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PROJECT REPORT ON

Foreign Institutional Investment impact on Indian stock market and its investment behavior
SUBMITTED BY TO SUBMITTED

A project report submitted in partial fulfillment of the requirements for the degree of PGP of IIL

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ACKNOWLEDGEMENT

Inspiration and hard work always played a key role in the success of any venture. At the Level of practice, it is often difficult to get knowledge without guidance. Project is like the bridge between theoretical and practical. With this willing, I joined this project. There is always a sense of gratitude which one expresses to other for the helpful and needy services that render during all phases of life. I would like to do so as I readily wish to express my gratitude towards all those who have been helpful to me in getting this mighty task of training to a successful end. I would like to express my deepest gratitude and sincere thanks to my faculty Guide Prof. Sapan jain sir & all my faculty of Gujrati Prof. indore for his valuable suggestions, scholarly guidance, and constructive criticism encouragement at each and every step of the project.

VINIT JAIN

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Table Of Content
Chapter . No.
Executive summary

Particulars

Objective of study

Chapter 1 1.3 1.4 1.5 1.6 1.7 Chapter 2

Research design for primary Data Type of research Data source Research approach and instrument Sampling plan Methodology Limitation Research design for secondary Data Problem definition and Hypothesis Model used Inferences

Chapter 3

Literature review

Chapter 4 4.2 4.3 4.4

Foreign Institutional Investment Policy framework Market design of FIIs in India Limits of FIIs investment Registration process Prohibition of FIIs Page 3

Trend analysis of FIIs Chapter 5 5.3 5.4 Secondary data analysis and interpretation Impact of FIIs on Nifty And BSE Indices Impact Of FIIs On BSE CD and BSE CG indices Impact of FIIs on BSE IT and BSE FMCG Indices Chapter no. 6 6.1 6.7 6.11 6.12 Primary data analysis and interpretation Graphical representation Reliability testing Factor analysis Cross tabulation Weighted average score Chi- square Conclusion and Findings Bibliography Annexure 1 Annexure 2

Chapter 7 Chapter 8 Chapter 9

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1.0) Executive summary Foreign investment refers to the investments made by the residents of a country in the financial assets and production processes of another country. The cause and benefit of foreign investment, however, varies from country to country. It can persuade the factor productivity of the recipient country and also shape the balance of payments. In developing countries like India there has been a felt need for foreign capital, not only to boost the productivity of labour but also to help to building up the foreign exchange reserves needed to meet our trade deficits. Foreign investments provide a direction through which developing countries can gain access to foreign capital for their economic development. It can come in two ways: foreign direct investment (FDI) and foreign institutional investment (FII). Foreign direct investment involves direct production activities of a medium to long-term in nature. But foreign institutional investment is a short-term investment avenue, mostly in the financial markets. FII, given its short-term nature, can have bidirectional causation with the returns of other domestic financial markets such as money markets, foreign exchange markets and also stock markets.

Hence, understanding the determinants of FII is very important for any emerging economy as they wield a larger impact on the domestic financial markets in the short run and a real impact in the long run. India, being a capital scarce country, opened her doors to foreign institutional investors in September, 1992 to attract foreign investments. This event symbolized a landmark experience resulting in successfully globalizing its financial services industry. Originally pension funds, mutual funds, investment trusts, asset management companies, nominee companies and incorporated/ institutional portfolio managers were permitted to invest directly in the Indian stock markets. Beginning 1996- 97, the group was further expanded to incorporate registered university funds, endowment funds, foundations and charitable trusts. Since then, FII flows form a major part
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of foreign portfolio investments in Indian markets. In the aftermath of 1997 East Asian crisis, FII flows had actually become the net outflows in 1998-99. But there was a modest recovery in 19992000. FII flows further steadily declined to US$377 million in 2002-03. This witnessed a fall of BSE Sensex by 161.85 points from January 2003 to May 2003 (India Budget, 2005).

However, the years 2003-04 and 2004- 05, have been remarkably robust years for such flows. The movement of Sensex during these two years has evidently been driven by the actions of FIIs. They were responsible for net equity purchases of as much as $6.6 and $8.5 billion during 2003 and 2004 respectively. This indicates the significant contribution made by FIIs in Indian stock market. This contribution made by foreign investors witnessed a rise in Sensex to 6679 (on January 3, 2005) from 2924 (on April 5, 2003) (Hindu Business Line, 2005). During 2007 alone FIIs made a net investment of about $17 billion inIndian stock markets, which is nearly 10 times higher than the domestic mutual funds net investment (Economic Times). These figures show the importance of foreign investment in the overall investment programme of Indian equity market. During last fifteen years, emerging equity markets in the world have continued to grow and have seen the relaxation of foreign investment restrictions primarily through deregulation of the foreign investment policy. India, one of the major emerging markets in Asia initiated the financial sector reforms by way of adopting international practices in its financial market. But the proportion of foreign investments in the Indian equity market has decreased in the year 2008, compared to earlier years. Foreign investors have withdrawn over $3.2 billion from Indian equities alone in the first three months of 2008. FIIs and Indian mutual funds remained net sellers to the tune of $100 million in March 2008 (Hindu Business Line, 2008-4). This shocking investment trend of FII flows suggest that institutions remained uncertain about the existence of further downside and hence have moved equity funds into some defensive options like money market funds.
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2.0) OBJECTIVE OF THE STUDY a) The objective of the present study is to identify whether there exist a causal relationship between net investment made by FIIs and the equity return in the Indian Stock Market. b) To determine the behavior and impact of FIIs on Indian stock market through primary data analysis. c) To determine what are factors which affect investment decision of FIIs. d) To determine whether FIIs have impact on other economical factors apart from stock market.

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3.0) RESEARCH DESIGN FOR PRIMARY DATA ANALYSIS (through questionnaire)

a) Type of research: Descriptive research, also known as statistical research. The objective of descriptive research is to describe thing, such as the market potential for a product or attitudes of consumers who buy the product. It describes data and characteristics about the population or phenomenon being studied. Descriptive research is to describe something usually market characteristics or functions. It answers the question who, what, where, when and how. The data description is factual, accurate and systematic but the research cannot describe what caused a situation. Thus, descriptive research cannot be used to create a causal relationship, where one variable affects another.

Descriptive research is conducted for the following reasons: To describe the characteristics of relevant groups such as consumers, salespeople, organisation or market areas. To estimate the percentage of units in a specified population exhibiting a certain behaviour. To determine the perceptions of product characteristics. To determine the degree to which marketing variables are associated. To make specific predictions.

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Qualitative research often has the aim of description and the researchers may follow-up with examinations of why the observations exist and what the implications of the findings are. Descriptive research assumes that researcher has much prior knowledge about the problem situation. It is characterized by the prior formulation of specific hypothesis. Thus, the information needed is clearly defined. As a result, descriptive research is preplanned and structured. It is typically based on large representative samples. A formal research design specifies the method for selecting the sources of information and for collecting the data from these sources. A descriptive design requires a clear specification of the who, what, when, where, why and way (6 Ws) of the research.

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b) Data Sources: The primary sources of information necessary for the analysis is collected from the survey which was carried out by administering questionnaires designed specifically to achieve the objectives The primary data are collected during the survey with the help of a questionnaire. On the basis of this primary data the analysis, interpretation and the finding of the study have been concluded and hence the primary objectives of the study are achieved.

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The secondary data were collected from the different periodicals, books and articles published in various magazines & journals viz. Business World, Business India, Business Today, Journal of Advertising, Journal of Marketing, etc.

c) Research Approach: The research approach used in this study was survey research. d) Research Instruments: Research Instruments consisted of a questionnaire. Questionnaire prepared mostly consists of closed ended questions with multiple-choice answers.

e) Sampling Plan: The following are included in the sampling plan for the purpose of present study: a) Universe of sample: The sample has been taken from the individuals who are some how related to share market or those who have knowledge about stock market. b) Sampling unit: The sampling unit consists of different individuals having some basic level of knowledge about share market. The respondents profiling is done in four broad categories, age, income, sex and occupation. c) Sample size: The sample size of the study is seventy respondents. Since people were not much aware about FIIs impact and its investment behavior, so limited respondents had to be contacted before getting a successful interview. d) Sampling procedure and Method: Judgemental sampling has been used for the study. Questionnaire was used to collect the data.

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Methodology: The information collected from the survey was analysed using different statistical techniques and data interpretation techniques. The analysis techniques used in the present study are: i) Reliability Testing: This test is conducted to see whether all question of questionnaire is related to each other or not. And if not than which are the factor that are not related. Selection and reduction of factors is done through factor analysis. ii) Factor analysis: This test has been applied on the statements which are defining the impact of several factors on FIIs investment. The main purpose of this test is to reduce the number of factor to more concrete and significant factor, so we can easily derived conclusion. iii) Chi-square test: This test has been applied to study whether the relationship exists between perception towards FIIs impact on Indian economy and occupation of respondents. iv) Weighted Average Score: To study the role of Regulation & Trading efficiency and dollar weakness against rupee in FIIs investment decision. v) Cross tabulation: The Cross Tab is used on occupation and most common route of FIIs to invest. This will gives us picture about the perception of different group of respondent towards FIIs investment route. vi) Graphical Presentation: Various other graphical tools like Pie chart, Bar diagram etc. is used to plot the results.

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Limitation of study

Time constraint: The data is collected from 70 respondents only because of time constraint. If the data is collected for more person than there is possibility of change in result.

Financial constraint: because of financial constraint I am not able to visit offices in Delhi and Mumbai because it is costly to travel for purpose of collection of data.

