOLOGY
SAMPLE
 AREA
 SIZE
 TECHNIQUES
DATA COLLECTION
 PRIMARY DATA
 SECONDARY DATA
PERIOD OF THE STUDY
STATISTICALTOOLS
INTRODUCTION
To understand the foreign inflows , we need to look into history of India, in early 1498
a Portuguese man Vaskodigama came to Calicut and saw the wealth of Indians. He
introduced India to the world & then after people started visiting India. British,French,
Dutch Portuguese, established their place of business in India and started trading with
Indians. Sir Tomas Roe was the first person from British who have come as the diplomat
to India and got the permission of trading in Mughal India. After British established the
‘East India Company’(EIC) and started business. It was initial form of FDI in India. It got
many changes according to the world’s financial status and become popular word as
Foreign Direct Investment (FDI). Due to bad experience faced by “EIC” at the time of
independence, the attitude towards ownership of foreign capital was of fear and skeptical
.After recognizing the role of private foreign investment in the country government gave
importance that its regulation was necessary in the interest of nation . Because of this
attitude expressed in the 1948 resolution, foreign capitalists got dissatisfied.FDI
introduced in the year 1991 under Foreign Exchange Management Act (FEMA), the
major sectors that attracted FDI-services, telecommunication, construction activities and
computer software and hardware.

A Foreign Direct Investment (FDI) is an investment in by foreign investors in the

foreign based company. FDI’s are classified into two types:

1. Green Field Investment

A new company which has headquarters in another country and the new company
will be established in another country i,e foreign company

2. Portfolio Investment (foreign company shares are purchased (or) ownership of the

foreign company is acquired via mergers or acquisition

There are some regulations and rules that should be followed while making investments in FDI.
Some industries like nuclear energy, agriculture etc, FDI is not allowed.
FDI is not only meant for transfer of funds , but also transfer of technology, R&D, know-how,
technical knowledge, and many other aspects
(FII)
A foreign institutional investor (FII) is any type of large investor who does business in a
country other than the one country in which the investment instruments like shares, bonds are
being purchased
FII in India: Developing countries like India have the large volume of foreign institutional
investments, so maximum these kinds of investors are found in India.
The investors has to register with SEBI to take part in the market FIIs are allowed to invest in
primary and secondary capital markets only through the country's portfolio investment
scheme (PIS) .This scheme allows FIIs to purchase shares and debentures of Indian
companies on the exchanges like NIFTY and BSE i,e being the most popular exchanges of
India
REVIEW OF LITERATURE

Dr. JasbirSingh, Ms. SumitaChadha, Dr. AnupamaSharma (Oct2019): The study aimed
at knowing the requirement of amount of foreign investment by India for its economic
development. It also analyzes the trend and role of FDI/FPI in improving the quality and
availability of goods in India. The information collected include reports/publication of Govt.
and RBI relating to foreign investment. It was found that foreign investment flows are
supplementing the scarce domestic investment in India

Khandelwal, Vartika (March 2019):The researcher studied that there is casual

relationship between Foreign institutional investments and Stock market return and
exchange rates.. In the study it was found that FII’s coming to India were return
chasers of the investments made

K Raviteja (Dec 2016): The study conducted by the researcher aimed at knowing the flow
of Indian and International FDI/FPI before and after the 2009 recession & their impact on
Indian economy .Variables used for the study are FDI, FPI, and recession. It was found in
research that rupee depreciation has influenced the FDI and FPI flows. The study focused
only on the impact of 2009 recession on FDI/FPI.

DrHojtallahGoudarzi, Dr.C.S.Ramanarayanan(2017): The researcher gave importance

on investigating the co-integration causality between the stock market of India and FII’S in
India during world financial disturbance of 2008. It was found that Bombay Stock
Exchange 500 stock index and FII series are co- integrated and causality between them is
bilateral. It focused only on the impact of foreign direct investment and foreign institutional
investment on Indian stock market but completely avoided Debt market and uses only three
variable FII, FDI and Sensex.

