Major Research project on :“Study of Trend of FII investment

and its impact on Sensex”

School of Economics, DAVV, Indore

SUBMITTED BYPiyush Kumar Patidar MBA (International Business)Session : 2013-15

Introduction Objectives of study Research Methodology Data Analysis and Interpretation Conclusion References

Contents

Capital requirement & developing Nation In case of developing country like India

Domestic capital is not sufficient to fulfill the requirement of economy. In that case foreign capital plays a very important role. Foreign Capital comes in two forms Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII).

Introduction

Any investor or investment fund that is from or registered in a country outside of the one in which it is currently investing.

After the launch of the reforms, foreign institutional investors (FIIs) from September 14, 1992, with suitable restrictions, were permitted to invest in all securities traded on the primary and secondary markets

Hot money

What is FIIs

ROUTE OF FIIS

INVESTMENT

On its own behalf

On behalf of sub account

Form 2nd June 2014, which replace the two-decade old foreign institutional investors (FII) regime, in the Indian market has got operational now. From now on, new overseas investors wanting to enter the Indian market will be registered under the FPI Regulations.

New Foreign Portfolio Investor (FPI) (Regulations 2014)

 To study the trends and patterns of foreign capital flow into India in the form of FIIs.

To find relation between FIIs & Sensex.

To examine whether FIIs have any influence on SENSEX.

Objectives of Study

The research has been carried out by collection of secondary data with the use of primarily the internet via website of SEBI and BSE;

FIIs data From SEBI Website Sensex Data From BSE Website

Research mathodolgy

Trend analysis: Graphical presentation table analysis, ratio of equity and debts is calculated absolute change & absolute percentage

change is being calculated for the better understanding and analysis of trend.

All the graphical n tabulation is done with the help of MS-Excel.

Tools Used for Research

Correlation & Regression Calculated for Two different data set1. By including value of 2008-20092. By excluding value of 2008-2009Because, this yearly analysis and due to Global financial crisis in 2008-2009. result is analyzed for better accuracy.

Tools Used for Research

Data Analysis and Interpretation

FPI Investments - Financial Year

INR crores

Financial Year Equity Debt Total

2004-05 44,123 1,759 45,881

2005-06 48,801 -7,334 41,467

2006-07 25,236 5,605 30,840

2007-08 53,404 12,775 66,179

2008-09 -47,706 1,895 -45,811

2009-10 1,10,221 32,438 1,42,658

2010-11 1,10,121 36,317 1,46,438

2011-12 43,738 49,988 93,726

2012-13 1,40,033 28,334 1,68,367

2013-14 79,709 -28,060 51,649

2014-15 ** 9,602 -9,185 418

Total 6,17,282 1,24,532 7,41,812

Equity – Debt RatioYear Equity Debt Ratio

2003-04 39,960 5,805 6.88:1

2004-05 44,123 1,759 25.08:1

2005-06 48,801 -7,334 -6.65:1

2006-07 25,236 5,605 4.5:1

2007-08 53,404 12,775 4.18:1

2008-09 -47,706 1,895 25.17:1

2009-10 1,10,221 32,438 3.4:1

2010-11 1,10,121 36,317 3.03:1

2011-12 43,738 49,988 0.87:1

2012-13 1,40,033 28,334 4.94:1

2013-14 79,709 -28,060 -2.84:1

2014-15 9,602 -9,185 -1.05:1

Total 6,59,769 1,30,499 5.06:1

Absolute Change & Percentage Change in FIIs

Year Net Investment Absolute Change % Change

2003-04 45,765 43,076 -

2004-05 45,881 116 0.25

2005-06 41,467 -4,414 -9.62

2006-07 30,840 -10,627 -25.62

2007-08 66,179 35,339 114.58

2008-09 -45,811 -111,990 -169.22

2009-10 142,658 188,469 -411.405

2010-11 146,438 3,780 2.64

2011-12 93,726 -52,712 -35.99

2012-13 168,367 74,641 79.63

2013-14 51,649 -116,718 -69.32

2014-15 418 -51,231 -99.19

Total 787,577

Net Investment of FII

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

FPI Investments - Financial Year INR crores Total

FPI Investments - Financial Year INR crores Debt

Percentage Change in FIIs (Year 2003-15

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

2013-1

4

2014-1

5

Tota

l

-500

-400

-300

-200

-100

0

100

200

Trend Line for FIIs

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

**

-100000

-50000

0

50000

100000

150000

200000

FIILinear (FII)

2005-06, investment in Equity were 48801 crores which is more compare to previous year but net invest which was 41467 crores which is less than previous year due to withdraw of 7334 crores from debts.

