Documente Academic
Documente Profesional
Documente Cultură
ON
TECHNOLOGY
DECLARATION
I, SUNIL KUMAR of MBA III Semester, studying at MAHARAJA AGRESAIN INSTITUTE OF
MANAGEMENT &TECHNOLOGY, JAGADHARI, hereby declare that this project titled “Impact of
ACKNOWLEDGEMENT
The satiation and euphonies that accompany the success completion of a task would be
incomplete without a mention of people who made it possible. So, with immense gratitude, I
acknowledge all those, whose guidance and encouragement served as a beacon light and
& TECHNOLOGY, JAGADHARI and my project guide for his valuable guidance and suggestions,
and external guide Mr. Sandeep Saini center manager at reliance money Amballa which were
vital inputs towards the completion of the project. Lastly, I would like to thank all those who have
EXECUTIVE SUMMARY
Management ideas without any action based on them mean nothing. That is why practical
experience is vital for any management studies. Theoretical studies in the class room are not
sufficient to understand the functioning climate and the real problems coming in the way of
management. So, practical exposures are indispensable to such courses. Thus, practical
This
report deals with Impact of FII’s And FDI’s On Indian Stock Market. has been completed. I have
learnt a lot of new things which could never been learnt from theory classes. The next part
include whole of research process used for the project. It contains research methodology,
research objective, scope analysis and interpretation of the data, collected from secondary
In this study I have collected data from secondary source. In this study in used
descriptive research design is used. This part includes observations analysis and discussion on
collected data then suggestions are given these are based are on the usefulness of the study,
CONTENTS
INTRODUCTION
F E A T U R E S O F
S T O C K M A R K E T
O P E R A T I O N A L
D E F I N I T I O N S
LITERATURE REVIEW
RESERCH METHODOLOGY
O B J E C T I V E S
R E S E A R C H D E S I G N
D A T A C O L L E C T I O N
D A T A A N A L Y S I S
S A M P L I N G P L A N
S A M P L I N G D E S I G N
S C O P E O F S T U D Y
L I M I T A T I O N S O F
T H E S T U D Y
INDUSTRY PROFILE
F O R E I G N
I N S T I T U T I O N A L
I N V E S T M E N T I N
I N D I A :
M I L E S T O N E
A C T S A N D R U L E
I N V E S T M E N T
O P P O R T U N I T I E S
F O R F I I s
B R I E F P R O F I L E
O F I M O R T A N T
I N S T I T U T I O N S
COMPANY PROFILE
CONCLUSION
BIBLIOGRAPHY
INTRODUCTION
A STOCK EXCHANGE is a platform where buyers and sellers of securities issued by
governments, finance institutions, corporate houses etc., meet and where trading of these
become wrong than the investors loss. Nobody knows what will happen even after a second.
A Stock Exchange refers to the segments of the capital market where the securities issued by
corporate are trade. It is open auction market where buyers and sellers meet and involve
competitive prices of the securities. It reflects hopes aspiration fair of people regarding the
performance of the economy. I t provides necessary mobility to capital and direct flow of the
Since buying and selling of the different of securities take place on stock exchange. The prices of
particular securities reflect there demand and supply. In fact, stock exchange is said to be a
The stock market in India, Securities and Exchange Board of India (SEBI) is on the issue of
acceptance of hedge funds into Indian financial market. At the some time world wide trade shows
that hedge funds are important force to the reckoned with us. The impact of hedge funds activity
is new to the Indian financial investors (FII) flows volatility of the stock market. This is so because
hedge funds activity in Indian primary through participatory notes (PN) and the some is reflected
under FII inflows. Large stock operators and investment arms certain large corporate in India in
the period consideration used to use oversees body (OCB) as a mechanism to take exposure to
the India n market. OCB activity in the Indian context is pretty similar to funds trading historically
OCB flows also used to appear under the head of FII flows traditionally a large chunck of the PN
and OCB activity in India use to happen through the Mauritius route due to taxation benefits. With
the latest budget presented by the Indian government .(will become effective from 1st September
2004 ) reducing long term capital gains to zero and short term capital gains to 10 % the taxation
to Mauritious to exist .
STOCK EXCHANGE
A” STOCK EXCHANGE “is a platform where buyers and sellers of securities issued by
governments, finance institutions, corporate houses etc., meet and where trading of
These corporate securities take place. This is a market of speculation. If speculation of investors
become wrong than the investors loss. Nobody knows what will happen even after a second.
A Stock Exchange refers to the segments of the capital market where the securities issued by
corporate are trade. It is open auction market where buyers and sellers meet and involve
competitive prices of the securities. It reflects hopes aspiration fair of people regarding the
performance of the economy. I t provides necessary mobility to capital and direct flow of the
Since buying and selling of the different of securities take place ion stock exchange. The prices
of particularl securities reflect there demand and supply. In fact, stock exchange is said to be a
The stock exchange is the nerve center of capital market. The stock exchange discharges three
essential functions in the process of capital formation not in raising resources for the corporate
sector.
It provides places for sale and purchase of securities i.e. share, bonds etc. . . .
It [provides linkage between the saving of household sector and investment in
corporate
sector of economy.
It provides market quotation for shares debenture and bonds and serves as a role of barometer,
not only of the state of health of individual companies but also of the economy as a whole.
Therefore, by providing market place quotation of the prices of shares and bonds or sort of
collective judgment. Simultaneously reached by many buyers and sellers in the market stock
exchange serve the role of barometer, not only of the state of health of individual companies but
I t i s t h e p l a c e
w h e r e l i s t e d
s e c u r i t i e s a r e
b o u g h t a n d s o l d .
I t i s a n
a s s o c i a t i o n o f
p e r s o n s k n o w n a s
m e m b e r s .
T r a d i n g i n
s e c u r i t i e s i s
a l l o w e d u n d e r
r u l e s a n d
r e g u l a t i o n s o f
s t o c k e x c h a n g e .