Ravi Bhandari (February 2014): The researcher analyzed the cause and impact on the
depreciation of rupee against American dollar on Economy of India. The variables
considered for the study are money supply as the % of the FDIGDP & and Inflation.
The study completely ignores the stock and debt market which is the barometer of
Indian economy.
 RESEARCH GAP

FDI&FII help in economic development and their investments patterns and the inflow
decide the amount of investments made in different sectors which are directly related to
the development of the country. The studies are conducted on how the FDI & FII are
helping in the development however some of the studies did not consider FII’s. In this
study, research is done on how FDI&FII have impact on the stock markets by considering
the major stock exchanges of India i,e NSE &BSE

SCOPE OF THE STUDY

The present study takes 5 years data into consideration. To study the impact of FDI & FII on
Indian stock market, Sensex and Nifty which are widely used by participants in the stock
market for benchmarking purpose

OBJECTIVES OF THE STUDY:

1. To study the trend and pattern of foreign capital flow into India in the form of FDI &FII

2. To study the impact of FDI on stock market by considering the popular stock markets
NIFTY & SENSEX

3. To study the impact of FII on stock market by considering the popular stock markets
NIFTY & SENSEX
HYPOTHESIS

To Study the framed objectives i,e the impact of FDI & FII on stock market .we need to build
models which are required.

It considers independent variables& dependent variables. Sensex & CNX Nifty as dependent
variables and FDI & FII as independent variables.

a) Y= a + b1 X1+ b2 X2
In this (Y) is Sensex-dependent variable and (X1)-FDI and (X2)-FII are considered as
independent variable
b) Y = a + b1 X1 + b2 X2
In this (Y) is CNX Nifty-dependent variable and (X1)-FDI and (X2)-FII are considered
as independent variable

The null hypothesis for models is; b1=0 & b2=0 against where the alternative hypothesis i.e.
b1#0 & b2#0. This can be stated from below two models

Multiple Regression is applied in the study as there is two independent variables i.e FDI and
FII which are dependent on the two dependent variables i,e Sensex and Nifty

Model (a)

H0: FDI & FII has no significant impact on BSE Sensex movements.

H1: FDI or FII has significant impact on BSE Sensex movements.

Model (b)

H0: FDI& FII has no significant impact on Nifty movements.

H1: FDI or FII has significant impact on Nifty movements.

 METHODOLOGY

I. Research Methodology
Coverage of the study
The study considers FDI & FII investments in India and Indian Stock Market, with
reference to SENSEX & CNX Nifty. These indices are considered as the representative of
Indian stock market

Data Collection
This study is based on secondary data. The data related to FDI & FII have been
collected from i.e. National Securities Depository Limited, Bulletins of RBI, Ministry of
Commerce Publications, and Department of Industrial Policy &Promotion. The data
downloaded related to Sensex and CNX Nifty from websites of BSE and NSE
respectively.

Tools & Techniques

For Interpretation and analyzing the data, the tools from statistics such as
regression and correlation analysis are used. Correlation coefficient is a tool measure that
determines the degree to which two variable's movements are associated.

Coefficient of Correlation value ranges from -1to 1. indicates: If one variable increases in
its values, the other variable decreases in its value it indicates Negative value and if one
variable increases in its values the other variable also increases in its value it indicates
positive value. To know the linear relationship b/w variables such as FDI, FII& SENSEX,
FDI & CNX nifty, the statistical tool Correlation is applied.

The regression analysis is a technique from Statistics used to evaluate the effects of an
independent variable on another dependent variable.

The impact of FDI & FII on the two major stock exchanges of India (NIFTY&SENSEX). In this
study independent variables are FDI & FII are considered and the dependent variables considered
are SENSEX & CNX Nifty

Excel and SPSS software is used in Data Interpretation and analysis.

PERIOD OF THE STUDY:

PERIOD OF THE STUDY:

The present study considers the time period of 5 years i,e 2014-2019