A Study on Impact of Foreign Institutional Investment On Indian Stock Returns volatility using GARCH...

8/18/2019 A Study on Impact of Foreign Institutional Investment On Indian Stock Returns volatility using GARCH (1,1) Model

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CHAPTER -1

Introduction

1.1 Details of the Firm/ organiation !

The organization selected for the project work is National Stock Exchange (NSE) under the

functional area ‘finance’. NSE is located in u!"ai# aharashtra. $t was esta"lished in %&&'

as the first de!utualized electronic exchange in the countr to proide a !odern# full auto!ated

screen*"ased electronic trading sste! which offered eas trading facilit to the inestors spread

across the length and "readth of the countr.

NSE has a !arket capitalization of !ore than +S,%.- Trillion# !aking it the world’s %'th /

largest stock exchange as of '0 1anuar '2%. NSE’s flagship index# the 3N4 Nift # the 2

stock index# is used extensiel " inestor in $ndia and around the world as a "aro!eter of the

$ndian 3apital !arket.

NSE was set up " a group of leading $ndian 5inancial institutions at the "ehest of the

goern!ent of $ndia to "ring transparenc to the $ndian capital !arket. 6ased on the

reco!!endations laid out " the goern!ent co!!ittee# NSE has "een esta"lished with a

diersified shareholding co!prising do!estic and glo"al inestors. The ke do!estic inestors

include 7ife $nsurance 3orporation of $ndia# State 6ank of $ndia# $53$ 7i!ited $853 li!ited and

Stock 9olding 3orporation of $ndia 7i!ited and the ke glo"al inestors are :agil 58$ 7i!ited#

:S strategic $nest!ents 7i!ited# S;$5 $$ SE inest!ent auritius 7i!ited and


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NSE offer trading # clearing and settle!ent serices in e>uit# e>uit deriaties# de"t and

currenc deriaties seg!ents. $t is the first exchange in $ndia to introduce electronic trading

facilit thus connecting together the inest!ent "ase of the entire countr.

NSE has '22 ?S;Ts and 0222 leased lines spread oer !ore than '222 cities across $ndia.

The exchange was incorporated in %&&' as a tax*paing co!pan and was recognized as a stock

exchange in %&&0 under the Securities 3ontracts (@egulation) ;ct#%&-# when


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indexes are constructed to !easure price !oe!ents of stocks# "ond# T*"ills and =ther for! of

inest!ents. Stock !arket indexes are !eant to capture the oerall "ehaior of e>uit !arkets.

These indices are "road*!arket indices# consisting of the large# li>uid stocks listed on the

Exchange. The sere as a "ench!ark for !easuring the perfor!ance of the stocks or portfolios

such as !utual fund inest!ents.

So!e "oard !arket indices are*

a. 3N4 Nift ". 3N4 22c. 3N4 idcapd. 3N4 S!allcap $ndex

3N4 22* The 3N4 22 is $ndia’s first "road "ased "ench!ark of the $ndian 3apital arket.

The 3N4 22 $ndex represent a"out &-.B'C of the free float !arket capitalization of the stocks

listed on NSE as on 1une 02# '2%B. The total traded alue for the last six !onth ending june

'2%B# of all $ndex constituents is approxi!atel &-.'DC of the traded alue of all stocks on

NSE.

The 3N4 22 co!panies are disaggregated into ' industr indicies 7ike 3N4 $ndustr $ndices.

$ndustr weightages in the index reflect the industr weightages in the !arket.

3N4 Nift* The 3N4 Nift is a well diersified 2 stock index accounting for '0 sectors of the

econo!. $t is used for a ariet of purposes such as "ench!arking fund portfolios# index "ased

deriaties and index funds. 3N4 Nift is owned and !anaged " $ndia $ndex Serices and


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The total traded alue for the last six !onths ending june '2%B of all index constituents is

approxi!atel 2.0&C of the traded alue of all stocks on the NSE.

3N4 idcap* The !ediu! capitalized seg!ent of the stock !arket is "eing increasingl

perceied as an attractie inest!ent seg!ent with high growth potential. The 3N4 !idcap

pri!ar o"jecties are to capture the !oe!ent and "e a "ench!ark of the !idcap seg!ent of

the !arket. $t represents a"out 'C of the total !arket capitalization of the !id*cap unierse and

a"out 2C of the total traded alue of the !id*cap unierse (!id*cap unierse is defined as stock

haing aerage six !onths !arket capitalization "etween @s. crores and @s. 2 crores).

The 3N4 idcap $ndex represents a"out %0.&0C of the free float !arket capitalization of the

stocks listed on NSE as on june 02# '2%B. The total traded alue for the last six !onths ending

june '2%B# of all index constituents is approxi!atel ''.0%C of the traded alue of all stocks on

NSE.

3N4 S!allcap* The 3N4 S!allcap $ndex is designed to reflect the "ehaior and perfor!ance of

the s!all capitalised seg!ent of the financial !arket. The 3N4 S!allcap $ndex co!prises of

%22 trada"le# exchange listed co!panies.

The index is calculated using free float !arket capitalization !ethodolog with a "ase date of

1anuar %# '22B indexed to a "ase alue of %222.

The 3N4 S!allcap $ndex represents a"out 0.BC of the free float !arket capitalization of the

stocks listed on NSE as on june 02#'2%B.

The total traded alue for the last six !onths ending june '2%B# of all index constituents is &.%C

(approx.) of the traded alue of all stocks on NSE.

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5oreign $nstitutional $nestors (5$$) !eans an institution esta"lished or incorporated outside

$ndia which proposes to !ake inest!ent in securities in $ndia. The are registered as 5$$s in

accordance with Section ' (f) of the SE6$ (5$$) @egulations %&&. 5$$s are allowed to su"scri"e

to new securities or trade in alread issued securities. $n the +nion 6udget '2%0*%B# announced

on 'D 5e"ruar '2%0# ide uid nature inest!ent# which is !otiated " international

portfolio diersification "enefits for indiiduals and institutional inestors in industrial countr.

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@E:+7;T=@H 5@;EA=@I 5=@ 5$$

The following entities# esta"lished or incorporated a"road# are eligi"le to "e registered as 5$$sJ

a)


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fro! foreigners in the for! of foreign institutional inest!ent in e>uities. This has "eco!e one

of the !ain channels of 5$$ in $ndia for foreigners. $nitiall# there were !an ter!s and

conditions which restricted !an 5$$s to inest in $ndia. 6ut in the course of ti!e# in order to

attract !ore inestors.

$ndia opened its stock !arket to foreign inestors in Septe!"er %&&' and has since %&&0#

receied considera"le a!ount of portfolio inest!ent in the for! of 5oreign $nstitutional

$nestor’s (5$$s) inest!ent in e>uities. This has "eco!e one of the !ain channels of

international portfolio inest!ent in $ndia for foreigners

+ntil the %&D2s# there was a general reluctance towards foreign inest!ent or priate co!!ercial

flows as $ndia deelop!ent strateg was focused on self*reliance and i!port su"stitution and

current account deficits were financed largel through de"t flows and official deelop!ent

assistance. ; !ajor deelop!ent in our countr# post %&&% has "een li"eralization of the financial

sector# especiall that of capital !arkets. ;fter the launch of the refor!s# foreign institutional

inestors (5$$s) fro! Septe!"er %B# %&&'# with suita"le restrictions# were per!itted to inest in

all securities traded on the pri!ar and secondar !arkets# including shares# de"entures and

warrants issued " co!panies which were listed or were to "e listed on the Stock Exchanges in

$ndia and in sche!es floated " do!estic !utual funds. ; positie contri"ution of the 5$$s has

"een their role in i!proing the stock !arket infrastructure and the SE6$ assured its contri"ution

towards its deelop!ent.