M e m b e r s h i p i s
m u s t f o r
t r a n s a c t i n g
b u s i n e s s .
I n v e s t o r s a n d
s p e c u l a t o r s , w h o
w a n t t o b u y a n d
s e l l s e c u r i t i e s ,
c a n d o s o t h r o u g h
members of stock exchange i.e. brokers
OPERATIONAL DEFINITIONS
STOCK MARKET:-
governments, finance institutions, corporate houses etc., meet and where trading of these
FOREIGN DIRECT MARKET (FDI): - This category refers to international investment in which
the investor obtains a lasting interest in an enterprise in another country. Most concretely, it may
take the form of buying or constructing a factory in a foreign country or adding improvements to
registered in a country outside of the one in which it is currently investing. Foreign institutional
investors have made a sizable investment in Indian financial markets. There are currently about
are more easily traded, may be less permanent, and do not represent a controlling stake in an
enterprise. These include investments via equity instruments (stocks) or debt (bonds) of a foreign
BULL MARKET: - A Bull market is a market that is consistently going up. It is a market where
there is optimism of further rise batter, business results and other positive factors. Bull Market
can sometimes continue for years, for investors this is the preferred market trend. However no
simultaneous so that risk that affects a particular sector does not affect your overall investment.
For example your portfolio of share includes sectors like Information Technology, Real estate
Exchange rate of a nation's currency- Currency like other commodities rises or falls in "price"
with demand. When investors leave, they sell their holdings in a country's currency and as
ECONOMIES OF SCALE: - Produces are often able to enjoy considerable production cost
savings by buying inputs in bulk, mass-producing or retailing their end product. These lower
DEBT/EQUITY RATIO-The debt/equity ratio measures the extent to which a firm's capital is
provided by lenders (through debt instruments such as fixed-return bonds) or owners (through
variable-return stocks). A greater reliance on financing through debt can mean greater
profitability for shareholders, but also greater risk in the event things go sour.
and orderly exchange arrangements; to foster economic growth and high levels of employment;
and to provide temporary financial assistance to countries to help ease balance of payments
adjustment.
INSTITUTIONAL INVESTOR An organization whose primary purpose is to invest its own assets
or those held in trust by it for others. Includes pension funds, investment companies, insurance
supply. By raising interest rates, i.e., making the cost of borrowing money more expensive,
governments or banks can decrease the money supply. A decrease in the money supply tends to
MOST FAVORED NATION TREATMENT-The phrase "most favored nation" refers to the
obligation of the country receiving the investment to give that investment the same treatment as it
summarizes, for a specific period (typically a year or quarter), the economic transactions of an
PORTFOLIO INVESTMENT – covers the acquisition and disposal of equity and debt securities
that cannot be classified under direct investment or reserve asset transactions. These securities
FDI FLOWS AND STOCKS – Through direct investment flows the investors builds up a direct
investment stock (position), making part of the investor’s balance sheet. The FDI stock (position)
normally differs from accumulated flows because of revaluation (changes in prices or exchange
rates) and other adjustments like rescheduling or cancellation of loans, debt forgiveness or debt-
group of related incorporated and/or unincorporated enterprises which have a direct investment
enterprise that is a subsidiary, associate or branch – operating in a country other than the
SUBSIDIARY– is an incorporated enterprise in the host country in which the foreign investor
owns more than 50 per cent of the shareholder’s voting power or has the right to appoint or
remove a majority of the members of this enterprise’s administrative, management or supervisory
body.
EQUITY CAPITAL – comprises of equity in branches and ordinary shares in
subsidiaries
and associates.
Reinvested earnings – consist of the direct investor’s share of earnings not distributed as
dividends by subsidiaries or associates and earnings of branches not remitted to the direct
investor.
OTHER CAPITAL – covers inter-company debt (including short-term loans such as
trade credits) between direct investors and subsidiaries, branches and associates.
WTO – World Trade Organization.
LITERATURE REVIEW
Bruce A. Blonigen
This paper surveys the recent burgeoning literature that empirically examines the foreign direct
investment (FDI) decisions of multinational enterprises (MNEs) and the resulting aggregate
location of FDI across the world. The contribution of the paper is to evaluate what we can say
with relative confidence about FDI as a profession, given the evidence, and what we cannot have
much confidence in at this point. Suggestions are made for future research directions.
Hugo Rojas-Romagosa
Foreign Direct Investment (FDI) flows have increased substantially in the past two decades.
These developments have motivated the appearance of a large number of empirical papers that
test the expected benefits that FDI inflows are assumed to bring to the host countries. We survey
the recent theoretical and empirical literature, but restrict our attention to the productivity changes
that are induced by increased FDI inflows. We review both the aggregate productivity effects, as
This paper study the dynamics of expected stock return and volatility in emerging financial
market. We find clustering predict ability and persistence in conditional volatility and others have
documented for mature market. However, emerging market exhibit higher volatility and
conditional probability of large price changes then mature market exposure to high country
specific risk does not appear to be rewarded with higher expected return. We deduct a risk
Karimullah:
The article examines the impact of foreign institutional investor s FII equity investment behavior
in the Indian stock market. It attempts to find out the two-way causality between foreign
institutional investors (FIIs) behavior and performance of Indian stock market for the period of
January 1997 to June 2007.this article seeks to examine the idea that financial liberalization
induces increased efficiency in the financial market as permission of FIIs equity investment is an
important example of financial liberalization. Return in the stock market is used as proxy for the
efficiency of the stock market in India .granger causality test has been applied to test the
bidirectional causality. Apart from net investment of FIIs, the purchase and sales behavior of FIIs
are analyzed separately. The results indicate that stock market performance is a major
determinant of both the FIIs purchase and sales behavior. But we did not find strong evidence
that the variations in the stock market indices are determined by FIIs investment behavior.
Blockholder, Market efficiency and managerial myopia:
This paper shows holders can add value even if they cannot interview in a firm’s operations.