Lack of ability to contact eligible persons: For my study purpose I collected data from investor, broker and other employee of reputed firm. I do not able to generate enough contact from institutional investors and investment trust.

4.0) RESEARCH DESIGN FOR SECONDARY DATA ANALYSIS

Problem: What is the impact of FIIs investment on the Indian capital market?

Null Hypothesis (Ho): The various BSE indices and S&P CNX Nifty index does not rises with the increase in FIIs investment.

Alternative Hypothesis (H1): The various BSE indices and S&P CNX Nifty index rises with the increase in FIIs investment.

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What to observe?

For my research purpose I selected six indices of BSE i.e. Sensex, BSE CD, BSE CG, BSE FMCG, and BSE IT and one index of NSE i.e. S&P CNX Nifty. The sample data of FIIs investments consists of the monthly average from April 1998 to February 2010 with 143 observations. The sample data of Nifty and Sensex consists of the monthly closing index April 1998 to February 2010 with 143 observations while the past twelve years data has been taken for other BSE indices with 134 observations in each case.

How to observe?

The data regarding indices of BSE was taken from the site of BSE and BSE yearbook 2008. I got the data on FIIs investment from SEBI Bulletin of January 2010. The data of NSE Nifty index was obtained from the site of national stock exchange. Other financial sites, newspapers and magazines helped me in collecting the required data.

How to record observation?

I have taken the monthly closing index of all the indices. For FIIs I have recorded monthly average of the net investments made by them in the Indian capital market. Net Investments = Purchases Sales

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Model: A simple linear relationship has been shown between two variables using correlation and regression as the data analysis tools. One variable is dependent and the other is independent. I have taken FII as the independent variable while the stock index has been taken as dependent variable. The impact of FII has been separately analyzed with each of the index. So, correlation and regression has been separately run between FII and seven indices taking one index at a time.

Inference: If the hypothesis holds good then we can infer that FIIs have significant impact on the Indian capital market. This will help the investors to decide on their investments in stocks and shares. If the hypothesis is rejected, or in other words if the null hypothesis is accepted, then FIIs will have no significant impact on the Indian market.

5.0) LIETERATURE REVIEW

There are many studies on foreign investment and stock market related topics. This section deals with the review of such studies. Rao et al. (1999) in their study of foreign institutional investments and Indian stock market found that the net FII investments influence the stock prices in India. In the similar line Chakrabarti (2001) concluded in his study that in the pre-Asian crisis period any change in FII was found to have a positive impact on the equity returns, whereas in the post- Asian crisis the reverse relationship was noticed. FIIs accounting for a major portion of investments, their roles in determining share price movements and the movement of various indices is considerably high. The movement of indices in Indian markets depends on the trade done in limited number of stocks only. Thus, when FIIs frequently buy and sell stocks in the indices it leads to volatility of the market (Vijay, 2006). To examine the volume of foreign investment and

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profit booking in Indian market, Trivedi and Nair (2006) in their study suggested that, given the huge volume of investments, foreign investors can play the role of market makers and book their profits. They can buy financial assets when the prices are declining and sell when the asset prices are increasing. Hence there is a possibility of a bi-directional relationship between FII and equity returns.

In order to study the relationship of FII flow on firm level stock returns in Indian market, Khan et al. (2005) used a granger causality test to check the direction of causality at the firm level and GARCH (1,1) for volatility and spillover effect. They considered 36 listed firms during the period from August 2002 to August 2004. In their research findings they stated that there existed a bidirectional causality between stock returns and FII flows and vice-versa in 13 firms and unidirectional causality running from stock returns to FII flows in other 21firms. They concluded that the role of FIIs becomes important in manipulating equity returns at the firm level, especially in the government owned companies.

The study conducted by Gordon and Gupta (2002) on portfolio flows into India and the influence of domestic fundamental factors, found that there is a strong impact of domestic fundamentals on the portfolio flows into India. They used the monthly equity flows from September 1992 till October 2001and applied regression model and unit root test. In their study they concluded that the portfolio flows to India are small, compared to other emerging markets and also less volatile than other emerging markets. The combination of domestic, regional and global variables are important for determining the portfolio flows into India. Correspondingly, the study conducted by David and Steil (2004) viewed that the macroeconomic factors like current account surplus, accretion in

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foreign exchange reserves, appreciating domestic currency and higher interest rates have been responsible for an increase in FII inflows to an emerging country. In a similar line a study conducted by Agarwal (1997) on the impact of foreign portfolio investment (FPI) on the national economy of six developing economies of Asian countries (including India) show through regression results that inflation rate, real exchange rate, index of economic activity and the share of domestic capital market in the world stock market capitalization are the four statistically significant determinants of foreign portfolio investment flow. Many researchers debate on the topic, which type of foreign investment flows destabilize the market and have a greater impact on the stock indices. Sandhya et al. (2005) attempted to relate the kind of foreign capital flow and stock market volatility. In their research they tested the existence of price pressure and feedback trading hypothesis to study the correlation between returns and contemporaneous flows of fund and the evidence of market efficiency. Their major finding was that the unexpected flows have a greater impact than the expected flows on the stock indices. They did not detect any evidence regarding momentum or contrarian strategies being employed by FIIs.

There are other fascinating studies conducted over the years linking the economic reform in India and institutional investments including foreign capital flow. Dash and Singh (2008) made a research on Indian stock market volatility and economic reform. They applied E-GARCH model on monthly return series of BSE Sensex and IFCG global index. In their study they found that the Indian market is more volatile in the reform period and foreign investors occupy a major role in it. Another study conducted by Kumar (2002) on the role of institutional investors (including the FIIs) in Indian stock market, found that FIIs and Indian mutual funds combined together are the most powerful force in driving the Indian market. They used the Granger causality test and found that the mutual funds in fact led the rise or fall in market and FIIs followed suit.
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One of the outstanding features of globalization in the financial services industry is the increased access provided to non-local investors in several major stock markets of the world. Increasingly, stock markets from emerging markets permit institutional investors to trade in their domestic markets. This opening up of capital markets in emerging market countries has been perceived as beneficial by some researchers while others are concerned about possible adverse consequences such as contagion.

Clark and Berko (1997) emphasize the beneficial effects of allowing foreigners to trade in stock markets and outline the base-broadening hypothesis. The perceived advantages of basebroadening arise from an increase in the investor base and the consequent reduction in risk premium due to risk sharing. Other researchers and policy makers are more concerned about the attendant risks associated with the trading activities of foreign investors.1 They are particularly concerned about the herding behavior of foreign institutions and the potential destabilization of emerging stock markets.

In this paper, we address these issues in the context of foreign institutional investors (FII) trading activities in a big emerging market India. India liberalized its financial markets and allowed FIIs to participate in their domestic markets in 1992. Ostensibly, this opening up resulted in a number of positive effects. First, the stock exchanges were forced to improve the quality of their trading and settlement procedures in accordance with the best practices of the world. Second, the information environment in India improved with the advent of major international financial institutional investors in India. On the negative side we need to consider potential destabilization

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as a result of the trading activity of foreign institutional investors. This is especially important in an emerging country that has embarked upon reforms to open up its market. See for instance Choe, Kho, and Stulz (1999).

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Foreign Institutional Investment in India

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6.0) Foreign Institutional Investment in India

The liberalisation and consequent reform measures have drawn the attention of foreign investors leading to a rise in portfolio investment in the Indian capital market. Over the recent years, India has emerged as a major recipient of portfolio investment among the emerging market economies. Apart from such large inflows, reflecting the confidence of cross-border investors on the prospects of Indian securities market, except for one year, India received positive portfolio inflows in each year. The stability of portfolio flows towards India is in contrast with large volatility of portfolio flows in most emerging market economies. The Indian capital market was opened up for foreign institutional investors (FIIs) in 1992. The FIIs started investing in Indian markets in January 1993. The Indian corporate sector has been allowed to tap international capital markets through American Depository Receipts (ADRs), Global Depository Receipts (GDRs), Foreign Currency Convertible Bonds (FCCBs) and External Commercial Borrowings (ECBs). Similarly, nonresident Indians (NRIs) have been allowed to invest in Indian companies. FIIs have been permitted in all types of securities including Government securities and they enjoy full capital convertibility. Mutual funds have been allowed to open offshore funds to invest in equities abroad. FII investment in India started in 1993, as FIIs were allowed to invest in the Indian debt and equity market in line with the recommendations of the High Level Committee on Balance of Payments. These investment inflows have since then been positive, with the exception of 1998-99, when capital flows to emerging market economies were affected by contagion from the East Asian crisis. These investments account for over 10 per cent of the total market capitalisation of the Indian stock market.

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Since 1990-91, the Government of India embarked on liberalization and economic reforms with a view of bringing about rapid and substantial economic growth and move towards globalization of the economy. As a part of the reforms process, the Government under its New Industrial Policy revamped its foreign investment policy recognizing the growing importance of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalization of the Indian economy. Simultaneously, the Government, for the first time, permitted portfolio investments from abroad by foreign institutional investors in the Indian capital market. The entry of FIIs seems to be a follow up of the recommendation of the Narsimhan Committee Report on Financial System. While recommending their entry, the Committee, however did not elaborate on the objectives of the suggested policy. The committee only suggested that the capital market should be gradually opened up to foreign portfolio investments.

From September 14, 1992 with suitable restrictions, FIIs were permitted 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 on the Stock Exchanges in India. While presenting the Budget for 1992-93, the then Finance Minister Dr. Manmohan Singh had announced a proposal to allow reputed foreign investors, such as Pension Funds etc., to invest in Indian capital market. To operationalise this policy announcement, it had become necessary to evolve guidelines for such investments by Foreign Institutional Investors (FIIs).