9ence# in this age of transnational capitalis!# a significant a!ount of capital is flowing fro!

deeloped world to e!erging econo!ies.


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;lthough the 5oreign institutional inestors (5$$s)# whose inest!ents are often called Fhot

!oneF "ecause the can "e pulled out at anti!e# hae "een "la!ed for large and concerted

withdrawals of capital fro! the countr at the ti!e of recent financial crisis# the hae e!erged

as i!portant plaers in the $ndian capital !arket. Aith oer '2 !illion shareholders# $ndia has

the third largest inestor "ase in the world after the +S; and 1apan. =er Þ co!panies are

listed on the stock exchanges# which are sericed " approxi!atel #22 stock"rokers.

Aith rapid changes in the econo! "ecause of li"eral econo!ic policies and fast

pace changes due to glo"alisation# $ndian !arket has "eco!e a focus point for foreign inestors.

=rganisations tend to target for large olu!e of trade in this era of glo"alisation. Trade flows are

indeed one of the !ost isi"le aspects of glo"alization. $nternational inest!ent is a powerful

source in propelling the world toward closure econo!ic integration.5$$ refers to the inest!ent

!ade " resident of one countr in the financial capital and asset of another countr $t facilitates

and persuades large productiit and help in shaping up "alance of pa!ents. 5$$ flows in $ndia

hae continuousl grown in i!portance.

; countr growth is deter!ined " its inest!ent towards the infrastructural deelop!ent and

the industr perfor!ance. The stock !arket acts as a "ridge in procuring the funds fro! the

inestor and the sa!e is utilized for the purpose of industrial growth and in turn results in

corporate growth. $n ter!s of growth !easure!ent of stock !arket# the index is used as prox to

ascertain the leel of the growth oer the period of the ears. Nor!all stock !arket indices

show ups and downs with respect tot heir !oe!ent due to the price fluctuation and the price of

the script is operated under !arket condition i.e. de!and and suppl factors. ;s long as the

influx of inest!ent is at the larger extent# the indices of the stock !arket react positiel

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showing upward trend. The growth of the stock !arket depends on "oth retail inestors and

foreign institutional inestors. Since the contri"ution " the retail inestors is far awa fro! the

expectation# the role of 5$$ has "eco!e a ke factor in deter!ining the success of $ndian capital

!arket. 5$$s hae "een allowed to inest in all securities traded on the pri!ar and secondar

!arkets# including shares# de"entures and warrants issued " co!panies which were listed or

were to "e listed on the Stock Exchanges in $ndia. The nu!"er of 5$$s registered with SE6$ was

0 in %&&'*&0 and since then it has increased to %%0 in '22&*'2%2. The 5$$s hae "een plaing a

significant role in the $ndian capital !arket in capital for!ation and econo!ic deelop!ent of

the countr. 5oreign institutional inestors are per!itted to inest in the pri!ar !arket and

secondar capital !arkets in $ndia " a wa of


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wrecking haoc with the $ndian rupee "ecause when 5$$s sell in a "ig wa and leae $ndia the

take "ack the dollars the had "rought in.

The result of sea!less 5$$ flows was reflected " the "oo! in the stock !arkets during '220 to

'22D. Eer ear since 5$$s were allowed to participate in the $ndian !arket# 5$$ net inflows into

$ndia hae "een positie# except for the ears %&&D and '22D. There has "een a drastic increase in

the nu!"er of registered 5$$s fro! 0 in %&&0 to %- in '2%%. This reflects the strong econo!ic

funda!entals of the countr# as well as the confidence of the foreign inestors in the growth and

sta"ilit of the $ndian !arket.

8uring the late %&D2s and earl %&&2s portfolio inest!ent e!erged as an i!portant for! of

capital inflow to deeloping countries. The i!portance of portfolio inest!ent to deeloping

countries has co!e down after the East ;sian crisis of %&&. 9oweer# unlike !ost other

deeloping countries# $ndia is still !ore dependent upon 5


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8eriaties. The are instru!ents used " foreign inestors that are not registered with the SE6$

(Securities K Exchange 6oard of $ndia) to inest in $ndian stock !arkets.

Procedure of Registration as FII

;pplication for registration as an 5$$ should "e !ade in 5or! ;. The for!at of 5or! ; is

proided in the SE6$ (5$$) @egulations# %&&. The application for! and all supporting

docu!ents !ust "e su"!itted in duplicate# one set each for SE6$ and @esere 6ank of $ndia.

6oth sets of application are to "e sent to SE6$ onl. $f the applicant is eligi"le and all docu!ents

are su"!itted with the application# the eligi"ilit is generall coneed with %2 to %' das of

receipt of application " SE6$. The registration procedure operates as a single window procedure

through SE6$ in which the following steps are inoledJ

%. SE6$ forwards one set to @esere 6ank of $ndia.

'. The application is processed " SE6$ to deter!ine its eligi"ilit for grant of registration as

foreign institutional inestor. ;fter the initial processing is co!plete# SE6$ writes to @esere

6ank of $ndia !entioning the eligi"ilit of the applicant. ;t the sa!e ti!e # a letter is sent to

applicant asking it to su"!it the registration fees of +S, #222 through a de!and draft drawn in

faour of LSecurities and Exchange 6oard of $ndiaM paa"le at New Hork.

0. @esere 6ank of $ndia gies approal to the 5$$ through its designated "ank. This approal is

granted according to 5oreign Exchange anage!ent ;ct and ena"les the 5$$(s) to open a "ank

account. This is a special non*resident rupee account of the 5$$ !eant purel for inward

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re!ittance and !eeting pa!ent o"ligation with regard to securities !arket. $t !ust "e note that

all "alance ling in this account is full repatria"le.

B. +pon receipt of fees fro! the applicant and 5E; approal fro! @esere 6ank of $ndia#

SE6$ grants the certificate of registration# which is alid for fie ears and after the specified

period it should "e renewed upon the pa!ent of fee of +S ,222.

8iision of 5oreign $nstitutional $nestors and 3ustodians that co!es under $nest!ent

anage!ent 8epart!ent of SE6$ handles 5$$ cases.

Foreign Institutional In'estors Can $a#e In'estment In The Follo(ings!

%. Securities in pri!ar and secondar !arkets including shares# de"entures and warrants of

co!panies# unlisted# listed or to "e listed on a recognized stock exchange in $ndia# and

'. +nits of sche!es floated " do!estic !utual funds including +nit Trust of $ndia# whether

listed on a recognized stock exchange or not .

0. +nits of sche!e floated " a collectie inest!ent sche!e

B. 8eriaties traded on a recognized stock exchange

. 3o!!ercial papers

-. 8ated :oern!ent Securities

. Securit receipts K

D. $ndian 8epositor @eceipt.

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5$$Gsu"*account !a issue# deal in or hold offshore deriatie instru!ents such as uit 7inked Notes or an other si!ilar instru!ents against underling securities# listed

or proposed to "e listed on an stock exchange in $ndia. These are allowed to trade in all

exchange traded deriatie contracts su"ject to the position li!its as prescri"ed " SE6$ fro!

ti!e to ti!e. 3learing 3orporation !onitors the open positions of the 5$$G su"*accounts of the 5$$

for each underling securit and index# against the position li!its# at the end of each trading da.