Blockholders have strong incentive to monitor the firm’s fundamental value, since they can sell
their stakes upon bad news. By trading on their private information (following the “Wall Street
rule”) they cause prices to reflect fundamental value rather than current earnings. This in turn
encourages managers to invest for long term growth rather than short term profits. Contrary to
the view that the U.S.’s liquid markets and transient shareholders exacerbate myopia, this paper
This paper contributes to the literature on FDI and economic growth. We deviate from previous
studies by introducing measures of the volatility of FDI Inflows. As introduced into the model,
these are predicted to have a negative effect on growth. We estimate the standard model using
cross-section, panel data and instrumental variable techniques. Whilst all results are not entirely
positive effect on growth whereas volatility of FDI has a negative impact. The evidence for a
positive effect of FDI is not sensitive to which other explanatory variables are included. In
particular, it is not conditional on the level of human capital (as found in some previous studies).
There is a suggestion that it is not the volatility of FDI per se that retards growth but that such
Bangladesh had gone through several major policy changes regarding the ownership and control
of industries with a view of promoting economic growth . one of the strategies the government of
Bangladesh (GOB) followed to accelerate economic growth was to attract foreign direct
considers the logic behind the methods used in the context of the study and explains why only a
particular method of technique had been used so that research lend themselves to proper
evaluations. Thus in a way it is a written game plan for concluding research therefore in order to
solve research problem it is necessary to design a research methodology for the problem as the
The research design is a pattern or an outline of a research project . It is a statement only the
essential of a study those provide the basic guidelines for the detail of the project. The present
study being conducted follows a descriptive research design has the data would be responses
from a simple containing g a large numbers of sources .It is a cross section of the situation
design of the descriptive studies including the nature and the analytical method.
Data Collection
After the research problem has been defied and the research design has been chalked out, the
task of date collection begins. Data can be collected from other primary or secondary sources.
The main source of obtaining necessary data for the study was Secondary Data. This study is
empirical in nature and hence secondary data is used to conduct the research. The data was
collected from the Internet by exploring the Secondary sources available on websites. Secondary
Data: The secondary data constitutes of daily FII flows data which was collected from Money
Control and Equity Master, the daily returns of SENSEX and NIFTY from BSE and NSE websites
respectively. The trends in FII flow from the RBI website and information on FII from SEBI.
Magazines and Bulletins: - NSE News Bulletins etc.
INTERNET: -
www.sebi.gov.in
wwwnse.co.in
www.moneycontrol.com
etc.
SAMPLING PLANNING
Sampling is an effective step in collection of primary and secondary data and has a great
influence on the quality of the results. The sampling plan includes population, sample size and
sample design.
DATA ANALYSIS:-
PLAN OF ANALYSIS
The data gathered from various sources were primarily studied and necessary data was sorted
out sequentially keeping in mind the procedure of the study. The analysis has been made by,
correlating the FII purchases, sales and net investment with equity market returns to identify
whether a relation exists between them. Findings are included which transmits the important
The report examines The Impact of Foreign Institutional Investments and Foreign Direct
Investment on Equity Stock Market in India. The scope of the research comprises of information
derived from secondary data from various websites. The various information and statistics were
derived from the websites of BSE, NSE, Money Control, RBI and SEBI. Sensex and Nifty was a
natural choice for inclusion in the study, as it is the most popular market indices and widely used
A s t h e t i m e
a v a i l a b l e i s
l i m i t e d a n d t h e
s u b j e c t i s v e r y
v a s t .
T h e s t u d y i s
g e n e r a l .
I t i s m a i n l y
b a s e d o n t h e d a t a
a v a i l a b l e i n
v a r i o u s w e b s i t e s
& o t h e r s e c o n d a r y
sources ;
T h e i n f e r e n c e s
m a d e i s p u r e l y
f r o m t h e p a s t
y e a r ’ s
p e r f o r m a n c e ;
T h e r e i s n o
p a r t i c u l a r f o r m a t
f o r t h e s t u d y ;
S u f f i c i e n t t i m e
i s n o t a v a i l a b l e
t o c o n d u c t a n i n -
d e p t h s t u d y ;
INDUSTRY PROFILE
INVESTMENT IN INDIAN MARKET
shortages of power and infrastructure deficiencies. India presents a vast potential for overseas
investment and is actively encouraging the entrance of foreign players into the market. No
company, of any size, aspiring to be a global player can, for long ignore this country, which is
Success in India will depend on the correct estimation of the country's potential; underestimation
of its complexity or overestimation of its possibilities can lead to failure. While calculating, due
consideration should be given to the factor of the inherent difficulties and uncertainties of
functioning in the Indian system. Entering India's marketplace requires a well-designed plan
backed by serious thought and careful research. For those who take the time and look to India as
an opportunity for long-term growth, not short-term profit- the trip will be well worth the effort.
Market potential
India is the fifth largest economy in the world (ranking above France, Italy, the United Kingdom,
and Russia) and has the third largest GDP in the entire continent of Asia. It is also the second
largest among emerging nations. (These indicators are based on purchasing power parity). India
is also one of the few markets in the world, which offers high prospects for growth and earning
potential in practically all areas of business. Despite the practically unlimited possibilities in India
for overseas businesses, the world's most populous democracy has, until fairly recently, failed to
get the kind of enthusiastic attention generated by other emerging economies such as China.
The reason being, after independence from Britain 50 years ago, India developed a highly
vigorously fostered, along with a distrust of foreign business. Even as today the climate in India
has seen a sea change, smashing barriers and actively seeking foreign investment, many
companies still see it as a difficult market. India is rightfully quoted to be an incomparable country
and is both frustrating and challenging at the same time. Foreign investors should be prepared to
Envisaging and developing a Market Entry Strategy and implementing these strategies when
actually entering the market are three basic steps to make a successful entry into India. The
Indian middle class is large and growing; wages are low; many workers are well educated and
speak English; investors are optimistic and local stocks are up; despite political turmoil, the
country presses on with economic reforms. But there is still cause for worries- Infrastructure
hassles.