The policy framework for permitting FII investment was provided under the Government of

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India guidelines vide Press Note date September 14, 1992. The guidelines formulated in this regard were as follows:

1) Foreign Institutional Investors (FIIs) including institutions such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management Companies, Nominee Companies and Incorporated/Institutional Portfolio Managers or their power of attorney holders (providing discretionary and non-discretionary portfolio management services) would be welcome to make investments under these guidelines.

2) FIIs would be welcome to invest in all the securities traded on the Primary and Secondary markets, including the equity and other securities/instruments of companies which are listed/to be listed on the Stock Exchanges in India including the OTC Exchange of India. These would include shares, debentures, warrants, and the schemes floated by domestic Mutual Funds. Government would even like to add further categories of securities later from time to time.

3) FIIs would be required to obtain an initial registration with Securities and Exchange Board of India (SEBI), the nodal regulatory agency for securities markets, before any investment is made by them in the Securities of companies listed on the Stock Exchanges in India, in accordance with these guidelines. Nominee companies, affiliates and subsidiary companies of a FII would be treated as separate FIIs for registration, and may seek separate registration with SEBI.

4) Since there were foreign exchange controls in force, for various permissions under exchange control, along with their application for initial registration, FIIs were also supposed to file with

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SEBI another application addressed to RBI for seeking various permissions under FERA, in a format that would be specified by RBI for the purpose. RBI's general permission would be obtained by SEBI before granting initial registration and RBI's FERA permission together by SEBI, under a single window approach.

5) For granting registration to the FII, SEBI should take into account the track record of the FII, its professional competence, financial soundness, experience and such other criteria that may be considered by SEBI to be relevant. Besides, FII seeking initial registration with SEBI were be required to hold a registration from the Securities Commission, or the regulatory organization for the stock market in the country of domicile/incorporation of the FII.

6) SEBI's initial registration would be valid for five years. RBI's general permission under FERA to the FII would also hold good for five years. Both would be renewable for similar five year periods later on.

7) RBI's general permission under FERA would enable the registered FII to buy, sell and realize capital gains on investments made through initial corpus remitted to India, subscribe/renounce rights offerings of shares, invest on all recognized stock exchanges through a designated bank branch, and to appoint a domestic Custodian for custody of investments held.

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8) This General Permission from RBI would also enable the FII to:

a. Open foreign currency denominated accounts in a designated bank. (There could even be more than one account in the same bank branch each designated in different foreign currencies, if it is so required by FII for its operational purposes);

b. Open a special non-resident rupee account to which could be credited all receipts from the capital inflows, sale proceeds of shares, dividends and interests;

c. Transfer sums from the foreign currency accounts to the rupee account and vice versa, at the market rate of exchange;

d. Make investments in the securities in India out of the balances in the rupee account;

e. Transfer repairable (after tax) proceeds from the rupee account to the foreign currency account(s);

f. Repatriate the capital, capital gains, dividends, incomes received by way of interest, etc. and any compensation received towards sale/renouncement of rights offerings of shares subject to the designated branch of a bank/the custodian being authorized to deduct withholding tax on capital gains and arranging to pay such tax and remitting the net proceeds at market rates of exchange;

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g. Register FII's holdings without any further clearance under FERA.

9) There would be no restriction on the volume of investment minimum or maximum-for the purpose of entry of FIIs, in the primary/secondary market. Also, there would be no lock-in period prescribed for the purposes of such investments made by FIIs. It was expected that the differential in the rates of taxation of the long term capital gains and short term capital gains would automatically induce the FIIs to retain their investments as long term investments.

10) Portfolio investments in primary or secondary markets were subject to a ceiling of 30% of issued share capital for the total holdings of all registered FIIs, in any one company. The ceiling was made applicable to all holdings taking into account the conversions out of the fully and partly convertible debentures issued by the company. The holding of a single FII in any company would also be subject to a ceiling of 10% of total issued capital. For this purpose, the holdings of an FII group would be counted as holdings of a single FII.

11) The maximum holdings of 24% for all non-resident portfolio investments, including those of the registered FIIs, were to include NRI corporate and non-corporate investments, but did not include the following:

a. Foreign investments under financial collaborations (direct foreign investments), which are permitted up to 51% in all priority areas. b. Investments by FIIs through the following alternative routes: i. Offshore single/regional funds;

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ii. Global Depository Receipts; iii. Euro convertibles.

12) Disinvestment would be allowed only through stock exchange in India, including the OTC Exchange. In exceptional cases, SEBI may permit sales other than through stock exchanges, provided the sale price is not significantly different from the stock market quotations, where available.

13) All secondary market operations would be only through the recognized intermediaries on the Indian Stock Exchange, including OTC Exchange of India. A registered FII would be expected not to engage in any short selling in securities and to take delivery of purchased and give delivery of sold securities.

14)A registered FII can appoint as Custodian an agency approved by SEBI to act as custodian of Securities and for confirmation of transactions in Securities, settlement of purchase and sale, and for information reporting. Such custodian should establish separate accounts for detailing on a daily basis the investment capital utilization and securities held by each FII for which it is acting as custodian. The custodian was supposing to report to the RBI and SEBI semi-annually as part of its disclosure and reporting guidelines.

15) The RBI should make available to the designated bank branches a list of companies where no investment will be allowed on the basis of the upper prescribed ceiling of 30% having been reached under the portfolio investment scheme.

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16) Reserve Bank of India may at any time request by an order a registered FII to submit information regarding the records of utilization of the inward remittances of investment capital and the statement of securities transactions. Reserve Bank of India and/or SEBI may also at any time conduct a direct inspection of the records and accounting books of a registered FII.

17) FIIs investing under this scheme will benefit from a concessional tax regime of a flat rate tax of 20% on dividend and interest income and a tax rate of 10% on long term (one year or more) capital gains.

These guidelines were suitably incorporated under the SEBI (FIIs) Regulations, 1995. These regulations continue to maintain the link with the government guidelines through an inserted clause that the investment by FIIs should also be subject to Government guidelines. This linkage has allowed the Government to indicate various investment limits including in specific sectors.

Market design in India for foreign institutional investors

Foreign Institutional Investors means an institution established or incorporated outside India which proposes to make investment in India in securities. A Working Group for Streamlining of the Procedures relating to FIIs, constituted in April, 2003, inter alia, recommended streamlining of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation was implemented in December 2003.

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Currently, entities eligible to invest under the FII route are as follows:

i) As FII: Overseas pension funds, mutual funds, investment trust, asset management company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts, charitable societies, a trustee or power of attorney holder incorporated or established outside India proposing to make proprietary investments or with no single investor holding more than 10 per cent of the shares or units of the fund).

(ii) As Sub-accounts: The sub account is generally the underlying fund on whose behalf the FII invests. The following entities are eligible to be registered as sub-accounts, viz. partnership firms, private company, public company, pension fund, investment trust, and individuals. FIIs registered with SEBI fall under the following categories:

a) Regular FIIs- those who are required to invest not less than 70 % of their investment in equityrelated instruments and 30 % in non-equity instruments. b) 100 % debt-fund FIIs- those who are permitted to invest only in debt instruments.

The Government guidelines for FII of 1992 allowed, inter-alia, entities such as asset management companies, nominee companies and incorporated/institutional portfolio managers or their power of attorney holders (providing discretionary and non-discretionary portfolio management services) to be registered as FIIs. While the guidelines did not have a specific provision regarding clients, in the application form the details of clients on whose behalf investments were being made were

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sought. While granting registration to the FII, permission was also granted for making investments in the names of such clients. Asset management companies/portfolio managers are basically in the business of managing funds and investing them on behalf of their funds/clients. Hence, the intention of the guidelines was to allow these categories of investors to invest funds in India on behalf of their 'clients'. These 'clients' later came to be known as sub-accounts. The broad strategy consisted of having a wide variety of clients, including individuals, intermediated through institutional investors, who would be registered as FIIs in India. FIIs are eligible to purchase shares and convertible debentures issued by Indian companies under the Portfolio Investment Scheme.

Limits on Foreign Institutional Investors

Each FII (investing on its own) or sub-account cannot hold more than 10 per cent of the paid-up capital of a company. A sub-account under the 16 foreign corporate/individual category cannot hold more than 5 per cent of the paid up capital of the company.

The maximum permissible investment in the shares of a company, jointly by all FIIs together is 24 per cent of the paid-up capital of that company. The limit is 20 per cent of the paid-up capital in the case of public sector banks. The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect.

A cap of US $1.75 billion is applicable to FII investment in dated Government securities and treasury bills under 100 per cent and the 70:30 route. Within this ceiling of US $1.75 billion, a sub-ceiling of US $200 million is applicable for the 70:30 route. (FIIs are required to allocate their investment between equity and debt instruments in the ratio of

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70:30.However, it is also possible for an FII to declare itself a 100 per cent debt FII in which case it can make its entire investment in debt instruments.) A cumulative sub-ceiling of US $500 million outstanding has been fixed on FII investments in corporate debt and this is over and above the subceiling of US $1.75 billion for Government debt.

Registration Process of FIIs

A FII is required to obtain a certificate by SEBI for dealing in securities. SEBI grants the certificate SEBI by taking into account the following criteria:

i) The applicant's track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. ii) Whether the applicant is regulated by an appropriate foreign regulatory authority. iii) Whether the applicant has been granted permission under the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) by the Reserve Bank of India for making investments in India as a Foreign Institutional Investor. iv) Whether the applicant is (a) an institution established or incorporated outside India as a pension fund, mutual fund, investment trust, insurance company or reinsurance company. (b) An International or Multilateral Organization or an agency thereof or a Foreign Governmental Agency or a Foreign Central Bank. (c) an asset management company, investment manager or advisor, nominee company, bank or institutional portfolio manager, established or incorporated outside India and proposing to make

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investments in India on behalf of broad based funds and its proprietary funds in if any or (d) university fund, endowments, foundations or charitable trusts or charitable societies. v) Whether the grant of certificate to the applicant is in the interest of the development of the securities market. vi) Whether the applicant is a fit and proper person.