$nest!ent of 5$$s are !otiated not onl " the do!estic and external econo!ic conditions "ut

also " short run expectations shaped pri!aril " what is known as !arket senti!ent. The

ele!ent of speculation and high !o"ilit in 5$$ inest!ent can increase the olatilit of stock

return in e!erging !arkets.

?olatilit is an unattractie feature that has aderse i!plications for decisions pertaining to the

effectie allocation of resources and therefore inest!ent. ?olatilit !akes inestors aerse to

holding stock due to increased uncertaint. $nestors in turn de!and higher risk pre!iu! so as to

ensure against increased uncertaint. ; greater risk pre!iu! i!plies higher cost of capital and

conse>uentl lowers phsical inest!ent.

The !ajor change in the capital flows particularl in 5oreign $nstitutional $nestors (5$$s)

inest!ents has taken place following the changes in trade and industrial polic.

8eter!inants of 5$$ 5low in $ndia /

a) @isk * Aheneer risk in ho!e !arket increases# the foreign inestors would start to pull

out of their ho!e countr there" creating a deficienc of funds in do!estic !arket#

hence so as to attract inest!ent do!estic interest rate would increase there" to ensure

that the a"oe e>ualit is restored.

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") $nflation - ;t the ti!e of high inflation# the real return on fixed inco!e securities like

"onds and fixed deposits declines. Thus a "ond which gies sa around .C interest rate

actuall gies a real return of just %C if the inflation is -.C. $f the inflation increases

further# the real return would decline !ore.c) $nterest rates -5or the "usiness# cost of "orrowing rises this has a negatie result on their

profit !argins. ;s a result the !ight een dela an inest!ent actiit which !a "e

funded " "orrowing to so!e later period when the interest rates are lower so as to

reduce their inest!ent costs. ;s it can "e seen fro! the a"oe ta"le# oer the past ear

@6$ has increased the repo rate reerse repo rate# 3@@ and S7@. This has led to an

increase in the uit @eturns - The results show that# the e>uit return in $ndia (@6SE) is the !ain

driing force for foreign institutional inest!ent# which is significant at all leels. That is

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increase in the returns in +S stock !arket adersel affects the portfolio inest!ent

flowing to $ndia.f)


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c) =pti!u! utilization of resourcesJ ; nu!"er of deeloping countries possess huge

!ineral resources which are for untapped and unexploited. 8ue to lack of Technolog

these countries are not a"le to use their resources to the fullest. ;s a result the hae to

depend on the foreign inest!ent with the help of which technolog of the countr and

that will ulti!atel lead to the opti!u! utilization of the resources. $ndia has er huge

reseres of !ineral resources and to opti!ize their use or rather for extracting the!

efficientl and effectiel !odern technolog is re>uired which his possi"le through

foreign inest!ent.

d) 6alancing the "alance of pa!ent positionJ $n the initial phase of econo!ic deelop!ent#

the under deeloping countries need !uch larger i!ports. ;s a result the "alance of

pa!ent position generall turns aderse. This creates gap "etween earnings and foreign

exchange. The foreign capital presents short run solution to the pro"le!. So in order to

"alance the 6alance =f uit 3apital

5$$ inflows aug!ent the sources of funds in the $ndian capital !arkets. $n a co!!on

sense wa# an increase in the suppl of funds reduces the re>uired rate of return for e>uit and

enhances stock prices. Si!ultaneousl# it fosters inest!ent " $ndian fir!s in the countr.

b) $!parting Sta"ilit to $ndian’s 6alance of


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5or pro!oting growth in $ndia# there is a need to aug!ent do!estic inest!ent# oer and "eond

do!estic saings# through capital flow. The excess of do!estic inest!ent oer do!estic

saings result in a current account deficit and this deficit is financed " the capital flow in the

"alance of pa!ent.

c) Inowledge 5lows

The actiities of international institutional inestors help strengthen financial sste!. 5$$s

adocate !odern ideas in !arket design# pro!ote innoation# deelop!ent of sophisticated

products such as financial deriaties# enhance co!petition in financial inter!ediation and lead

to spilloer of hu!an capital " exposing !arket participants to !odern financial techni>ues and

international "est practices and sste!s.

d) Strengthen 3orporate :oernance5$$ participation in do!estic capital !arkets often*lead igorous adocac of soundcorporate goernance practices# i!proed efficienc and "etter shareholder alue.

e) $!proe arket Efficienc; significant presence of 5$$s can i!proe !arket efficienc through two channels. 5irst#

when aderse !acroecono!ic news# such as "ad !onsoon# unsettles !an do!estic

inestors# it !a "e easier for a glo"all diersified portfolio !anager to "e !ore

dispassionate a"out a countr’s prospects# and engage in sta"ilizing trades. Second# at the

leel of indiidual stocks and industries# 5$$s !a act as a channel through which

knowledge and ideas a"out aluation of a fir! or an industr can !ore rapidl propagate

into !arket.

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5oreign institutional inestors hae al!ost no restriction for "uing and selling of shares in

$ndian Stock arket and "ecause of faouring $ndian econo! condition and rapid growth

in stock !arket# it !a "e "est place for 5$$s to inest.

Negatie $!pact of 5$$s $nest!ent-a) uidit there" leading to inflation where too

!uch !one chases too few goods.

c)


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d) ;8?E@SE $


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"een experienced " $ndia. 5urther!ore# SE6$’s takeoer code is in place and has

functioned fairl well ensuring that all inestors "enefits e>uall in the eent of takeoer.d) 3o!plexities of onetar anage!ent

; polic !aker tring to design the ideal financial sste! has three o"jecties.

The polic !aker wants to continue national soereignt in the pursuit of interest rate#

inflation and exchange rate o"jecties financial !arkets that are regulated# superised

and cushioned and the "enefits of glo"al capital !arkets. +nfortunatel# these three goals

are inco!pati"le. The for! the i!possi"le trinit. $ndia’s openness to portfolio flows

and 58$ has effectiel !ade the countr’s capital account conerti"le for foreign

institutions and inestors. The pro"le!s of !onetar !anage!ent in general and

!aintaining a tight exchange rate regi!e# reasona"le interest rates and !oderate inflation

at the sa!e ti!e in particular hae co!e to the fore in recent ti!es. The pro"le! showed

up in ter!s of er large foreign exchange resere inflows re>uiring considera"le

sterilization operations " the @6$ to !aintain sta"le !acroecono!ic conditions.

1.) *+,ecti'e of the stud

%.'% To inestigate the i!pact of 5oreign $nstitutional $nest!ent on $ndian stock returns.

%.'' To inestigate the i!pact of 5oreign $nstitutional $nest!ent on the olatilit of $ndian

stocks.

1. "coe of the stud

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%.0% onthl 3losing prices fro! %st 1anuar '22 to 0%st 8ece!"er '2%B of NSE indices like

NSE 22# Nift 5ift# NSE idcap and NSE S!all cap are collected for the stud. 5or this

purpose# secondar data fro! the we"site of NSE was collected.

%.0' 8ata of 5$$ of last %2 ear was collected fro! !onecontrol.co! on a !onthl "asis.

%.00 S


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:;@39 !odel allows the conditional ariance to "e dependent upon preious own lags apart

fro! the past innoation. Through :;@39 !odel# it is possi"le to interpret the current fitted

ariance as a weighted function of long*ter! aerage alue infor!ation a"out olatilit during

the preious period as well as the fitted ariance fro! the !odel during the preious period.