The rapid economic growth of the last few years has put heavy stress on India's infrastructure
facilities. The projections of further expansion in key areas could snap the already strained lines
of transportation unless massive programs of expansion and modernization are put in place.
Problems include power demand shortfall, port traffic capacity mismatch, poor road conditions
(only half of the country's roads are surfaced) and low telephone penetration.
Indian Bureaucracy
Although the Indian government is well aware of the need for reform and is pushing ahead in this
area, business still has to deal with an inefficient and sometimes still slow- moving bureaucracy.
Diverse Market
The Indian market is widely diverse. The country has 17 official languages, 6 major religions, and
ethnic diversity as wide as all of Europe. Thus, tastes and preferences differ greatly among
rather than to acquire management control over foreign companies. Diversifying internationally
has long been known as a way to reduce the overall portfolio risk and even earn higher returns.
Investors in developed countries can effectively enhance their portfolio performance by adding
foreign stocks particularly those from emerging market countries where stock markets have
International portfolio flows are largely determined by the performance of the stock markets of
the host countries relative to world markets. With the opening of stock markets in various
sought to realize the potential for portfolio diversification that these markets present.
It is likely that for quite a few years to come, FII flows would increase with global integration. The
main question is whether capital flew in to these countries primarily as a result of changes in
global (largely US) factors or in response to events and indicators in the recipient countries like
its credit rating and domestic stock market return. The answer is mixed – both global and
country-specific factors seem to matter, with the latter being particularly important in the case of
Asian countries and for debt flows rather than equity flows.
September 14, 1992, when the FIIs (Foreign Institutional Investors) were allowed to invest in all
the securities traded on the primary and secondary markets, including shares, debentures and
warrants issued by companies which were listed or were to be listed the stock exchanges in India
would not become a camouflage for individual investment in the nature of FDI (Foreign Direct
Investment), a condition was laid down that the funds invested by FIIs had to have at least 50
participants with no one holding more than 5%. Ever since this day, the regulations on FII
investment have gone through enormous changes and have become more liberal over time.
( F r o m N o v e m b e r
1 9 9 6 , F I I s w e r e
a l l o w e d t o m a k e
1 0 0 % i n v e s t m e n t
i n d e b t
securities subject to specific approval from SEBI as a separate category of FIIs or sub-accounts
as 100% debt funds. Such investments were, of course, subjected to the fund-specific ceiling
prescribed by SEBI and had to be within an overall ceiling of US $ 1.5 billion. The investments
were, however, restricted to the debt instruments of companies listed or to be listed on the stock
exchanges.
I n 1 9 9 7 , t h e
a g g r e g a t e l i m i t
o n i n v e s t m e n t b y
a l l F I I s w a s
a l l o w e d t o b e
r a i s e d
from 24% to 30% by the Board of Directors of individual companies by passing a resolution in
their meeting and by a special resolution to that effect in the company's General Body meeting.
( F r o m t h e y e a r
1 9 9 8 , t h e F I I
i n v e s t m e n t s w e r e
a l s o a l l o w e d i n
t h e d a e t d
government securities, treasury bills and money market instruments.
( I n 2 0 0 0 , t h e
f o r e i g n
c o r p o r a t e s a n d
h i g h n e t w o r t h
i n d i v i d u a l s w e r e
a l s o a l l o w e d
to invest as sub-accounts of SEBI-registered FIIs. FIIs were also permitted to seek SEBI
registration in respect of sub-accounts. This was made more liberal to include the domestic
with recommendations in June 2004. The committee had proposed that, 'In general, FII
investment ceilings, if any, may be reckoned over and above prescribed FDI sectoral caps. The
24 per cent limit on FII investment imposed in 1992 when allowing FII inflows was exclusive of
the FDI limit. The suggested measure will be in conformity with this original stipulation.' The
committee also has recommended that the special procedure for raising FII investments beyond
24 per cent up to the FDI limit in a company may be dispensed with by amending the relevant
regulations.
( M e a n w h i l e , t h e
i n c r e a s e i n
i n v e s t m e n t
c e i l i n g f o r F I I s
i n d e b t f u n d s
f r o m U S $ 1
billion to US $ 1.75 billion has been notified in 2004. The SEBI also has reduced the turnaround
time for processing of FII applications for registrations from 13 working days to 7 working days
foreign investment through portfolio investment by FIIs. The FII portfolio flows have also been on
the rise since September 1992. Their investments have always been net positive, but for 1998-
1. Pension Funds
2. Mutual Funds
3. Insurance Companies
4. Investment Trusts
5. Banks
6. University Fund s
7. Endowments
8. Foundations
Further, following entities proposing to invest on behalf of broad based funds(a fund established
or incorporated outside India, which has at least twenty investors with no single individual
investor holding more than 10% shares or units of the fund) , are also
3. Trustees
e) Commercial papers.
India's Central Bank - the RBI - was established on 1 April 1935 and was nationalized on 1
January 1949. Some of its main objectives are regulating the issue of bank notes, managing
India's foreign exchange reserves, operating India's currency and credit system with a view to
securing monetary stability and developing India's financial structure in line with national socio-
The RBI acts as a banker to Central/State governments, commercial banks, state cooperative
banks and some financial institutions. It formulates and administers monetary policy with a view
deployment of credit. The RBI plays an important role in maintaining the exchange value of the
Rupee and acts as an agent of the government in respect of India's membership of IMF. The RBI
The first concern of a central bank is the maintenance of a soundly based commercial banking
structure. While this concern has grown to comprehend the operations of all financial institutions,
including the several groups of non-bank financial intermediaries, the commercial banks remain
the core of the banking system. A central bank must also cooperate closely with the national
government. Indeed, most governments and central banks have become intimately associated in
They are often responsible for formulating and implementing monetary and credit policies,
usually in cooperation with the government. they have been established specifically to lead or
In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government
of India through an executive resolution, and was subsequently upgraded as a fully autonomous
body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board
of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and
autonomous regulatory board with defined responsibilities, to cover both development &
regulation of the market, and independent powers has been set up.