The SEBIs initial registration is valid for a period of three years from the date of its grant of renewal.

Investment Conditions and Restrictions for FIIs:

A Foreign Institutional Investor may invest only in the following:-

(a) Securities in the primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India. (b) units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed or not listed on a recognized stock exchange. (c) Dated Government securities. (d) Derivatives traded on a recognized stock exchange. (e) Commercial paper. (f) Security receipts.

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The total investments in equity and equity related instruments (including fully convertible debentures, convertible portion of partially convertible debentures and tradable warrants) made by a Foreign Institutional Investor in India, whether on his own account or on account of his subaccounts, should not be less than seventy per cent of the aggregate of all the investments of the Foreign Institutional Investor in India, made on his own account and on account of his subaccounts. However, this is not applicable to any investment of the foreign institutional investor either on its own account or on behalf of its sub-accounts in debt securities which are unlisted or listed or to be listed on any stock exchange if the prior approval of the SEBI has been obtained for such investments. Further, SEBI while granting approval for the investments may impose conditions as are necessary with respect to the maximum amount which can be invested in the debt securities by the foreign institutional investor on its own account or through its sub-accounts. A foreign corporate or individual is not eligible to invest through the hundred percent debt route.

Even investments made by FIIs in security receipts issued by securitization companies or asset reconstruction companies under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 are not eligible for the investment limits mentioned above. No foreign institutional should invest in security receipts on behalf of its sub-account.

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Prohibitions on Investments:

FIIs are not permitted to invest in equity issued by an Asset Reconstruction Company. They are also not allowed to invest in any company which is engaged or proposes to engage in the following activities:

1) Business of chit fund 2) Nidhi Company 3) Agricultural or plantation activities 4) Real estate business or construction of farm houses (real estate business does not include development of townships, construction of residential/commercial premises, roads or bridges. 5) Trading in Transferable Development Rights (TDRs).

Trends of Foreign Institutional Investments in India.

Portfolio investments in India include investments in American Depository Receipts (ADRs)/ Global Depository Receipts (GDRs), Foreign Institutional Investments and investments in offshore funds. Before 1992, only Non-Resident Indians (NRIs) and Overseas Corporate Bodies were allowed to undertake portfolio investments in India. Thereafter, the Indian stock markets were opened up for direct participation by FIIs. They were allowed to invest in all the securities traded on the primary and the secondary market including the equity and other securities/instruments of companies listed/to be listed on stock exchanges in India. It can be observed from the table below

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that India is one of the preferred investment destinations for FIIs over the years. As of March 2007, there were 996 FIIs registered with SEBI.

SEBI Registered FIIs in India Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 End of March 18 158 308 367 439 496 450 506 527 490 502 540 685 882 997 1319

Countrywise breakdown of FIIs registered in India (Nov 2003)

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Analysis of trends in FII investment

Trends in FII Investment

Year

Gross Purchases(a) (Rs.crore)

Gross Sales (b) (Rs.crore)

Net Investment (a-b)

(Rs.crore) increase

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

17 5593 7631 9694 15554 18695 16115 56856 74051 49920 47061 144858 216953 346978 520508 948020 614579

4 466 2835 2752 6979 12737 17699 46734 64116 41165 44373 99094 171072 305512 489667 881842 660389

13 5126 4796 6942 8574 5957 -1584 10122 9934 8755 2689 45765 45881 41467 30840 66179 -45810

39330.769 -6.43777 44.74562 23.50908 -30.5225 -126.591 -739.015 -1.85734 -11.8683 -69.2861 1601.934 0.253469 -9.62054 -25.6276 114.5882 -169.221
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2009-10(apr-dec)

631269

530824

100445

-319.264

During the initial year 1992-93, the FII flows started in September, 1992 which amounted to Rs. 13 crore because at this moment government was framing policy guidelines for FIIs. However, within a year, the FIIs rose 39338.46% of 1992-93 during 1993-94 because government had opened door for investment in India. Thereafter, the FII inflows witnessed a dip of 6.45%. The year 1995-1996 witnessed a turnaround, gliding up the contribution of FII to a massive of Rs. 6942 crore. Investment by FIIs during 1996-1997 rose a little i.e. 23.52% of the preceding year. This period was ripe enough for FII Investments because at that time where international capital markets were in the phase of overheating; the Indian economy posted strong fundamentals, stable exchange rate expectations and offered investment incentives and congenial climate for investment of these funds in India. During 1997-98, FII inflows posted a fall of 30.51%. This slack in investments by FIIs was primarily due to the South-East Asian Crisis and the period of volatility experienced between November 1997 and February 1998. The net investment flows by FIIs have always been positive from the year of their entry. Only in the year 1998-99, an outflow to the tune of Rs. 17699 crore was witnessed for the first time. This was primarily because of the economic
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sanctions imposed on India by the US, Japan and other industrialized economies. These economic sanctions were the result of the testing of series of nuclear bombs by India in May 1998. Thereafter, the FII portfolios investments quickly recovered and showed positive net investments for all the subsequent years.

FIIs investments declined from Rs. 10122 crore during 1999-2000 to Rs. 9935 crore during 200001. FII investment posted a year-on-year decline of 1.8 % in 2000-01, 11.87 % in 2001-02 and 69.29 % in 2002-03. Investments by FII posted a fall of 80 % in 2002-03 as compared with investments in the period of 1999-00. Investments by FIIs rebounded from depressed levels from the year 2003-04 and witnessed an unprecedented surge. FIIs flows were recycled to India following readjustment of global portfolios of institutional investors, triggered by robust growth in Indian economy and attractive valuations in the Indian equity market as compared with other emerging market economies in Asia. The slowdown in 2004-05 was on account of global uncertainties caused by hardening of crude oil prices and the upturn in the interest rate cycle. The resumption in the net FII inflows to India from August 2004 continued till end 2004-05. The inflows of FIIs during the year 2004-05 was Rs. 45881 crore. During 2006-07 the foreign institutional investors continued to invest large funds in Indian securities market. However, due to global developments like meltdown in global commodities markets and equity market during the three month period between May 2006 to July 2006, fall in Asian Equity markets, tightening of capital controls in Thailand and its spillover effects, there was a slack in FII investments.

As I had discussed FIIs environment in India like what is FII in India, policy framework for FIIs, market design in India for foreign institutional investors, registration process in India,

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Trends of Foreign Institutional Investments in India. Now to fulfill the objective of this project i.e. influence of FII on movement of Indian stock exchange (national stock exchange of India) during the post liberalization period that is 1998 to 2010, the following research methodology is designed.

This project, in a way, reveals the influence of FIIs investment on movement of Indian stock exchange (national stock exchange of India) during the post liberalization period that is 1998 to 2010. I have applied a simple linear model to estimate the effect of FII on the stock index. The data analysis tools used in the research is correlation and regression.

I have taken six indices to study the impact of FII on Indian bourses. One of these indices is Nifty while other five are some specific index of BSE. These six indices give the close picture of Indian stock exchanges. I have taken average monthly data of FIIs and monthly closing index of all the indices.

There may be many other factors on which a stock index may depend i.e. Government policies, budgets, bullion market, inflation, economic and political condition of the country, FDI, Re./Dollar exchange rate etc. But for my study I have selected only one independent variable i.e. FII and dependent variable is indices of nifty. This study uses the concept of correlation and regression to study the relationship between FII and stock index. The FII started investing in Indian capital market from September 1992 when the Indian economy was opened up in the same year. Their investments include equity only. The sample data of FIIs investments consists of monthly average

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from April 1998 to February 2010 and indices value consist monthly closing value with period of study and various observations which is given below in table.

RESEARCH METHODOLOGY

Models: Regression Analysis: This analysis tool performs linear regression analysis by using the "least squares" method to fit a line through a set of observations. We can analyze how a single dependent variable is affected by the values of one or more independent variables for example, how an athlete's performance is affected by such factors as age, height, and weight. We can apportion shares in the performance measure to each of these three factors, based on a set of performance data, and then use the results to predict the performance of a new, untested athlete.

Correlation: This analysis tool and its formulas measure the relationship between two data sets that are scaled to be independent of the unit of measurement. The population correlation calculation returns the covariance of two data sets divided by the product of their standard deviations. We can use the Correlation tool to determine whether two ranges of data move together that is, whether large values of one set are associated with large values of the other (positive correlation), whether small values of one set are associated with large values of the other (negative correlation), or whether values in both sets are unrelated (correlation near zero).

Data: The sample data consists of 143 observations for FII, Sensex and S&P CNX Nifty starting from April 1998 to February 2010. The sample for other four indices of BSE consists of 143

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observations starting from January 1999 to February 2010. I have taken the monthly closing index of all the indices and monthly average of net investments made by FII. The FIIs started investing in Indian capital market from September 1992. The number of scrips under following index are:

BSE Sensex 30 NSE Nifty 50 BSE Consumer Durables (CD) 22 BSE Capital Goods (CG) 49 BSE Fast Moving Consumer Goods (FMCG) 44 BSE Information Technology (IT) 42

FII was taken as independent variable. Stock indices were taken as dependent variable. The data was taken from various financial sites. There may be many other factors on which a stock index may depend i.e. Government policies, budgets, bullion market, inflation, economic and political condition of the country, FDI, Re./Dollar exchange rate etc. But for my study I have selected only one independent variable i.e. FII and dependent variable is indices of nifty. This study uses the concept of correlation and regression to study the relationship between FII and stock index. The FII started investing in Indian capital market from September 1992 when the Indian economy was opened up in the same year. Their investments include equity only. The sample data of FIIs investments consists of monthly average from April 1998 to February 2010 and indices value consist monthly closing value with period of study and various observations which is given below in table.