$n :;@39 !odels# restrictions are to "e placed on the para!eters to keep the conditional

olatilit positie. This could create pro"le!s fro! the esti!ation point of iew. =ne of the

pri!ar restrictions of :;@39 !odel is that the enforce a s!!etric response of olatilit to

positie and negatie shocks. This arises due to the conditional ariance "eing a function of the

!agnitudes of the lagged residuals and not their signs.

9oweer it has "een argued that a

negatie shock to financial ti!e series is likel to cause olatilit to rise " !ore than a positie

shock of the sa!e !agnitude.

The price and olatilit spilloer effect "etween the stock and foreign exchange !arkets and the

degree of integration as well as significant interrelationships can "e interpreted in at least two

was. 5irst# a causal relationship !a exist such that the olatilit in one !arket induces

olatilit in the other through a lead*lag relationship. This is possi"le "ecause the trading hours

of the two !arkets are not co!!on. Second# co!!on international factors could influence the

olatilit in "oth the !arkets# there" giing rise to an apparent causal relationship "etween the

!arkets.

$n order to find out the i!pact of 5oreign $nstitution $nest!ent on the $ndian Stock arket

olatilit# we hae applied on National Stock Exchange (NSE) indices like 3N4 22# N$5TH

5$5TH# 3N4 S!allcap# 3N4 idcap using :;@39 !odel.

2ARCH 314 15 "illo'er E6uation

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9t(stock indices)O PQR% ' t*% Q % ht*% Q U V(%)

where P2 W 2# R% X 2# % X 2. $n E>uations (%)# ht is the conditional ariance of "oth stock indices

and exchange rates respectiel# which is a function of !ean P2. News a"out olatilit fro! the

preious period is !easured as the lag of the s>uared residual fro! the !ean e>uation (t*%')# last

period’s forecast ariance (ht*%) and the s>uared residual of exchange rate and stock indices#

respectiel in "oth the a"oe e>uations.

$n the :;@39 (%#%) spilloer e>uation# we use the s>uared residual of another !arket (U)

instead of residual on their leel# which is used as a prox for shock in other !arkets# "ecause in

case of :;@39# we !ake sure that olatilit is positie.

1.0 Hotheses of the "tud92% O There is no significant i!pact of 5$$ on $ndian Stock arket ?olatilit.9a% O There is significant i!pact of 5$$ on $ndian Stock arket ?olatilit.

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CHAPTER 7 )

8ITERATRE RE9IE:

7iterature reiew is coered under chapter '. include research findings of earlier studies ($ndian

or foreign) with proper references related to the topic of stud# which can support the findings or

hpothesis.

6hattachara and 1adeep ('22) , deter!ined the lead and lag interrelationship "etween the

$ndian stock !arket # net foreign institutional inest!ent and exchange rate. 6 e!ploing the

:ranger non*causalit test and taking 6SE sensitie index as prox for the $ndian stock !arket

and the indices of @eal Effectie Exchange @ate (@EE@) of the $ndian @upee for the exchange

rate for a period of %0 ears started fro! 1an. %&&0 to arch '22. The stud suggested that

stock prices could capture infor!ation on neither the 5$$s nor the exchange rate. $nestors can

therefore appl profita"le trading rules to earn supernor!al profits. ;lso 5$$ cannot capture

infor!ation on exchange rate thus adding to the possi"ilit of application of profita"le trading

rules. +nder the circu!stances# the $ndian stock !arket see!ed to "e "earing the underling

strain not currentl isi"le at the surface. The i!ple!entation of profita"le trading strateg !a

at an point of ti!e generate oer*enthused inest!ent and this# if coupled with !arket

oerreaction# !a result in a desta"ilized sste!. ; point needed to "e noted here is the current

concentration of 5$$ funds in the $T and 6anking sector# which in an eent of flow reersals

!ight hae worsen the situation.

24


25/68

6iswas# 1adeep ('22)# ealuated the i!pact of financial li"eralization on the growth#

deelop!ent and efficienc of $ndian stock !arket is*Y*is other selected ;sian !arkets "

analzing the data for the period fro! %&&% to '22. 9e found that financial li"eralization "

introducing 5$$s has had a "eneficial i!pact on the growth and deelop!ent of the $ndian stock

!arket. 9e "rought out that the !arket has deeloped su"stantiall since %&&%*&'# in ter!s of

trading olu!e# !arket capitalization# nu!"er of listed co!panies# increased efficienc and

li>uidit. The author expressed that expansion of the $ndian stock !arket in the post*

li"eralization decade was trul i!pressie "ut in ter!s of the >ualit there has "een a regress.

Iar!akar# adhusudan ('22D) , !easured the ‘olatilit of dail !arket return in the $ndian

stock !arket’ oer the period " using the :;@39 odel and o"sered that the !arket was

tran>uil and olatile. The leel of the olatilit was !odest for the first two decades. ;l!ost

fro! the "eginning there were indications of change in the !ood of the !arket.?olatilit touched

new high# and if surpassed all preious records and continued to increase till the end of the

decade.

6ansal ;nd


26/68

changes in the $ndian stock !arket aerage returns# olatilit was significantl reduced after

$ndia unlocked its stock !arket to foreign inestors.

8hwani ehta ('22&)# discoered that the $ndian stock !arkets hae "een experiencing

hu!ungous a!ount of 5$$ flows. This has affected s!all inestors thinking that !arkets are

rigged. 5or the good news to $ndian inestors it has "een esta"lished that out of all the factors# it

is "asicall the perfor!ance of $ndian stock !arkets is*Y*is other e!erging and deeloped

!arkets that pro"a"l !a cause returns and not the other wa round.

ohan# T.T.@a! ('22&)# indentified the i!pact of 5$$ flow into $ndian stock !arket hae

conferred seeral "enefits on the econo!. The stud helped aug!ent capital flows at a ti!e

when the "alance of pa!ent situation was not co!forta"le. The stud allowed $ndian fir!s to

access oerseas capital at a cost that was lower than the do!estic cost of capital. oreoer#

it ushered in !ajor refor!s in the working of securities !arkets and in corporate goernance.

;uthors also co!!ented that olatilit in 5$$ flows does not pose sste!atic risk. The stud

suggested deriing the "enefits of 5$$ flows without haing to put up with the uncertainties

created " the participator notes co!ponent.

Su!anjeet ('22&) studied 5oreign 3apital 5lows into $ndia. The stud stated that existing studies

reealed that the huge surge in international capital flows since earl %&&2s and has created

unprecedented opportunities for the deeloping countries like $ndia to achiee accelerated

econo!ic growth. $nternational financial institutions routinel adise deeloping countries to

adopt polic regi!es that encourage capital inflows. Since the introduction of the refor! process

26


27/68

in the earl %&&2s# $ndia has witnessed a significant increase in capital inflows. The size of net

capital inflows to $ndia increased fro! +S , .% "illion in %&&2*&% to +S , %2D.2 "illion in '22*

2D. Toda# $ndia has one of the highest net capital inflows a!ong the EEs of ;sia. 3apital

inflows# howeer# not an un!itigated "lessing. The !ain danger posed " large and olatile

capital inflows is that the !a desta"ilize !acroecono!ic !anage!ent. ;s eident# the

intensified pressures due to large and olatile capital flows in $ndia in the recent period in an

at!osphere of glo"al uncertainties has posed new challenges for !onetar and exchange rate

!anage!ent. 9e concluded that undertaking !ore econo!ic refor!s is not eas "ut has to "e

doneJ the goern!ent can either !anage the process or co!petitie forces will "ring it upon us

in a lopsided !anner. The "all is in the goern!entFs court. 3ountries that per!it free capital

flows !ust choose "etween the sta"ilit proided " fixed exchange rates and the flexi"ilit

afforded " an independent !onetar polic.