The basic objectives of the Board were identified as:
Since its inception SEBI has been working targeting the securities and is attending to the
fulfillment of its objectives with commendable zeal and dexterity. The improvements in the
securities markets like capitalization requirements, margining, establishment of clearing
corporations etc. reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the
eligibility criteria, the code of obligations and the code of conduct for different intermediaries like,
bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers,
credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk
management systems for Clearing houses of stock exchanges, surveillance system etc. which
has made dealing in securities both safe and transparent to the end investor.
Another significant event is the approval of trading in stock indices (like S&P CNX
Nifty
& Sensex) in 2000. A market Index is a convenient and effective product because of
the
following reasons:
Two broad approaches of SEBI is to integrate the securities market at the national level, and also
to diversify the trading products, so that there is an increase in number of traders including
banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact
through the Exchanges. In this context the introduction of derivatives trading through Indian
Of the 22 stock exchanges in the country, Mumbai's (earlier known as Bombay), Bombay Stock
Exchange is the largest, with over 6,000 stocks listed. The BSE accounts for over two thirds of
the total trading volume in the country. Established in 1875, the exchange is also the oldest in
Asia. Among the twenty-two Stock Exchanges recognized by the Government of India under the
Securities Contracts (Regulation) Act, 1956, it was the first one to be recognized and it is the only
Approximately 70,000 deals are executed on a daily basis, giving it one of the highest per hour
rates of trading in the world. There are around 3,500 companies in the country which are listed
and have a serious trading volume. The market capitalization of the BSE is Rs.5 trillion. The BSE
sale of security evidencing the ownership of business property or of a public or business debt. It
aims to promote, develop and maintain a well-regulated market for dealing in securities and to
safeguard the interest of members and the investing public having dealings on the Exchange. It
helps industrial development of the country through efficient resource mobilization. To establish
set of companies in the index is essentially fixed. These companies account for
around
one-fifth of the market capitalization of the BSE.
NATIONAL STOCK EXCHANGE OF INDIA
The National Stock Exchange of India Limited has genesis in the report of the High Powered
National Stock Exchange by financial institutions (FIs) to provide access to investors from all
across the country on an equal footing. Based on the recommendations, NSE was promoted by
leading Financial Institutions at the behest of the Government of India and was incorporated in
November 1992 as a tax-paying company unlike other stock exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in
April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June
1994. The Capital Market (Equities) segment commenced operations in November 1994 and
S&P CNX Nifty is a well-diversified 50 stock index accounting for 23 sectors of the economy. It is
used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and
index funds.
S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is
a joint venture between NSE and CRISIL. IISL is India's first specialized company focused upon
the index as a core product. IISL have a consulting and licensing agreement with Standard &
Nifty stocks represent about 60% of the total market capitalization as on March 31, 2005.
Impact cost of the S&P CNX Nifty for a portfolio size of Rs.5 million is 0.07%
S&P CNX Nifty is professionally maintained and is ideal for derivatives trading.
INTRODUCTION TO THE COMPANY
The Reliance – Anil Dhirubhai Ambani Group is among India’s top three private sector business
houses on all major financial parameters, with a market capitalisation of Rs 100,000 crore (US$
22 billion), net assets in excess of Rs 31,500 crore (US$ 7 billion), and net worth to the tune of
Rs 27,500 crore (US$ 6 billion).
Reliance Money Limited has been promoted by Reliance Capital Limited a part of Anil Dhirubhai
Ambani Group with the Net-worth – Rs. 4500 cr., amongst the top 3 banking & financial services
companies in the private sector.
BOARD OF DIRECTORS
Anil DhiruBhai Ambani, Chairman
Amitabh Jhunjhunwala, Vice-Chairman
Rajendra Chitale, Independent Director
Shri C. P. Jain
Reliance ADA Group Structure
Reliance money is a part of the reliance Anil Dhirubai Ambani Group and is promoted by
Reliance capital, the fastest growing private sector financial services company in India, ranked
amongst the top 3 private sector financial companies in terms of net worth.
Reliance money is a comprehensive financial solution provider that enables you to carry out
trading and investment activities in a secure, cost-effective and convenient manner. Through
reliance money, you can invest in a wide range of asset classes from Equity,
Reliance Capital
Reliance
Life
Insurance
Reliance
General Insurance
Reliance
Money
Reliance
Consumer
Finance
Reliance
Mutual fund
Mutual Fund
Reliance Money offers the convenience of on-line and offline transactions through a variety of
means, including its Portal, Call & Transact, Transaction Kiosks and at it’s network of affiliates.
Some key steps of the company that are as…..
“Success is a journey, not a destination.” If we look for examples to prove this quote then we can
find many but there is none like that of Reliance Money. The company which is today known as
The success story of the company is driven by 8 success sutras adopted by it namely trust,
integrity, dedication, commitment, enterprise, hard work and team play, learning and innovation,
empathy and humility. These are the values that bind success with Reliance Money.
Vision of Reliance Money
To achieve & sustain market leadership, Reliance Money shall aim for complete customer
satisfaction, by combining its human and technological resources, to provide world class quality
services. In the process Reliance Money shall strive to meet and exceed customer's satisfaction
“Our mission is to be a leading and preferred service provider to our customers, and we aim to
achieve this leadership position by building an innovative, enterprising , and technology driven
organization which will set the highest standards of service and business ethics.”
Reliance Capital has interests in asset management and mutual funds, life and general
insurance, private equity and proprietary investments, stock broking, depository services,
distribution of financial products, consumer finance and other activities in financial services.