Indices

Period of Study

Observation
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BSE Sensex BSE CD BSE CD BSE FMCG BSE IT S&P CNX NIFTY

30 31 31 31 31 30

Apr 98- 28 Feb 2010 Jan 99- 28 Feb 2010 Jan 99- 28 Feb 2010 Jan 99- 28 Feb 2010 Jan 99- 28 Feb 2010 Apr 98- 28 Feb 2010

143 134 134 134 134 143

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Secondary data analysis and interpretation

Influence of FIIs on Indian stock market


1. Impact of FIIs on NIFTY: The effect of FIIs on nifty is positive and co-efficient of correlation is .541 this shows that it has moderate degree of positive correlation; hence the effect is also moderate on nifty. The standard error is also low, that signifies that relation is true and there is less possibilities of deviation of result.
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Regression
Model Summary

Model R R Square 1 .541(a) .293 a Predictors: (Constant), fii

Adjusted R Square .288

Std. Error of the Estimate 7.09787

Correlations
Correlations nsenifty fii Pearson 1 .541(**) Correlation Sig. (2-tailed) . .000 N 143 143 fii Pearson .541(**) 1 Correlation Sig. (2-tailed) .000 . N 143 143 ** Correlation is significant at the 0.01 level (2-tailed). nsenifty

2. Impact of FIIs on BSE Sensex:

The coefficient of correlation is .529, it signifies that the fiis has moderate degree of impact on sensex. Also the relation is positive in nature. Standard error is also low so there is less possibility of variation.
Correlations
Correlations BSESENSEX Pearson 1 Correlation Sig. (2-tailed) . N 143 FII Pearson .529(**) Correlation Sig. (2-tailed) .000 N 143 * Correlation is significant at the 0.01 level (2-tailed). BSESENSEX FII .529(**) .000 143 1 . 143

Regression
Model Summary Adjusted R Square .275 Std. Error of the Estimate 6.94629

R R Square .529(a) .280 a Predictors: (Constant), FII

Model 1

3. Impact of FIIs on BSE CD:


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FII has no significant relation with BSE CD, as the value of correlation is 0.066. This does not mean that there is no relation at all between them. It shows the absence of linear relation between the two variables but not a lack of relationship altogether. The degree of positive correlation between them is very low. Again the standard error is comparatively high, but it is acceptable. It is because the standard error in linear regression is usually high.
Correlations
BSECD BSECD Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Model Summary 1 . 133 .066 .448 133 FII .066 .448 133 1 . 133

FII

Regression
Model R R Square 1 .066(a) .004 a Predictors: (Constant), FII Adjusted R Square -.003 Std. Error of the Estimate 92.88464

4. Impact of FIIs on BSE CG: BSE CG is positively correlated with FII for the period of January 1999 to February 2010.The value of correlation is 0.161. However degree of correlation is low. And standard error is also low. This shows that FIIs has less impact on consumer goods sector in comparison to other sector.

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Correlations
FII FII BSECG Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N 1 . 133 .161 .064 133 BSECG .161 .064 133 1 . 133

Regression
Model Summary R R Square .161(a) .026 a Predictors: (Constant), FII Model 1 Adjusted R Square .019 Std. Error of the Estimate 11.32273

5. Impact of FIIs on BSE FMCG: BSE FMCG is inversely related to FII for the period of January 1999 to September 2010. But the value of R is low so the degree of relation is low. Standard error in this case is 70.55 which is low. We can also say that FMCG sector has very low degree of negative correlation with FIIs.
Correlations
FII FII BSEFMCG Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Model Summary Adjusted R Square -.008 Std. Error of the Estimate 70.55811 1 . 133 -.001 .988 133 BSEFMCG -.001 .988 133 1 . 133

Regression

Model R R Square 1 .001(a) .000 a Predictors: (Constant), FII

6. Impact of FIIs on BSE IT: There is no significant relation between IT sector and FIIs .It doesnt mean there is no relation between both them, but degree of relation is very low. Also the standard error is low, hence BSE IT has low degree of positive correlation for the period January 1999 to February 2010.

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Correlations
FII FII BSEIT Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Model Summary Adjusted R Square -.008 Std. Error of the Estimate 14.64555 1 . 133 .009 .919 133 BSEIT .009 .919 133 1 . 133

Regression

Model R R Square 1 .009(a) .000 a Predictors: (Constant), FII

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Primary Data Analysis and Interpretation

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Data Analysis and Interpretation A. Graphical representation:


Occupation of respondent: The most of the respondent is Investor and Broker. The reason behind this they have more exposure to FIIs than any other. Also questionnaire is filled by student most of them are MBA and some of them are CA. The other type of person includes person doing articleship at some of most reputed CA firms in India.

occuaption business man broker investor student others


8 13

13

15

21

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Governing bodies behind FIIs and limitation of FIIs: Most of the respondent is aware about the governing bodies behind FIIs and limitation of FIIs. This statics help us to come to conclusion that respondent are well aware about FIIs, so their response is worthwhile for analysis.

60

50

40

t n u o C

30
56

20

10
14

0 yes no

do you know the governing bodies behinf fii's?

60

50

40

t n u o C

30

57

20

10
13

0 yes no

do you know about limitation of fii's?

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B. Reliability testing:
Case Processing Summary N Cases Valid Excluded (a) Total 70 0 % 100.0 .0

70 100.0 a Listwise deletion based on all variables in the procedure. Reliability Statistics Cronbach's Alpha Based on Cronbach's Standardized Alpha(a) Items(a) N of Items -.173 -.169 30 a The value is negative due to a negative average covariance among items. This violates reliability model assumptions. You may want to check item codings.

Interpretation:
Cronbach's alpha determines the internal consistency or average correlation of items in a survey instrument to gauge its reliability. Here our alpha is coming negative, it means items are less correlated with each other; hence reliability testing is not successful. And if the scale shows poor reliability, then individual items within the scale must be re-examined and modified or completely changed as needed. One good method of screening for efficient items is to run an exploratory factor analysis on all the items contained in the survey to weed out those variables that failed to show high correlation. So, to eliminate items which shows negative correlation we perform factor analysis. In factor analysis, we select 12 items, which later reduces into 6 factors.

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C. Factor Analysis
Communalities Initial 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Extraction .691 .442 .694 .539 .751 .559 .612 .619 .748 .551 .622

long term capital gain ruppee appreciation economicg rowth interest rate inflation rate infrastucture echange rate risk strengthning corporate governance regulation and trading efficiency dollar weakness against rupee

Extraction Method: Principal Component Analysis.

Total Variance Explained Initial Eigenvalues Component 1 2 3 4 5 6 7 8 9 10 11 Total 1.712 1.664 1.340 1.086 1.024 .962 .851 .671 .622 .584 % of Variance 15.565 15.129 12.186 9.870 9.311 8.747 7.741 6.103 5.652 5.311 Cumulative % 15.565 30.694 42.881 52.750 62.062 70.808 78.549 84.651 90.303 95.615 100.000 Extraction Sums of Squared Loadings Total 1.712 1.664 1.340 1.086 1.024 % of Variance 15.565 15.129 12.186 9.870 9.311 Cumulative % 15.565 30.694 42.881 52.750 62.062

.482 4.385 Extraction Method: Principal Component Analysis.

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Component Matrix(a) Component long term capital gain ruppee appreciation economicg rowth interest rate inflation rate infrastucture echange rate risk strengthning corporate governance regulation and trading efficiency dollar weakness against rupee 1 -.558 -.042 -.441 .524 .453 .070 .604 -.033 .408 -.362 -.235 2 -.122 .391 .128 -.047 .378 -.563 .426 .689 -.285 .504 .164 3 .403 .131 .348 .337 -.107 -.416 .172 -.366 .314 .293 -.627 4 -.016 -.503 .600 .353 .254 -.040 .099 -.078 -.440 -.236 .133 5 .448 -.129 -.050 -.153 .572 -.251 -.164 -.048 .457 -.156 .359

Extraction Method: Principal Component Analysis. a 5 components extracted.

Factor analysis is a technique that is used to reduce a large number of variables into fewer numbers of factors. Factor analysis extracts maximum common variance from all variables and puts them into a common score Eigen values: An Eigen value is also called characteristic roots. Eigen values shows variance explained by that particular factor out of the total variance. From the commonality column, we can know how much variance is explained by the first factor out of the total variance. For example, if our first factor explains 68% variance out of the total, this means that 32% variance will be explained by the other factor. Interpretation: In factor analysis we taken 11 factor that impact FIIs investment decision. They are interest rate, inflation rate, exchange rate, long term capital appreciation, economic growth, risk, trading efficiency and regulation, rupee appreciation, corporate governance, infrastructure. But all this factor doesn,t have impact or same level of impact. So to identify most important factor, we used

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factor analysis. In factor analysis our 11 factors are reduces in 5. We have taken factor which have variance above 1 into consideration and neglect rest. Five factors which have most impact on FIIs investment decision are:
Economic growth: FIIs make investment decision on the basis of growth of economy of

that country. As growth rate is high that signifies that FIIs have better chance to grow their money.
Interest rate: If the interest rate prevailing in their countries is less as compare to other

countries, than they will make investment in other countries. Hence, they compare interest of various countries before making investment decision.
Regulation and trading efficiency: they also look into the rules and regulation imposed

by government of those countries in which they are investing and how efficiently trading is made in that country.