Iaur# anjinder and 8hillon# S. Sharanjit ('2%2)# focused on the deter!inants of ;5oreign

$nstitutional inest!ent in $ndia’. arket capitalization and stock !arket turnoer of $ndia hae

significant positie influence onl in short*run "ut Stock !arket risk has negatie influence on

5$$s inflows to $ndia. ;!ong !acroecono!ic deter!inants# econo!ic growth of $ndia has

positie i!pact on 5$$s inest!ent in "oth long run and short run "ut all other !acroecono!ic

factors hae significant influence onl in long run like inflation. The concluded that host

countr stock !arket returns (returns on Sensex) hae positie and significant i!pact Ahere as

ho!e countr returns (returns on SK< 22 $ndex) hae negatie "ut insignificant influence on

5$$s inest!ent inflows in long*run as well as in short*run.

27


28/68

;s such# $ndian stock !arket was not onl sensitie to national eents "ut also !ore sensitie to

international eents. 8ue to the speculatie !otie of 5$$s inest!ent# inest!ent " 5$$s was

su"jected to fre>uent reersals .The stud showed that $ndia is enjoing !axi!u! "lessings of

5$$s# and attracting su"stantial a!ount of 5$$s inest!ent as co!pared to other e!erging

securities !arkets. Stock prices in $ndia fre>uentl deiate fro! funda!ental alues and these

deiations were largel due to the presence of 5$$s in $ndian stock !arket.

Shukla# I. @ajee ('2%%)# inestigated the i!pact of foreign institutional inestors on $ndian

stock indices. The reealed that $ndia# after +nited States hosts the largest nu!"er of listed

co!panies and :lo"al inestors now enthusiasticall seek $ndia as their preferred destination for

inest!ent. The stud concluded that 5$$s hae significant i!pact on the share prices of the

idcap K S!all*cap co!panies "ut s!all and a periodic shift in their "ehaior leads to !arket

olatilit.

Saraanakrishnan ('2%%) analsed the Trend of 5$$s inest!ent in $ndia on !onthl "asis during

1anuar '22-* =cto"er '2%%. The stud o"sered the trends of 5$$s inest!ent along with the

scope and !echanis! and causes of inest!ent " the! in $ndia. The trend analsis techni>ues

were used to !eet the o"jecties of the stud. $t was found that 5$$s hae inested @s.&%#2-.-2

crores in '22& and withdrew @s. -2#&2.&2 in '22D due to the effect of glo"al !eltdown and

recession in world econo!. The author found that political scenario# la"our cost and

productiit# li"eralized trade polic# infrastructure# incenties and operating conditions and

disinest!ent polic were the causes of 5$$s inest!ent in $ndia.

28


29/68

8r. @ajput ('2%') assessed the i!pact of 5$$ of Stock arket! through 7ead*7ag and ?olatilit

Spilloer’ Effect the stud stated the infor!ation spilloer and olatilit spill*oer relationship

for $ndian stock !arket. The stud coer data during %&&'*'2%%. The stud exa!ine if there has

"een an increase in olatilit persistence in the $ndian stock !arket on after the process of

financial li"eralization initiated in $ndia. 5urther# it exa!ined the shifts in stock price olatilit

and the nature of eents that apparentl cause the shifts in olatilit. Ae exa!ine if there has

"een an increase in olatilit persistence in the $ndian stock !arket on after the process of

financial li"eralization initiated in $ndia. This paper explores to deelop alternatie !odels fro!

co integration# ?E3# ?ariance 8e*co!position ;nalsis# :ranger causalit# 6lock

Exogeneit wald test# $!pulse @esponse ;nalsis and alternatie for!s of the ;utoregressie

3onditional 9eteroscedasticit (;@39) or its generalization# the :eneralized ;@39

(:;@39) fa!il# to esti!ate olatilit in the $ndian e>uit !arket return. 6idirectional

infor!ational spilloer was confir!ed. The "idirectional olatilit spill*oer# persistence and

clustering was also confir!ed in the sa!ple series. =ur findings hae i!plications for polic

!akers# hedgers and inestors. The research contri"utes to present inest!ent literature for

e!erging !arkets such as $ndia. The stud exa!ined that 5oreign institutional inestors hae

gained a significant role in $ndian stock !arkets. The dawn of '%st centur has shown the real

dna!is! of stock !arket and the arious "ench!arking of Nift index in ter!s of its highest

peaks and sudden falls. The literature relating to infor!ation spilloer and olatilit spilloer is

not ade>uatel researched in $ndia and was !ainl confined to deeloped econo!ies. E!pirical

Studies on the su"ject reduced infor!ational as!!etries in the !arket. The present stud

ealuated infor!ational spilloer and olatilit spilloer effects in $ndian stock !arket to "ridge

the i!portant gap in the literature. The stud indicate that stock !arket and 5$$s prices of all

29


30/68

sa!ple co!!odities and indices are non stationar# and in fact integrated to order one and the

7ong run e>uili"riu! relationship is confir!ed using 1ohansson co*integration procedure. These

co*integration results were supported " ?;@ ade>uac test. Short ter! dna!ics in the series

were exa!ined using ?E3. The results de!onstrated that once price relationship of stock and

5$$s !arket deiated awa fro! the long run co*integrated e>uili"riu!# "oth !arkets !ade

adjust!ents to re*esta"lish the e>uili"riu! with 5$$s . The results of ?E3 :ranger causalit test

showed "i*directional :ranger lead relationships "etween the sa!ple series. The ?ariance

8eco!position and $!pulse responses results reconfir! the do!inant role of Nift in

infor!ation flow for these series. Next# the stud exa!ined the olatilit spilloer effects for

sa!ple series to erif the Existence of risk transfer !echanis! can work "etween stock !arket

and 5$$s. E*:arch results confir! "iariate olatilit spilloer. Thus efficient hedging as well as

speculation strategies can "e for!ed for theses co!!odities.

;ra K


31/68

Iulshrestha 9e!kant ('2%B)# Exa!ined ‘$!pact =f 5oreign $nstitutional $nestors (5$$s) on

$N8$;N 3;uite closel correlated. 5$$’S hae positie i!pact on 6SE

Sensex and Nift. 9oweer there were other !acroecono!ic factors also influenced the stock

!arket# "ut 5$$ is definitel one of the factors. The results which signif that !arket rise with

increase in 5$$’s and collapse when 5$$’s are withdrawn fro! the !arket. $n the a"sence of an

other su"stantial for! of capital inflows# the potential ill effects of decrease in the 5$$ flows into

the $ndian econo! can "e seere which was eident at the ti!e of +.S su"pri!e lending crisis.

The findings of this stud also indicate that 5oreign $nstitutional $nestors hae e!erged as the

!ost do!inant inestor group in the do!estic capital !arket particularl# in the co!panies that

constitute in 6SE Sensex and 3N4 Nift.

Since $ndian capital !arket is ast and attract inestors as their inest!ent destination. The

$ndian !arket was steadil growing and had allured do!estic inestors co!!unit and foreign

inestors group in the past. The !ajor part of inest!ent in $ndian capital !arket is attri"uted to

institutional inestors a!ong who! foreign institutional inestors (5$$s) were of pri!ar

i!portance. =ne e!inent concern in the !atter was whether these foreign institutional inestors

(5$$s) regulate the $ndian capital !arket. This paper exa!ines whether !arket !oe!ent can "e

explained " these inestors and their i!pact on the capital !arkets. 5$$s# "ecause of their short*

ter! nature# can hae "idirectional causation with the returns of other do!estic financial !arkets

such as !one !arkets# stock !arkets# and foreign exchange !arkets.