Reliance Mutual Fund is India's no.1 Mutual Fund. Reliance Life Insurance is India's fastest
growing life insurance company and among the top 4 private sector insurers. Reliance General
Insurance is India's fastest growing general insurance company and the top 3 private sector
insurers. Reliance Money is the largest brokerage and distributor of financial products in India
with more than 2.5 million customers and the largest distribution network. Reliance Consumer
Money has increased its market share among private financial companies to nearly Convenient &
effective – Anytime & anywhere financial transaction capability. Launched in April 2007. It
provides the Flat fees system. It has 2.2 million customers in 1 year of official launch. It has over
5,000 outlets across 700 towns/cities. Average daily turnover – in excess of Rs 2,000 crores.
Considering the entire life market, including the Rs. 12,890 crores booked by life insurance
Corporation, Reliance life insurance market share works out to around 6.25% . The life insurance
market continuous to be dominated by LIC which has about 67% share this only a marginal dip
from its 73% share in end-July. These comparisons are only for first year or new business
premium.
The gap between Reliance life insurance and the second-in-line private insurer is vast. In fact,
this scenario has led some analysts to wonder if the company is not a trifle too aggressive. But
others say this has more to do with the companies’ customer-centric focus, its pan-India
presence and superior risk management and investment strategies. Reliance Money is not,
the research work will definitely focus on the present condition & future requirement (if any)
avenue for a wide range of asset classes. Its endeavor is to change the way India transacts
in financial market and avails financial services. Reliance Money offers a single window
facility, enabling you to access amongst others, Equities, Equity and Commodity
derivatives, Offshore Investments, IPO’s, Mutual Funds, Life Insurance and General
Insurance products.
Cost Effective
Convenience
Security
3 in 1 Integrated Access
Equity Broking
Commodity Broking
D-Mat Account.
Financial Products
Mutual Funds
Life Insurance
ULIP plan
General Insurance
Vehicle/Motor Insurance
Health Insurance
House insurance
IPO’s
expanded to an average monthly inflow of close to Rs. 1900 crores during the first six months of
2001. By June 2001, over 500 FIIs were registered with SEBI. The total amount of FII investment
in India had accumulated to a formidable sum of over Rs.50,000 crores during this time. In terms
of market capitalization too, the share of FIIs has steadily climbed to about 9% of the total market
capitalization of BSE (which, in turn, accounts for over 90% of the total market capitalization in
India).
TABLE: CORRELATION OF FII WITH NIFTY
MONTH
GROSS PURCHASES GROSS SALES
NET INVESTMENT
APRIL
-0.308891015
-0.486299015
-0.122510317
MAY
-0.203839618
-0.226174846
0.127555673
JUNE
0.40719847
0.013881057
0.556762421
JULY
0.231397721
-0.008199745
0.352195939
AUGUST
-0.296292834
-0.009987101
-0.288696993
SEPTEMBER 0.631541276
0.478957403
0.377141924
OCTOBER
-0.107835133
-0.303940405
0.118451125
NOVEMBER 0.103856902
0.232269601
-0.020576251
DECEMBER -0.689594568
-0.692805116
-0.496878284
JANUARY
-0.02034654
-0.57330261
0.64885866
FEBRUARY 0.124176605
-0.056354197
0.233709555
MARCH
0.419911809
-0.255570154
0.483718703
FII flows and contemporaneous stock returns are strongly correlated in India. The correlation
coefficients between different measures of FII flows and market returns on the Bombay Stock
Exchange during different sample periods are shown in Table above. While the correlations are
quite high throughout the sample period, they exhibit a significant rise since the beginning of the
1999-00. The calculations show that there exists a relationship between FIIs and Nifty since 6 out
of 12 months show positive correlation in the case of Gross Purchass and 8 out of 12 months
indicate a positive correlation in the case of Net FII Investment and Nifty.
TABLE : CORRELATION OF FII WITH SENSEX
MONTH
GROSS PURCHASES GROSS SALES NET INVESTMENT
APRIL
-0.267580403
-0.509025858
-0.076211493
MAY
-0.184653959
-0.224809346
0.1484205
JUNE
0.405635894
-0.004710378
0.575995013
JULY
0.291205286
0.045396684
0.353391901
AUGUST
-0.315900375
-0.033391574
-0.301709231
SEPTEMBER 0.661834837
0.506184274
0.389776394
OCTOBER
-0.067640059
-0.311421901
0.18995454
NOVEMBER 0.083505749
0.244942636
-0.057919794
DECEMBER -0.666663184
-0.688620778
-0.46494095
JANUARY
0.02201209
-0.551509386
0.679227006
FEBRUARY 0.00689661
-0.170243004
0.149373722
MARCH
0.417854257
-0.250893125
0.479619465
The behaviour of the foreign portfolio investors matched the behaviour of Sensex during this
period. Net FII investment in the Indian capital markets started fluctuating sharply during April
and it turned negative. Net FII investment in the Indian stock market was positive from May to
July. During this period, the Sensex and net FII investment showed very high degree of
correlation. For the month of June showed a correlation as high as 0.60. The months of
September, October, November and December shows a declining trend, the FII investment
reversed from that day. On the whole, there exists a relationship between FIIs and Sensex since
7 out of 12 months show positive correlation in the case of Gross Purchases and 8 out of 12
months indicate a positive correlation in the case of Net FII Investment and Sensex.