Risk: Risk is one of the important factor that FIIs considered before making investment

decision. Risk can be of political, social, economical, legal and environmental.

Inflation rate: inflation rate of counties is also taken into consideration to get true picture

of returns.

D. Cross tabulation Common route for FIIs investment:

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i) occuaption * mutual fund Crosstabulation


Count mutual fund most common +2 3 1 3 0 2 9 +1 7 5 8 5 3 28 0 3 9 10 8 3 33 Total 13 15 21 13 8 70

occuaption

business man broker investor student others

Total

Mutual fund is not considered as most common routes but it doesnt mean that it is not at all common. Mutual funds are common route for FIIs investment according to most of respondent. ii) occuaption * hedge fund Crosstabulation Count
hedge fund +1 occuaption business man broker investor student others Total 0 1 1 1 1 4 0 5 5 6 7 2 25 -1 6 9 11 5 5 36 least common -2 2 0 3 0 0 5 Total 13 15 21 13 8 70

The hedge fund is not yet popular in India. Our 70% of respondent come to conclusion that hedge fund is not a common route for FIIs investment. The scale taken is most common +2 to least common -2. iii) occuaption * reinsurance Crosstabulation

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Count
reinsurance most common +2 0 0 1 0 0 +1 1 0 5 1 1 8 0 3 4 7 6 2 22 -1 7 6 6 4 4 27 least common -2 2 5 2 2 1 12 Total 13 15 21 13 8 70

occuaption

business man broker investor student others

Total

1 iv) occuaption * investment trust Crosstabulation

Count investment trust most common +2 +1 0 2 0 8 3 2 0 5 12 5 5 32

0 11 7 6 6 3 33

Total 13 15 21 13 8 70

occuaption

business man broker investor student others

Total

Investment funds are common route but not so popular route for FIIs investment.
v) Count instituional portfolio manager most common +2 +1 0 1 7 3 3 5 5 4 0 1 9 6 7 2 27 8 4 5 25 occuaption * instituional portfolio manager Crosstabulation

-1 2 2 3 2 0 9

Total 13 15 21 13 8 70

occuaption

business man broker investor student others

Total

Institutional portfolio manager is also pouplar route among respondent.

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vi) occuaption * banks Crosstabulation Count banks most common +2 4 3 4 3 1 15 +1 8 4 10 5 2 29 0 1 5 4 2 5 17 -1 0 2 2 1 0 5 least common -2 0 1 1 2 0 4 Total 13 15 21 13 8 70

occuaption

business man broker investor student others

Total

The investment through bank is most common and popular route for FIIs investment according to respondent. vii) occuaption * individual invsestor Crosstabulation Count individual invsestor most common +2 2 1 4 5 0 12 +1 4 9 4 4 3 24 0 5 2 6 1 4 18 -1 2 1 5 1 1 10 least common -2 0 2 2 2 0 6 Total 13 15 21 13 8 70

occuaption

business man broker investor student others

Total

E. Weighted average score

a) Count

occuaption * regulation and trading efficiency regulation and trading efficiency Low impact -2 0 -1 0 0 0 0 0 0 0 0 0 0 0 0 2 3 4 1 3 13 8 9 8 8 1 34 +1 high impact +2 3 3 9 4 4 23 Total WAS 13 15 21 13 8 70 1.07 1 1.23 1.23 1.125

occuaption

business man broker investor student others

Total

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Investor and student think that regulation and trading efficiency has high impact on FIIs investment decision. The weighted score for them is 1.23 which is followed by 1.12 of others and 1.07 of business man. The weighted mean score of the entire respondent is either 1 or above one, its clearly shows that regulation and trading efficiency have high impact on FIIs investment decision.
b) occuaption * dollar weakness against rupee
dollar weakness against rupee -2 occuaption business man broker investor student others 0 0 0 0 0 0 -1 0 0 0 0 0 0 0 1 5 1 1 1 9 +1 8 7 16 7 6 44 high impact +2 4 3 4 5 1 17 Total WAS

Total

13 15 21 13 8 70

1.23 0.86 1.14 1.30 1

The student has WAS as 1.30 followed by 1.23 of business man and 1.14 of investor. This shows that dollar weakness against rupee as high impact on FIIs investment behavior. Where as investor has WAS of 1.14 which show that dollar weakness has impact on FIIs investment decision but degree of impact of comparatively low than other factors.

F. Chi square test Null hypothesis: FIIs doesnt affect Indian economy and factors like stock market, exports, market efficiency, and many more. Alternative Hypothesis: FIIs have impact on Indian economy and following factors.

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Case Processing Summary


Valid N appreciation of currency * occupation exports * occupation stock market * occupation local companies * occupation capital formation * occupation improve market efficiency * occupation strengthening corporate governance * occupation regulation and trading efficiency * occupation 70 70 70 70 70 70 70 70 Percent 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cases Missing N Percent 0 0 0 0 0 0 0 0 Crosstab occupation business man appreciation of currency very high Count Expected Count Count Expected Count Count Expected Count Count Expected Count Chi-Square Tests Asymp. Sig. (2-sided) .553 .459 .581 3 4.3 8 8.0 2 .7 13 13.0 broker 5 4.9 9 9.2 1 .9 15 15.0 investor 10 6.9 11 12.9 0 1.2 21 21.0 student 3 4.3 9 8.0 1 .7 13 13.0 others 2 2.6 6 4.9 0 .5 8 8.0 Total 23 23.0 43 43.0 4 4.0 70 70.0 .0% .0% .0% .0% .0% .0% .0% .0% Total N 70 70 70 70 70 70 70 70 Percent 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Appreciation of currency * occupation

high

low

Total

Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases

Value 6.852(a) 7.744 .305 70

df 8 8 1

a 10 cells (66.7%) have expected count less than 5. The minimum expected count is .46.

Exports
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Crosstab occupation business man exports very high high low very low Total Count Expected Count Count Expected Count Count Expected Count Count Expected Count Count Expected Count Chi-Square Tests Asymp. Sig. (2-sided) .745 .838 .978 0 .2 2 1.7 9 8.9 2 2.2 13 13.0 broker 0 .2 1 1.9 12 10.3 2 2.6 15 15.0 investor 0 .3 3 2.7 14 14.4 4 3.6 21 21.0 student 1 .2 2 1.7 9 8.9 1 2.2 13 13.0 others 0 .1 1 1.0 4 5.5 3 1.4 8 8.0 Total 1 1.0 9 9.0 48 48.0 12 12.0 70 70.0

Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases

Value 8.502(a) 7.292 .001 70

df 12 12 1

a 15 cells (75.0%) have expected count less than 5. The minimum expected count is .11.

Local companies
Crosstab occupation business man local comapnies high Count Expected Count Count Expected Count Count Expected Count Count Expected Count Chi-Square Tests 2 1.3 9 7.6 2 4.1 13 13.0 broker 1 1.5 7 8.8 7 4.7 15 15.0 investor 4 2.1 10 12.3 7 6.6 21 21.0 student 0 1.3 11 7.6 2 4.1 13 13.0 others 0 .8 4 4.7 4 2.5 8 8.0 7 7.0 41 41.0 22 22.0 70 70.0 Total

low

very low

Total

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Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases

Value 11.154(a) 12.940 1.051 70

df 8 8 1

Asymp. Sig. (2-sided) .193 .114 .305

a 10 cells (66.7%) have expected count less than 5. The minimum expected count is .80.

Strengthening Corporate governance


Crosstab occupation business man strengthening corporate governance very high Count 5 Expected Count high low Total Count Expected Count Count Expected Count Count Expected Count Chi-Square Tests Asymp. Sig. (2-sided) .352 .291 .525 2.6 8 8.2 0 2.2 13 13.0 2 3.0 8 9.4 5 2.6 15 15.0 6 4.2 10 13.2 5 3.6 21 21.0 0 2.6 12 8.2 1 2.2 13 13.0 1 1.6 6 5.0 1 1.4 8 8.0 14 14.0 44 44.0 12 12.0 70 70.0 broker investor student others Total

Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases

Value 8.888(a) 9.639 .403 70

df 8 8 1

a 10 cells (66.7%) have expected count less than 5. The minimum expected count is 1.49.

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Interpretation of Chi- square


The Chi square is used to test the statically significance of the observe association in a cross tabulation. It assists us in determining whether a systematic association exists between the two variables. The chi- distribution is a skewed distribution whose shape depends solely on the number of degrees of freedom. As the number of degree of freedom increases the chi- square distribution become more symmetrical. In the above cases we take level of significance is .05. In case of strengthening cooperate governance, local companies and appreciation of currency the degree of freedom is 8. When we look into table of chi-square for df 8 at .05 level of significance the value comes is 15.507. And in each of above cases chi square value calculated is low, so we cannot reject null hypothesis. That signifies that FIIs has no impact on following factors. The reason for such result is less no. of responses, due which there is possibility of change in result. In case of exports the degree of freedom is 12 and level of significance is .05, tabular value for exports is 21.026 which is higher that calculated value 8.502. In this case, again we cant reject null hypothesis.