31


32/68

9ence# the understanding of deter!inants of 5$$ is er i!portant for an e!erging econo! as

5$$ exerts a larger i!pact on the do!estic financial !arkets in the short run and a real i!pact in

the long run. The stud indicated an atte!pt to find out deter!inants of foreign institutional

inest!ent in $ndia# a countr that opened its econo! to foreign capital due to their foreign

exchange crisis. The o"jectie of the stud was to find out whether there exist relationship

"etween 5$$ and $ndian capital !arket.

Sripria and Sha!uga!. ('2%B) docu!ented the i!pact of 5oreign $nstitutional $nestors on

Trading ;ctiit and ?olatilit of $ndian Stock arket. The stud is an effort to predict the stock

return olatilit and contri"ution of 5$$ inest!ent to that olatilit was !easured using :arch

(%# %) !odel. $t has "een o"sered that olatilit persists in $ndian stock !arket due to net 5$$

actiit leading to olatilit clustering during the period of stud. The results also highlighted

that Sensex and Nift were affected " past and recent affects# whereas# other indices were

affected onl " past olatilit. onthl data of the aria"les selected in the stud were taken for

a period of ten ears fro! ;pril '220 to arch '2%0.

; ;swini and ku!ar !aank ('2%B) exa!ined the $!pact of 5$$ on Stock arket in $ndia. The

stud concluded that there was a high correlation "etween 5$$ flow and the raise in the index of

$ndian stock !arket in a longer span "ut there was a er less i!pact in the short span that is the

correlation "etween 5$$ flow and the corresponding raise in the index of $ndian stock !arket was

er poor and "ased on the chi*s>uare test perfor!ed.

32


33/68

6eing a deeloping 3ountr# $ndia attracts a large su! of 5$$ eer ear. These foreign

inest!ents hae a great i!pact on the econo! of $ndia. $ndian Stock arket# which was one

of the indicators of the econo!ic status# was also "eing affected " the foreign inest!ents

!ade. So the stud has "een done to alidate the null hpothesis that this foreign institution

inest!ent "eing !ade in $ndia affected the stock !arket condition and $ndian econo! as well.

The stock !arket data hae "een taken fro! the we"sites of NSE and the 5$$ data

hae "een taken fro! the :=$ report. ; descriptie stud has "een done to alidate the null

hpothesis of association "etween 5$$ and Stock arket. The association "etween these two has

"een checked on earl# !onthl and weekl "asis and the data for sa!e hae "een collected for

last %2 ears. This stud has collected the earl closing stock of NSE K 6SE and 5$$ alues of

last %2 ears ('220*'2%0). The stud has used chi*s>uare as a statistical tool to alidate the null

hpothesis of association "etween stock !arket alue and 5$$. $t has also used correlation to find

the extent of association "etween these two aria"les. The inclusion criteria used for this stud

were that onl NSE and 6SE stock !arket alues hae "een taken and 5$$ alues hae "een

taken onl fro! the goern!ent record "ooks aaila"le in the pu"lic do!ain.

The !ajor outco!e fro! the 7iterature @eiew was that there was a correlation "etween 5$$

flow and the raise in the index of $ndian Stock arket in a longer span "ut there was a er less

i!pact in the short span that is the correlation "etween 5$$ flow and the corresponding raise in

the index of $ndian Stock arket was er poor.

33


34/68

CHAPTER 7

DATA A


35/68

.1 Data Presentation

0.%% 3N4 22


36/68

0.%' 3N4 22


37/68

0.%0 3N4 N$5TH 5$5TH


38/68

0.%B 3N4 N$5TH 5$5TH


39/68

0.% 3N4 $83;<


40/68

The graph indicates that the 3N4 idcap data when checked at leel results to "e non stationar

as when the data is tested through unit root test shows a pro"a"ilit alue at leel 2.D-B2 which

is greater than C significant leel.

0.%- 3N4 $83;<


41/68

The graph indicates that the 3N4 idcap data when checked at %st difference leel results to "e

stationar as when the data is tested through unit root test shows a pro"a"ilit alue at leel

2.222 which is less than C significant leel.

0.% 3N4 S;773;<


42/68

The graph indicates that the 3N4 S!allcap data when checked at leel results to "e non

stationar as when the data is tested through unit root test shows a pro"a"ilit alue at leel

2.0D00 which is greater than C significant leel.

0.%D 3N4 S;773;<


43/68

Figure - C "$A88CAP Prices at 1st Difference 8e'el

The graph indicates that the 3N4 S!allcap data when checked at %st difference leel results to

"e stationar as when the data is tested through unit root test shows a pro"a"ilit alue at leel

2.222 which is less than C significant leel.

% Data Analsis

.)1 nit Root Test

The +nit @oot Test hae "een used to check whether the Net inest!ent " 5$$s and return on

NSE $ndices including 3N4 22# N$5TH 5$5TH# 3N4 S!allcap and 3N4 idcap are

stationar during the stud period fro! jan.'22*dec.'2%B. Ae hae applied the ;ug!ented

8icke 5uller test and the null hpotheses were tested on !onthl returns data at different leel

of significance i.e. at leel and at %st difference significance leel. ost statistical tools are "ased

on the assu!ption that the ti!e series can "e rendered approxi!atel stationar.

9potheses of the Stud

92% O There is no significant i!pact of 5$$ on $ndian Stock arket ?olatilit.

9a% O There is a significant i!pact of 5$$ on $ndian Stock arket ?olatilit.

Through +nit root test stationar test has "een perfor!ed on returns. $t includes testing at leel

and first difference leel which explains the t*statistics and pro"a"ilit alue of data returns of

arious indices. @esults o"tained indicate whether the data returns are stationar or not.

43


44/68

Ta+les of nit Root Test

;ug!ented 8icke*5uller Test

3N4 22 data fro! % jan '22 to 0%st jan '2%B

t*Statistic


45/68

Nift fift data fro! % jan '22 to 0%st jan '2%B

t*Statistic


46/68

Ta+le

nit Root Test of


47/68

Ta+le 0


48/68

:;@39 !odel allows the conditional ariance to "e dependent upon preious own lags apart

fro! the past innoation. Through :;@39 !odel# it is possi"le to interpret the current fitted

ariance as a weighted function of long*ter! aerage alue infor!ation a"out olatilit during

the preious period as well as the fitted ariance fro! the !odel during the preious period.

$n :;@39 !odels# restrictions are to "e placed on the para!eters to keep the conditional

olatilit positie. This could create pro"le!s fro! the esti!ation point of iew. =ne of the

pri!ar restrictions of :;@39 !odel is that the enforce a s!!etric response of olatilit to

positie and negatie shocks. This arises due to the conditional ariance "eing a function of the

!agnitudes of the lagged residuals and not their signs.

9oweer it has "een argued that a

negatie shock to financial ti!e series is likel to cause olatilit to rise " !ore than a positie

shock of the sa!e !agnitude.

The price and olatilit spilloer effect "etween the stock and foreign exchange !arkets and the

degree of integration as well as significant interrelationships can "e interpreted in at least two

was. 5irst# a causal relationship !a exist such that the olatilit in one !arket induces

olatilit in the other through a lead*lag relationship. This is possi"le "ecause the trading hours

of the two !arkets are not co!!on. Second# co!!on international factors could influence the

olatilit in "oth the !arkets# there" giing rise to an apparent causal relationship "etween the

!arkets.