TABLE: COEFFECIENT OF DETERMINATION OF FII WITH NIFTY
MONTH
GROSS PURCHASES GROSS SALES
NET INVESTMENT
APRIL
0.095413659
0.236486732
0.015009
MAY
0.04155059
0.051155061
0.01627
JUNE
0.165810594
0.000192684
0.309984
JULY
0.053544905
6.72358E-05
0.124042
AUGUST
0.087789444
9.97422E-05
0.083346
SEPTEMBER 0.398844383
0.229400194
0.142236
OCTOBER
0.011628416
0.09237977
0.014031
NOVEMBER 0.010786256
0.053949168
0.000423
DECEMBER 0.475540669
0.479978929
0.246888
JANUARY
0.000413982
0.328675883
0.421018
FEBRUARY 0.015419829
0.003175796
0.05462
MARCH
0.176325927
0.065316104
0.233984
Coefficient of Determination (R2), ranges from 0 - 1, is always part of the standard regression
output, the important measure of goodness of fit. R2 = correlation coefficient (r) squared, since
the range of r is from -1 to +1, squaring r forces R2 to fall between 0 and 1. R2 in the above table
gives the percentage (%) of the total variation in Nifty that is explained by the regression
equation, or explained by FIIs. During the month of January the total variation in Nifty explained
by FII amounted to 42% and the remaining 58% is explained by other factors which influence
Nifty.
TABLE : COEFFECIENT OF DETERMINATION OF FII WITH SENSEX
MONTH
GROSS PURCHASES GROSS SALES
NET INVESTMENT
APRIL
0.071599272
0.259107325
0.005808
MAY
0.034097085
0.050539242
0.022029
JUNE
0.164540479
2.21877E-05
0.33177
JULY
0.084800519
0.002060859
0.124886
AUGUST
0.099793047
0.001114997
0.091028
SEPTEMBER 0.438025352
0.256222519
0.151926
OCTOBER
0.004575178
0.0969836
0.036083
NOVEMBER 0.00697321
0.059996895
0.003355
DECEMBER 0.444439801
0.474198576
0.21617
JANUARY
0.000484532
0.304162603
0.461349
FEBRUARY 4.75632E-05
0.028982681
0.022313
MARCH
0.17460218
0.06294736
0.230035
Similarly, in the case of FII and Sensex we have R2 = .46, indicating that variation in FII explains
about 46% of the variation in Sensex. 54% of the variation in Sensex is unexplained by FII,
explainable by other factors, omitted variables, random variation, etc. We shouldn't put too much
emphasis on R2, t-stat are more important. However, R2, or some other measure of goodness of
2
U.S.A.
12248
13.23
1504
1658
3055
1705
20183
15.4
8
3
U.K.
4263
4.60
1617
769
458
1645
8757
6.72
4
Japan
5099
5.51
1971
360
575
669
8680
6.66
5
Netherlan
ds
3856
4.61
836
2247
1217
329
8489
6.51
6
Germany
3455
3.73
684
373
663
1302
6481
4.97
7
Singapore 1997
2.16
180
172
822
1013
4186
3.21
8
France
1947
2.10
534
176
537
63
3259
2.50
9
South
korea
2189
2.36
188
110
157
257
2903
2.23
10
Switzerlan
d
1299
1.30
437
207
353
332
2530
1.94
Total
FDI
inflo
w
92611
14932 12117 17138 19356
156154
Sources of FDI inflows in India
Top 10 countries have accounted for more than a half of India’s FDI approvals during 1991-95,
while is share increased to about 70% over 2004-05. this able shows ranking of cumulative
investment approved during the period 1991 to January 2006 reveals that USA was the largest
investor in India with an investment of Rs. 59394crores Netherlands , France and Singapore
follows in that order . but the share of USA has been declining , whereas the shares of Mauritius
has been increasing from past few years . it has b increased by more than 80% in2004-05
compared to 2003-04 , mainly due to FDI being routed through Mauritius , as it has a double
Taxation avoidance treaty with India . in terms of FDI inflow into the country , Mauritius topped
the list with90% share of total FDI inflows , whereas USA holds the 2nd position with 15.48% of
total FDI inflows in India . thus in terms of FDI inflows Mauritius is way ahead from UK ,Japan
Netherlands Germany , Singapore ,France South Korea and Switzerland follows in that order
.South Korea who holds2.23%share Australia who holds 8th positioning FDI approvals with
2.65% share ,does not figure in top 10 countries in FDI inflows . O the other hand , Switzerland ,
which does not come in FDI approvals holds holds 10th position in FDI inflows with 1.94%
share .Above table shows that FDI inflows from all countries have been increased in 2004-05
Total FDI and FDI in ICT Sector
Year
FDI inflow
Amount in Rs.
Cr.
Growth in FDI Amount in Rs. Cr.
FDI in ICT
sector
Growth in FDI
in ICT
1991-92
409
351
1992-93
1094
167.48
675
92.31
1993-94
2018
84.46
2380
252.59
1994-95
4312
113.68
4132
73.61
1995-96
6916
60.39
6750
63.36
1996-97
9654
39.59
9211
36.46
1997-98
13548
40.34
11817
28.29
1998-99
12343
-8.89
8644
-26.85
1999-00
10311
-16.46
7271
-15.88
2000-01
12645
22.64
10323
41.97
2001-02
19361
53.11
14419
39.68
2002-03
14932
-22.88
8423
-41.58
2003-04
121117
-18.85
6703
-20.42
2004-05
17138
41.44
3869
-42.28
Under consideration , it has been observed that there are some fluctuations in the growth rate
both in positive rates. From 1991-92 to 1997-98 , there has been a steady growth in FDI inflow
but it drastically fall is again noticed in 2002-03 and 2003-04.The most probable reasons behind
these alarming downfalls is the result of various asian crise and sanctions amposed on India as a
cosequence of nuclear explosion test by government of India that cast a shadow on FDI inflows
to India during the period 1998-2000. further there seems a declining trend in FDI in the period
2001-4 . This trend was felt across the world ( 108 countries according to world investment report
2003 ) as the world was experiencing an economic slowdown . Reduction in M&As( merger and
acquisitions ) was the major reason and also the war in Iraq and SARS had a negative impact on
global capital flows in 2003. In 2004 , global FDI inflows began to recover after the stock of
previous year .