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CONCLUSION AND FINDINGS

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Findings:
1. BSE sensex and nifty has moderate degree of positive correlation with FIIs investment. Hence both indices move in direction of FIIs investment. If FIIs increase both indices increases and vice versa. 2. BSE CD and BSE CG has low degree of positive correlation. It signifies that consumer durable and consumer goods sector are less dependent on FIIs. 3. BSE IT has low degree of negative correlation. It means that it doesnt rise with rise in FIIs. 4. After using hypothesis testing we came to conclusion that Exports and local companies has very less impact or no impact of FIIs in India. 5. Similarly, appreciation of rupee and corporate governace also has very less impact of FIIs. 6. FIIs has impact on improvement of market efficieny. As due to increasing investment of FIIs, SEBI and other regulatory bodies have to improve market trading efficiency in order to sustain FIIs investment and also to attract more investment.
7. Economic growth, inflation and interest rate are the key parameters on which FIIs invest

in any countries. Also FIIs investment lead to economic growth of country.

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Conclusion
1. According to findings and results, I concluded that FII did have high significant impact on the Indian capital market. Therefore, the alternate hypothesis is accepted. FIIS have high impact on BSE Sensex and Nifty. This signifies that market rise with increase in FIIs and collapse when FIIs are withdrawn form market. Also BSE CG, BSE CD, and BSE IT showed positive correlation but BSE FMCG showed negative correlation with FII. The degree of relation was low in all the case. It shows low degree of linear relation between FII and other stock index.

One of the reasons for high degree of any linear relation can also be due to the sample data. The data was taken on monthly basis. The data on daily basis can give more positive results (may be). Also FII is not the only factor affecting the stock indices. There are other major factors that influence the bourses in the stock market. I also analyzed that FII had significant impact on the stock index for the period starting from April 1998 to February 2010.

2. According to findings, I conclude that various factor affect FIIs investment decision. Most important parameter on which FIIs invests are economic growth, interest rate, inflation rate, regulation and trading efficiency and risk. Also before research I thought that FIIs have impact on exports, local companies and corporate governance. But after hypothesis testing, I came to no that there is no significant impact of FIIs on those factors.

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Bibliography/ references
A number of websites, newspaper article annual reports of RBI, magazines, bulletin of SEBI are used for study purpose. They are as follows: Internet sites : www.sebi.gov.in www.rbi.org.in/home.aspx
www.nseindia.com www.bseindia.com www.moneycontrol.com

Books: Foreign direct investment in India by Lata Chakravarthy. Foreign institutional investors by G Gopal Krishna Murthy. Journal of Financial Research

Reports and bulletins: SEBI handbook 2008 SEBI bulletin 2010

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Annexure 1
FIIs monthly data on Gross purchase, Gross sales and net purchase
Mont h Equity (Rs. Crore) Gross Gross Net Purchas e (a) Purchas e 40,795.7 0 62,070.3 0 49,088.0 0 47,457.1 0 69,514.8 0 69,884.9 0 51,979.9 0 70,256.4 0 64,250.0 0 77,886.4 0 40,881.7 0 32,177.4 0 21,863.2 0 30,764.7 0 29,197.6 0 28,273.8 0 Sales 38,682.20 62,373.20 38,720.80 42,139.30 61,210.70 49,945.40 47,951.20 58,631.10 61,025.10 57,279.50 33,497.50 31,908.40 24,553.70 33,774.20 27,866.70 31,094.10 /Sales 2,113.50 -302.9 10,367.2 0 5,317.80 8,304.10 19,939.5 0 4,028.70 11,625.3 0 3,224.90 20,606.9 0 7,384.20 269 2,690.50 3,009.50 1,330.90 2,820.30 Debt (Rs. Crore) Gross Gross Net Purchase (b) Purchas e 9,644.00 21,306.0 0 8,666.10 11,436.7 0 12,943.6 0 10,961.0 0 8,152.50 9,949.20 8,849.90 6,158.40 10,131.5 0 8,849.70 6,687.80 7,652.30 8,669.70 10,098.1 0 Sales 7,434.20 12,084.1 0 10,099.9 0 11,199.9 0 5,897.30 8,838.60 8,636.90 7,588.00 8,106.10 8,957.00 7,447.00 15,331.6 0 7,056.90 7,821.10 8,328.60 4,693.50 /Sales 2,209.80 4,323.30 9,221.90 8,919.00 -1,433.80 8,933.40 236.8 5,554.60 7,046.30 15,350.40 2,122.40 22,061.90 -484.4 3,544.30 2,361.20 13,986.50 743.8 3,968.70 -2,798.60 17,808.30 2,684.50 10,068.70 -6,481.90 -6,212.90 -369.1 -3,059.60 -168.8 -3,178.30 341.1 1,672.00 5,404.60 2,584.30 Page 68

net purchase( a+b) sales

Feb10 Jan-10 Dec09 Nov09 Oct09 Sep09 Aug09 Jul-09 Jun-09 May09 Apr09 Mar09 Feb09 Jan-09 Dec08 Nov08

Oct08 Sep08 Aug08 Jul-08 Jun-08 May08 Apr08 Mar08 Feb08 Jan-08 Dec07 Nov07 Oct07 Sep07 Aug07 Jul-07 Jun-07 May07 Apr07 Mar07 Feb07 Jan-07 Dec06

49,339.3 0 68,029.6 0 46,401.9 0 64,526.3 0 61,490.6 0 60,640.3 0 62,969.6 0 70,322.7 0 76,437.1 0 103,129. 00 80,988.1 0 89,510.0 0 124,882. 30 70,694.6 0 58,223.2 0 80,216.2 0 54,748.5 0 51,574.9 0 44,701.5 0 50,552.6 0 51,568.9 0 47,506.7 7 37,419.5 0

63,587.90 75,966.60 48,467.70 65,539.20 72,068.30 65,557.60 61,990.60 70,198.30 71,017.20 120,455.3 0 76,091.40 94,107.40 109,304.7 0 51,746.10 65,750.00 62,083.40 46,808.90 47,000.40 39,269.70 49,149.30 45,503.90 47,412.32 40,830.40

14,248.6 0 7,937.00 2,065.80 1,012.90 10,577.7 0 4,917.30 979 124.4 5,419.90 17,326.3 0 4,896.70 4,597.40 15,577.6 0 18,948.5 0 7,526.80 18,132.8 0 7,939.60 4,574.50 5,431.80 1,403.30 6,065.00 94.45 3,410.90

2,674.90 7,185.10 2,512.60 6,066.00 484.4 152.4 -186.9 0 5,521.80 5,408.00 5,404.60 1,220.00 3,268.70 3,816.50 2,888.00 2,233.00 772.8 2,376.10 2,045.50 3,654.80 2,339.20 1,191.38 794.6

4,722.40 4,094.70 1,323.90 2,471.20 1,311.30 315.3 1,514.80 879.7 3,025.00 3,565.30 2,143.60 1,611.40 1,180.50 1,041.00 2,416.70 3,334.60 1,544.80 1,016.00 1,425.40 1,490.80 1,917.70 2,938.95 741.4

-2,047.50 -16,296.10 3,090.40 -4,846.60 1,188.70 -877.10 3,594.80 2,581.90 -826.9 -11,404.60 -162.9 -5,080.20 -1,701.70 -722.70 -879.7 -755.30 2,496.80 7,916.70 1,842.70 -15,483.60 3,261.00 8,157.70 -391.4 -4,988.80 2,088.20 17,665.80 2,775.50 21,724.00 471.3 -7,055.50 -1,101.60 17,031.20 -772 7,167.60 1,360.10 5,934.60 620.1 6,051.90 2,164.00 3,567.30 421.5 6,486.50 -1,747.57 -1,653.12 53.2 -3,357.70 Page 69

Nov06 Oct06 Sep06 Aug06 Jul-06 Jun-06 May06 Apr06 Mar06 Feb06 Jan-06 Dec05 Nov05 Oct05 Sep05 Aug05 Jul-05 Jun-05 May05 Apr05 Mar05 Feb05 Jan-05 Dec04 Nov-

31,146.9 6 27,591.9 4 33,014.2 0 28,104.6 0 24,983.1 0 39,845.6 0 49,338.2 0 40,415.6 0 53,578.7 0 35,603.1 0 34,762.8 0 31,563.4 0 23,739.1 0 25,817.5 0 24,160.7 0 26,455.1 0 25,589.3 0 27,693.1 0 15,522.6 0 15,261.7 0 26,701.2 0 20,898.0 0 14,784.4 0 19,009.9 0 18,219.1

24,572.22 23,013.30 26,782.50 23,330.60 23,535.20 38,427.40 57,585.50 39,826.40 47,046.40 28,031.20 31,542.10 22,098.20 19,290.50 29,623.10 20,056.10 22,042.50 17,377.10 21,931.00 16,330.20 16,308.80 19,051.90 13,203.00 15,066.10 13,203.20 11,796.70

6,574.74 4,578.54 6,231.70 4,774.00 1,447.90 1,418.20 8,247.20 589.2 6,532.30 7,571.90 3,220.70 9,465.20 4,448.60 3,805.60 4,122.60 4,412.60 8,212.20 5,762.10 -807.6 1,047.10 7,649.30 7,695.00 -281.7 5,806.70 6,412.40

1,748.01 1,605.92 1,106.60 1,164.60 342.4 624.5 1,009.00 445.7 221.3 271.8 214.8 470.1 409 675.1 137.2 569.1 185.2 45 164.1 208.3 876.8 2,142.70 850.9 4,716.10 3,327.60

863.68 539.27 813.9 353 260 228.8 302.2 209.9 435.8 423.4 1,084.30 1,158.00 2,752.70 1,055.30 440.1 1,026.40 359.1 110.3 501.5 989.7 708.5 1,139.10 1,598.20 1,635.60 1,611.40