2006-07, Net Investment was also low compare to previous year i.e. 30840 cr.

2007-08, more than 50% of growth is observed in net investment i.e. 66179 cr.

But 2008-09, net inflow of foreign capital in form of FIIs was negative, previous researcher joined this Incidence with Global Economic Crises in this period, recession in UK and bursting of Real State Bubble in USA.

2009-10, starting year of UPA -2, highest ever net investment is observed in FIIs i.e. 142658 cr.

Trend Analysis

2010-11, highest investment in equities observed and which is considered one of the great years for investors with partial growth in net investment i. e. 146438.

2011-12, highest investment in debts 49988 cr. but decrease in net investment of 136836 cr.

2012-13, Investment in equity touched new millstone with 140033 cr. As well as in net investment i.e. 168367 cr.

2013-14, net investment was decreased approx. to 1/3 of previous year’s i.e. 51649 cr.

2014-15, new hope is arising as NDA first time come in power with full majority. Trying to provide good environment to foreign investors which is good sign for shareholders as well as Indian Economy.

Trend of FII investment is positive.

Continued….

Relation between FIIs and Sensex

Column 1 Column 2

Column1 1 0.205

Column2 0.205 1

Correlation : Including Values Of 2008-09FII and Sensex has weak positive correlation.

Correlation coefficient: 0.205

By excluding values of Year 2008-09

Column 1 Column 2

Column1 1 0.436

Column2 0.436 1

CorrelationFII and Sensex are positively correlated. Correlation coefficient: 0.436

Regression Analysis

Multiple R 0.205

R square 0.042

Intercept 15006.44

FII 0.020

P- Value 0.00079

Multiple R 0.43

R square 0.190

Intercept 10650.5

FII 0.055

P- Value 0.025

Including value of 2008-09

Including value of 2008-09

Trends of FII is positive as per the trend analysis i.e. Foreign investors are looking forward to invest in India. NDA come up in the power with full majority in General Election (Loksabha Election) – 2014. Providing stable govt. which is good for the investors as well as economy.

FIIs has significant impact on Sensex. The correlation coefficient between FII and

Sensex for both analyses is positively correlated.

Conclusion & Findings

When data of year 2008-09 included, Sensex is 20% dependent on FIIs,

When excluded, Sensex is 43% dependent which is more than double increment in result.

Continue….

1) A. Kulwantraj N. Bindu (2004).” The determinants of foreign Institutional Investments in India and the role of risk, inflation and return”, Indian Economic Review, Vol. 32, Issue 2, pages 217-229

2) Mayur Shah (2013) “Flows of FIIs and Indian Stock Market’’ http://www.cpi.edu.in/

3) Gordon, J. and Gupta, P. (2003). “Portfolio Flows into India: Do Domestic Fundamentals Matter?” IMF Working Paper, Number WP/03/02 .

4) Chakrabarti, R. (2001). “FII Flows to India: Nature and Causes”, Money and Finance, Vol. 2, No. 7. 

5) Mukherjee (2002) “Taking Stock of Foreign Institutional Investors.” Economic and Political Weekly. June 11, 2005. <www.rbi.ord.in>, www.sebi.gov.in

6) Pal, P. (2004),” Foreign Institutional Investment in India”, Research on Indian Stock Volatility. Vol. 12. Publisher: Emerald Group Publishing Limited.

References

7) Aggarwal, R., Klapper, L. & Wysocki, P. D. (2005). “Portfolio preferences of foreign institutional investors”, Journal of Banking and Finance, Vol. 29, No. 12, pp. 2919-2946.

8) Batra, A (2004) “Foreign Institutional Investors: An Introduction”, Icfai, University Press, pages-107-111.

9) Rai, K. and N. Bhanumurthy (2004) “Role of return, risk and inflation as determinants of foreign institutional investors in India”, Journal of Institutional Investors. Vol. 17. Publisher: Emerald Group Publishing Limited.

9) Bhupender Singh (2005), “Inter-Relation between FII, Inflation and Exchange Rate”, Journal of Institutional Investors. Vol. 17. Publisher: Emerald Group Publishing Limited 

10) Krishna Reddy Chittedi (2009). “Volatility of Indian Stock Market and FIIs”, Journal: European Business Review. Vol. 15, pages 22-34

11) Kumar (2002), “Pasricha, J.S. and Umesh C. Singh. “Foreign Institutional Investors and Stock Market Volatility.” The Indian Journal of Commerce. Vol.54, No.3, July-September, 2002.

12) Narayan Sethi (2007),”Globalization, Capital Flows and Growth in India”, Journal of ICFAI, Vol: 25. Publisher: MCB UP Ltd.

Continue….

Thank You