$n order to find out the i!pact of 5oreign $nstitution $nest!ent on the $ndian Stock arket

olatilit# we hae applied on National Stock Exchange (NSE) indices like 3N4 22# N$5TH

5$5TH# 3N4 S!allcap# 3N4 idcap using :;@39 !odel.

2ARCH 314 15 "illo'er E6uation

48


49/68

9t(stock indices)O PQR% ' t*% Q % ht*% Q U V(%)

where P2 W 2# R% X 2# % X 2. $n E>uations (%)# ht is the conditional ariance of "oth stock indices

and exchange rates respectiel# which is a function of !ean P2. News a"out olatilit fro! the

preious period is !easured as the lag of the s>uared residual fro! the !ean e>uation (t*%')# last

period’s forecast ariance (ht*%) and the s>uared residual of exchange rate and stock indices#

respectiel in "oth the a"oe e>uations. $n the :;@39 (%#%) spilloer e>uation# we use the

s>uared residual of another !arket (U) instead of residual on their leel# which is used as a prox

for shock in other !arkets# "ecause in case of :;@39# we !ake sure that olatilit is positie.

$!pact of 5$$ on $ndian Stock arket olatilit of NSE $ndices

Nift idcap S!allcap 3nx22

3

%.%BB'

32.B0&)

%.'&'

(2.2-)

%.--2-B

(2.%%-')

%.2DD0DB

(2.'0')

;@39 2.%B&&&&

(2.B)

2.BD20B-

(2.22B)

2.000

(2.2%B)

2.%B&B&

(2.%B)

:;@39 2.&&&&D

(2.2&)

2.0%BB-

(2.2&0)

*2.%-&&%

(2.0)

2.&D'

(2.20'&)

5$$SZ *%.'E*2

(2.%0B&)

*B.--E*2D

(2.BB)

*.%E*2D

(2.B2')

*'.'0E*2

(2.2222)

49


50/68

Ta+le ?

"illo'er effect of FII on


51/68

6era and !axi!u! and !ini!u! alue of !onthl returns.

.).15 Descriti'e analsis of


52/68

;ug '.'2B *2.0& %0.-%2 *B.DD- .'% 2.D% '.-% %.%D 2.' ''.2B- '&B.-B2

Sep %.%B 2.2& &.&D2 *D.-&D .%'- *2.%&2 '.&2D 2.2-B 2.&-D %%.B' '0-.B

=ct 0.D' -.'2 %'.0'D *%'.%-0 .B2 *%.22 0.%' %.DB 2.0& 0.D' B&0.D%&

No *%.%B0 '.-- %%. *'.'- %%.0- *%.%B- 0.B&D '.'&B 2.0% *%%.B0 %'0&.-

8ec %.2D 0.-2 %'.0' *%0.0% D.2-% *2.BB- '.0D 2.BD& 2.D' %.2DD DB.&0'

52


53/68

Ta+le

Descriti'e Analsis of


54/68

;pr 0.%D' '.'2 %0.B' *B.' -.'-2 2.'2 %.D%D 2.-D 2.2& 0%.D' 0'

a

0. %.-% %.'& *.D .D-0 2.% '.''' 2.-&D 2.2 0.' -

1un *2.%2& *2.D&% '%.BD *%&.-B& %%.&B 2.'2' '.--& 2.%%0 2.&BB *%.2&& %'2-

1ul 2.-'' '.%'D D.-B% *%&.D% D.2D- *%.-0D .2%0 -.%- 2.2B -.''- DD

;ug'.0' 2.0'2 %'.B0 *'.&B% B.DD& 2.&-% '.D%0 %.- 2.B& '0.'D '%

Sep2.-02 2.B&B D.BB *&.20& B.&-D *2.'D' '.D00 2.%BB 2.&02 -.02- '''

=ct B.B'D -.'-B %'.B-D *&.&- .'B& *2.%0 '.0B% %.2'& 2.& BB.'D0 B'

No*2.-D' '.%%- %B.-%% *'-.2D %%.&DD *2.D-' 0.2%2 %.'0& 2.0D *-.D'2 %'&

D

8ec%.0B %.0-2-B& %'.'&02' *%'.-'' .-D&20D *2.%&&2% '.0D%&0D 2.''% 2.D&0 %0.B2 0'.

54


55/68

Ta+le B

Descriti'e Analsis of .

1an 0.''& '.BB %.-&D *&.-2 .'DD 2.'%B '.-0 2.%22 2.&% 0'.'&& BD

5e" *0.'0 *'.DDD %-.B&% *'.%'- %%.- *2.%- '.-0& 2.%2- 2.&BD *0.'0' %'B

ar *'.%& *0.B2B -.B20 *&.'2- .%' 2.02% %.-00 2.&'D 2.-'D *'%.&% '&0

;pr %.D0 '. &. *%%.-D -. *2.2 '.&0 2.& 2.-%& %D.0B 0D-

55


56/68

a .0B B.-B %.%% *B.&DD .B00 *2.2%0 %.-0 2.- 2.-D 0.B- B&

1un 2.-- %.'D 0%.'2- *%&.-D %0.-B 2.DB2 0.&D %.BBB 2.BD -.-- %-

1ul 2.0%2 2.' %-.2&& *'.022 %%.2- *%.2- B.%& '.B&% 2.'D 0.%20 %%2

;ug 0.0 '.'02 %'.%B' *0.&- -.%0D 2.%D- %.0D %.%0 2.-% 00.2 00&

Sep 2.'&- 2.2 %'.20% *%2.'D2 -.DD 2.2%- '.'-D 2.''0 2.D&B '.&-D B'-

=ct0. .' %'.BB *%B.D0% D.B-' *%.2-B 0.'2- %.&2- 2.0D 0.& -BB

No *'.'- %.2&% .22 *'&.D- %2.-' *%.D- .BB% D.'' 2.2%- *'.'-' %22

8ec 0.B0' .%DD %'.&-& *%%.-0 D.'D' *2.2 '.%-D %.%% 2.% 0B.0'D -%

56


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Ta+le



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ar *%.D% *'.00 .2&& *%2.DB- .B- *2.% %.' 2.% 2.-&D *%.D%2 '-D.D-

;pr 0.20 0.&2' %'.BB *%B.B&% D.-- *2.--& '.-& 2.DB 2.- 02.00 --.%2

a -.%%% B.'- %-.02 *%.B% -.2& 2.0-2 %.& 2.D 2.-% -%.%%- 00B.0&

1un 0.&D *%.2& 0D.-D- *&. %-.%-2 %.%2' 0.2 '.2' 2.0-' 0&.D0 '02.

1ul *%.'' *2.'& &.22B *'2.D& &.20 *2.D-& 0.2B0 %.'-2 2.0' *%'.'% 0.2B

;ug%.0%2 0.%- %2.-%0 *%0.%& .'0 *2.-0B '.' 2.DD& 2.-B% %0.%20 0-.&2

Sep 0.%BD 0.%'B %0.DD *%2.B'& -.&2 *2.'D '.&%0 2.%B2 2.&0' 0%.BD0 B'&.'0

=ct %.D2 B.&B& &.-& *'2. D.&%D *2.'D .20& -.B&' 2.20D %.D2% %.&

No *'.B- 0.-B- %'.20 *B'.' %.% *%.' .'0% .%&0 2.2' *'B.-- ''''.