FINDINGS:
It is an accepted fact now that FIIs have significant influence on the movements of the stock
market indexes in India. If one looks at the total FII trade in equity in India and its relationship
with the stock market major indexes like Sensex and Nifty, it shows a steadily growing influence
FIIs and the movements of Sensex are quite closely correlated in India and FIIs wield significant
influence on the movement of Sensex. NSE also observes that in the Indian stock markets FIIs
have a disproportionately high level of influence on the market sentiments and price trends. This
is so because other market participants perceive the FIIs to be infallible in their assessment of
the market and tend to follow the decisions taken by FIIs. This ‘herd instinct’ displayed by other
market participants amplifies the importance of FIIs in the domestic stock market in India.
Results of this study show that not only the FIIs are the major players in the domestic stock
market in India, but their influence on the domestic markets is also growing. Data on trading
activity of FIIs and domestic stock market turnover suggest that FII’s are becoming more
important at the margin as an increasingly higher share of stock market turnover is accounted for
by FII trading. Moreover, the findings of this study also indicate that Foreign Institutional
Investors have emerged as the most dominant investor group in the domestic stock market in
India. Particularly, in the companies that constitute the Bombay Stock Market Sensitivity Index
(Sensex) and NSE Nifty, their level of control is very high. Dominant position of FIIs in the
Sensex companies, it is not surprising that FIIs are in a position to influence the movement of
Sensex and Nifty in a significant way. Since FIIs are dominating the Indian Market, individual
investors are forced to accept the dictates of major FIIs and hence join the group by entering the
Mutual Fund group. Many Mutual Funds floated specific funds for the sectors favoured by the
FIIs. An implication of MFs gaining strength in the Indian stock market could be that unlike
individual investors, whose monies they manage, MFs can create market trends whereas the
small individual investors can only follow the trends. The situation becomes quite difficult if the
funds gain a vested interest in certain sectors by floating sector specific funds. One can even
venture to say that the behavior of MFs in India has turned the very logic that
mutual funds invest wisely on the basis of well-researched strategies and individual investors do
not have the time and resources to study and monitor corporate performance, upside down.
Thus, the entry of FIIs has not resulted in greater depth in Indian stock market; instead it led to
focussing on only a few sectors. Ultimately to provide a level playing field, even the domestic
While it can be expected that foreign affiliated mutual funds would follow the investment pattern
of FIIs, it is important to note that many domestic ones also followed FIIs. The sectors favoured
by FIIs account for a substantial portion of the net assets under control of many Mutual Funds.
The Mutual funds are gaining prominence in the Indian Stock market and that the share of
foreign affiliated MFs is growing, a number of Indian funds are following the investment strategies
On the other hand if FII investments constitute a large share of the equity capital of a financial
entity, an FII pullout, even if driven by development outside the country can have significant
implications for the financial health of what is an important institution in the financial sector of this
country.
Similarly, if any set of developments encourages an unusually high outflow of FII capital from the
market, it can impact adversely on the value of the rupee and set of speculation in the currency
that can in special circumstances result in a currency crisis. There are now too many instances of
such effects worldwide for it be dismissed on the ground that India's reserves are adequate to
FII investments, seem to have influenced the Indian stock market to a considerable extent. FIIs
are interested in the Indian stock market increases its vulnerability to fluctuations. Analysis
suggested a strong influence of FII investment on the Sensex and Nifty index. This finding takes
quite further the general understanding that net FII investments influences stock prices in India
result of this study is that the foreign investment is determined by stock market return. But foreign
investment is not a major factor for the stock market boom in India the FII are increasingly
dominant in the stock market. The domestic investors and domestic companies remain not so
dominant. There is therefore the fear of sudden outflows of the foreign capital and this may be a
trigger a third stock market scam as most regulatory changes re being made only as a follow up
of an adverse event.
SUGGESTIONS AND RECOMENDATIONS
Some of the steps that can be taken to help influence the choices made by foreign
institutional investors include:
T h e G o v e r n m e n t s h o u l d c u t
i t s f i s c a l d e f i c i t s , w h i c h
w o u l d r e s u l t i n
s t r e n g t h e n i n g t h e
economy as a whole.
C r e a t i n g i n f r a s t r u c t u r e a n d o t h e r
f a c i l i t i e s t o a t t r a c t f o r e i g n
i n v e s t m e n t . A s d e s c r i b e d
earlier, an array of services can help promote foreign institutional investment in India, ranging
from basic services such as the provision of electricity and clean water, to fair and effective
impact on the growth of capital flows. Steps to address these crises include strengthening
the permissible limits. One such measure in this line could be the newly announced INDONEXT,
the platform for trading the small and mid-cap companies, which might bring some focus on
these companies and hopefully add some liquidity and volume to their trading, which may attract
the very state of their social, political and economic development. To attract portfolio investments
and retain their confidence, the host countries have to follow stable macro- economic policies,
T h e p r o v i s i o n f o r c l e a r p r o c e d u r e s
m u s t b e f o l l o w e d i n t h e e v e n t o f
d i s p u t e s b e t w e e n
investors and host governments, to ensure that rules are adhered to and that
arbitration
may be established by mutual consent.
C o u n t r i e s m a y i m p o s e t h e s e k i n d s
o f m e a s u r e s l i k e e x p r o p r i a t i o n ,
d o m e s t i c c o n t e n t
requirements, restrictions on capital outflows of short term investments, etc with the
intention of protecting domestic industries from international competition and promoting their
economic development, but this usually leads to misallocation of resources away from the natural
developing countries in recent years in that the predominance of private account capital transfer
and especially portfolio investments (FPI) increased considerably. In order to attract portfolio
investments which prefer liquidity, it has been advocated to develop stock markets.
BIBLIOGRAPHY
BOOKS:-
www.sebi.co.in
www.centrum.co.in
www.bse.co.in
www.indianinfoline.com
www.onlinestockholding
www.moneycontrol.com
www.mastercapitalindia.com
www.financialexpress.com/news
www.en.wikipedia.org.wiki/stock_market
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