884.33 7,459.07 1,066.65 5,645.19 628.3 6,860.00 811.6 5,585.60 82.4 1,530.30 395.7 1,813.90 706.8 -7,540.40 235.8 825.00 -214.5 6,317.80 -151.6 7,420.30 -869.5 2,351.20 -687.9 8,777.30 -2,343.70 2,104.90 -380.2 -4,185.80 -302.9 3,819.70 -457.3 3,955.30 -173.9 8,038.30 -65.3 5,696.80 -337.4 -1,145.00 -781.4 -1,828.50 168.3 7,817.60 1,003.60 8,698.60 -747.3 -1,029.00 3,080.50 1,716.20 8,887.20 8,128.60

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04 Oct04 Sep04 Aug04 Jul-04 Jun-04 May04 Apr04 Mar04 Feb04 Jan-04 Dec03 Nov03 Oct03 Sep03 Aug03 Jul-03 Jun-03 May03 Apr03 Mar03 Feb03 Jan-03 Dec02 Nov02 Oct02

0 16,560.2 0 12,974.1 0 12,471.0 0 10,967.3 0 10,525.2 0 15,726.1 0 16,304.6 0 20,383.5 0 14,378.1 0 16,364.6 0 14,038.1 0 9,759.10 14,475.2 0 11,500.9 0 7,654.20 8,472.50 6,489.20 5,461.00 5,196.20 3,151.00 3,275.90 5,343.20 4,013.00 3,840.60 2,929.00

12,517.80 10,189.80 9,659.80 9,784.00 10,214.60 18,976.60 12,131.60 11,614.60 11,106.30 13,990.50 7,788.20 6,563.80 7,612.60 7,564.80 5,627.60 6,044.30 3,877.50 4,252.60 4,646.30 2,898.40 2,870.40 4,277.60 3,572.70 3,371.20 3,528.60

4,042.40 2,784.30 2,811.20 1,183.30 310.6 3,250.50 4,173.00 8,769.00 3,271.90 2,374.10 5,411.00 3,195.30 6,862.60 3,936.10 2,026.60 2,428.20 2,611.70 1,208.40 549.9 252.7 405.2 1,065.50 440.3 469.4 -599.6

443.6 638.6 334.8 150.4 217.1 166.6 0 1,855.40 978.2 854.2 767 1,289.60 852.2 789.6 972.4 501.3 1,038.40 2,236.60 734.8 1,003.50 262.9 240.6 247.7 137.8 0

1,565.60 526.8 638.3 350.8 1,050.70 422.7 738.6 1,138.50 778.7 111.7 610.1 567 1,150.10 456.56 838 686.8 211.7 338.2 272.5 379 104 143.3 27 1.8 75.3

-1,122.00 2,920.40 111.8 2,896.10 -303.5 2,507.70 -200.4 982.90 -833.6 -523.00 -256.1 -3,506.60 -738.6 3,434.40 716.9 9,485.90 199.5 3,471.40 742.5 3,116.60 137.7 5,548.70 722.6 3,917.90 -297.9 6,564.70 333.04 4,269.14 134.4 -185.5 826.7 1,898.40 462.3 1,012.20 624.4 877.10 186.3 97.3 220.7 136 605.40 -75.3 -674.90 Page 71 591.50 1,162.80 661.00 2,161.00 2,242.70 3,438.40 3,106.80

Sep02 Aug02 Jul-02 Jun-02 May02 Apr02 Mar02 Feb02 Jan-02 Dec01 Nov01 Oct01 Sep01 Aug01 Jul-01 Jun-01 May01 Apr01 Mar01 Feb01 Jan-01 Dec00 Nov00 Oct00 Sep00 Aug00 Jul-00

3,722.70 2,629.20 3,380.30 3,279.00 3,786.91 4,358.10 3,872.10 5,453.80 5,055.60 3,459.20 3,509.00 3,608.80 2,936.80 3,020.20 3,069.50 3,462.80 3,734.10 4,599.00 6,577.60 6,057.90 7,831.70 4,300.60 4,428.10 4,219.20 6,978.60 5,134.20 5,689.50

3,354.50 2,408.00 3,024.20 3,451.00 3,958.44 4,459.60 3,398.60 3,448.30 4,698.40 3,143.50 3,358.40 2,893.10 3,352.40 2,582.80 2,347.10 2,747.50 2,688.60 2,829.20 4,604.50 4,239.00 3,786.70 4,877.40 3,496.00 4,491.00 6,836.20 3,788.00 7,107.30

368.2 221.2 356.1 -172 -171.54 -101.51 454.07 2,005.46 357.15 315.7 150.6 715.7 -415.6 437.4 722.5 715.3 1,045.60 1,770.00 1,972.90 1,819.10 4,045.50 -576.9 932.8 -271.7 142.5 1,346.00 1,418.00

0.19 19.7 1.8 72.4 551.1 494.6 210.2 494.1 548.2 20.9 474.9 286.9 433.2 228.3 595.5 656.1 242 481.2 400.7 528.1 769.1 292 363 221.5 171 0 168.2

147.11 49.9 97.7 571.53 257.7 839.1 244.1 155.3 246.5 0 617.8 118.2 550.8 163.5 840.2 191.7 611.3 272.2 607.9 483.8 541.1 418.3 390.1 218.3 95 87.3 152.3

-146.92 221.28 -30.2 -95.9 -499.13 293.4 -344.48 -445.99 -33.81 420.26 338.8 301.7 20.9 -142.9 7.70 168.7 884.40 -117.6 -533.20 64.8 -244.7 464.4 -369.4 209.1 1,979.10 -207 1,765.90 44.8 227.9 -126.4 -27.2 905.60 3.2 -268.50 76 218.50 -87.3 1,258.70 15.9 -1,402.10 Page 72 1,863.90 4,273.40 -703.30 502.20 477.80 1,179.70 676.20 2,344.26 658.85 336.60 191.00 260.20 -671.13 121.86

Jun-00 May00 Apr00 Mar00 Feb00 Jan-00 Dec99 Nov99 Oct99 Sep99 Aug99 Jul-99 Jun-99 May99 Apr99 Mar99 Feb99 Jan-99

5,243.90 5,985.90 8,034.90 9,516.30 9,265.50 5,994.80 4,484.30 3,878.00 3,427.80 2,725.90 2,683.60 4,305.70 2,664.80 4,041.00 2,380.10 2,520.80 1,647.90 1,635.60

6,203.20 5,501.80 5,344.30 8,451.80 6,481.00 5,843.60 2,907.80 2,674.50 4,141.50 3,465.30 2,799.20 2,753.30 2,316.40 2,367.80 1,496.10 2,397.30 1,308.50 1,189.40

-959.3 484.2 2,690.50 1,064.40 2,784.80 151.2 1,576.30 1,203.70 -713.9 -739.3 -115.4 1,552.50 348.5 1,673.00 884 123.3 339.2 446.2

154.8 321.7 319.7 373.9 496.5 135.1 71.9 56.6 107.8 0 30.6 5.1 5.2 67.5 139.4 326.8 0 6.8

130.6 552.9 423.6 239.5 196.8 89.8 30.5 30.9 1.1 1.1 37 54.1 264.9 21.2 70.1 173.1 14.8 0

24.3 -231.3 -103.9

-935.00 252.90 2,586.60

134.3 1,198.70 299.8 45.4 41.4 25.6 1,229.30 106.7 -607.20 -1.1 -740.40 -6.4 -49 -259.7 46.3 69.2 953.20 153.6 276.90 -14.8 6.8 324.40 453.00 -121.80 1,503.50 88.80 1,719.30 3,084.60 196.60 1,617.70

Page 73

Annexure 2

Page 74

Questionnaire for Foreign Institutional Investments Behaviors and its impact on Indian stock market

Page 75

Part A) Personal Information: 1) Name: ____________________________________

2)

Gender: Male

Female

3) Occupation:

Business man Student 4) Your current age is: (a) 20-30 (c) 41 to 55 (e) Over 65

Broker Others

Investor

(b) 31 to 40 (d) 56 to 65

5) Your annual Income Level is: (a) Up to 3,00,000 (c) 8,00,001 15,00,000 (f) Not earning presently

(b) 3,00,001 8,00,000 (d) 15,00,001 and above

Part b) Foreign Institutional Investment Awareness level 6) Do you know about the governing bodies behind FIIs? (a) Yes (b) No

7) What kind of impact due you think FIIs have on Indian Economy and capital market? a)High Impact c) No Impact (b) Low Impact (d) Do Not know
Page 76

8) Do you know about limitation on foreign institutional investment? (a) Yes (b) No

9) Which is the most common route For FIIs investment in India? (rate
accordingly 1 most common and 5 least common route.)

FIIs invested through following medium:


Mutual fund companies Hedge fund Insurance and reinsurance companies Investment trust Institutional portfolio managers Banks Individual investor

Part c) Foreign Institutional Investment 10) Do you think following are the important reason for growth in FII Investments? ( Rate accordingly )
Not at all importa nt Long term Capital gain Rupee appreciation Economic growth Interest rate Inflation rate
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Slightly important

Importa nt

Very importa nt

Of utmost importanc e

Infrastructure Exchange rate Risk

11) Do you think FIIs have impact on following factors and if yes, what is the level of impact?
Very High Appreciation of currency Exports Stock market Local companies Capital formation Improve market efficiency Strengthening corporate governance High Low Very low

12) Due you think regulation and trading efficiency have impact on FIIs investment decision? 1 Less Impact 2 3 4 5 High impact

13) Does FIIs have any impact of Dollar weakness against rupee, if yes what is level of impact? 1 Less Impact 2 3 4 5 High impact

14) Which sector do you think FIIs traded most actively? a) Oil and Gas (b) IT
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c) Banking e) Power

(d) FMCG (f) Others

15) What all relaxation due you think must be granted to FIIs?

16) Any other information you like to share with us

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