8ec 2.'-D 0.BD0 %%.D0 *'%.2' %%.'0 *2.B '.'2 %.%' 2.-% '.-D% %%0-.B

58


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93 5 19 7 9.3

*, 3367.81

-1165.2

21267.7

-8629.9 11800.94

0.6028 1.72272

1.2854

0.5258 33678.1

1.

2598.

945

3198.5 13990.

85

-

10577.7

7821.6

71

-0.4619 2.3594

01

0.52

66

0.7684 2598

9.45

5.

7551.897

8783.985

18132.8

-7120.2 7870.565

-0.4463 2.392865

0.485

0.7844 75518.97

5.

, 1455.965

4220.65

11185.3

-10214.6

7469.932

-0.3137 1.7110 0.856

0.6517 14559.65

5.

+& 10820.48

9432.3 29195.8

-7937 11445.37

-0.0293 2.033784

0.3904

0.8226 108204.8

1.

:; 6682.369

6441.32

24770.8

-14248.6

11323.65

-0.1996 2.518926

0.1628

0.9218 66823.69

1.

: 5584.547

5946.27

18519.9

-4597.4 7760.485

0.1179 1.994957

0.4440

0.8008 55845.47

5.

+; 6285.716

3186.4 24299.2

-3410.9 8632.577

0.8979 2.8219 1.3570

0.5073 62857.16

6.

60


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Ta+le 1@

Descriti'e Analsis of FII

The descriptie statistics is used to analse the "ehaior of the stock returns. 8escriptie

stastistics e!ploed on the returns showed that a !ean alue(aerage) of 10820.48 crores

which indicates the returns of FII. axi!u! and !ini!u! return range fro! 29195.8

crores to negatie flows of 17326.3 crores . These negatie flows also indicate selling " 5$$s.

5urther# standard deiation !easures the dispersion as 11800.94 which i!pl aria"ilit in the

net inest!ent " 5$$s during the period fro! 1an.'22 to 8ec.'2%B collected on !onthl returns

"asis.

The !ajor results of appling unit root test where the null hpothesis of unit root test is rejected

and it can "e interpreted that the series do not hae an unit root and the series is said to "e

stationar as the pro"a"ilit is less then C leel of significance. ajor outco!es of spilloer

test were that 5$$ has i!pact on the olatilit of stock returns of 3N4 22 # whereas# there was

no i!pact on the olatilit of stock returns of 3N4 Nift fift # 3N4 !idcap and 3N4

S!allcap.

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Chater 7 0

"ummar Conclusions

0.1 Findings of the "tud

; dail NSE index has er low degree of positie correlation with dail 5$$’s inest!ent.

This i!plies that there are !an other !acro econo!ic factors hae indirectl affected the dail

NSE index "ut their influence on the stock prices cannot "e co!pletel ignored. 9ence "oth

indices !oe in direction of 5$$’s inest!ent.

Econo!ic growth i.e. $ndex of $ndustrial production ($$


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$nstitution $nest!ent on the $ndian Stock arket olatilit# we hae applied on National

Stock Exchange (NSE) indices like 3N4 22# N$5TH 5$5TH# 3N4 S!allcap# 3N4 idcap

using :;@39 !odel.

The ;@39 ter! was not found to "e significant at C leel # in the case of N$5TH and 3N422.

6ut the :;@39 coefficient is significant which i!plies that the past olatilit affects present

olatilit. ;nd so fro! alue of correlation it is clearl seen that there is direct relation "etween

the 3N422 and 5$$s. $t !eans with an increase in inest!ent fro! foreign institution (


64/68

) The !ean alue and standard deiation found in N$5TH 5$5TH B.B'D and %%.&DD were

respectiel.

i) The !ean alue and standard deiation o"tained in idcap were .0B- and %0.-B

respectiel.

ii) The !ean alue and standard deiation o"tained in S!allcap were -.%%% and %-.%-2

respectiel

0.) 8imitations of "tud

i) $n this research paper onl NSE indices are considered as para!eter of stock !arket.

ii) Ti!e duration taken into consideration is co!paratiel short# this is of %2 Hears.

iii) 8ata is collected on !onthl "asis which !a "e less relia"le in co!parison to data

collected on dail "asis.

;s the ti!e aaila"le is li!ited and the su"ject is er ast the stud is

!ainl focused on identifing whether there does exist a relationship "etween 5$$s and $ndian

E>uit Stock arket. $t is !ainl "ased on the data aaila"le in arious we"sites. The inferences

!ade are purel fro! the past ear’s perfor!ance.

0.5 "coe of the stud

i. The scope of the stud is li!ited to the $ndia which has "eco!e an attraction for 5$$s in

recent ears# in fact the e!erging !arkets of !an deeloping countries hae "een

attracting large inflows of priate capital in recent ears.

64


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ii. The duration of the stud should "e !ore. $nstead of short ter! stud# the analsis

should "e perfor!ed on a long ter! "asis.iii. $n this research the other !odel like :rager# co*integration and can "e appl for "etter

result

CHAPTER-?

REC*$$E


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References

%. ; ;swini and ku!ar !aank ('2%B) # L The $!pact of 5$$ on Stock arket in $ndiaM #

Global Journal of Finance and Management # ?olu!e -# Nu!"er D ('2%B)# pp. -*

2 # $SSN 2&*-B.

'. ;ra K


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-. 8r. @ajput ('2%') # L The i!pact of 5$$ of Stock arket ! through 7ead*7ag and

?olatilit SpilloerM # Asian Journal of Finance & Accounting, ?ol. B# No. ' # $SSN

%&B-*2'4.

. Iaur# anjinder. K 8hillon# S.Sharanjit ('2%2) ‘8eter!inants of 5oreign $nstitutional

$nestor’s $nest!ent in $ndia’ Asian Journal of "usiness and Economics '2%2# 0 (-)# *

2.

D. Iar!akar# adhusudan ('22D) , # ; s!!etric olatilit and @isk / return @elationship

in the $ndian stock !arketM# South Asia economic $ournal # ?ol. D# No. %#('22D).

&. Iulshrestha 9e!kant ('2%B)# L$!pact =f 5oreign $nstitutional $nestors (5$$s) on $ndian

3apital arketM # IM%AC' International Journal of Research in "usiness Management

(IM%AC' IJR"M) # ?ol. '# $ssue 0# ar '2%B# 0*' # $SSN(E)J '0'%*DD-4 $SSN(


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%0. Singh# Su!anjeet. ('22&) ‘5oreign capital flows into $ndiaJ 3o!positions# regulations#

issues and polic options’ Journal of Economics and International Finance ?ol. %(%)# pp.

2%B*2'&.

%B. Sripria and Sha!uga!. ('22B) # L5oreign $nstitutional $nestors’ Trading ;ctiit

and?olatilit in $ndian Stock arket M # Indian Journal .f Applied Research # ?olu!e J B

[ $ssue J %% [ Noe!"er '2%B [ $SSN * ''B&*4.

%. ?# Saraanakrishnan# L Trend ;nalsis of 5$$s inest!ent in $ndia of !onthl flows

during 1anuar '22-*=cto"er '2%% , International Journal of Mareting Financial

Serices & Management Research, ?ol. %# No.-# 1une# '2%%# $SSN ''*0-''.

%-. www.!onecontrol.co!. downloaded on %0 5e"ruar '2%

%. www.NSE.co! downloaded on %- 5e"ruar '2%
http://www.moneycontrol.com/http://www.nse.com/http://www.moneycontrol.com/http://www.nse.com/

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