SYNOPSIS

ON
Foreign Institutional Investment
Impact On Indian Stock Market And
Its Investment Behavior
By
SHOBHIT KAUSHIK
(Registration No. 520859253)
A project report submitted in partial fulfillment of the requirements
for the degree of master of Business Administration of
Sikkim Manipal University, I!IA
INSOFT, C 2 SECTOR 10, NOIDA 201 301
CENTRE CODE 1822
Sikkim Manipal Univeri!" #$ %eal!%, Me&i'al an& !e'%n#l#(i'al 'ien'e Di!an'e
E&)'a!i#n *in(
S"n&i'a!e +#)e, Manipal ,-.10/
Page 1
DECLARATION
Synopsis on FOREIGN INSTITUTIONAL INVESTMENT IMPACT ON INDIAN
STOCK MARKET & ITS INVESTMENT E!AVIOUR" s#$%i&&e' in pa(&ia)
*#)+))%en& o* &,e (e-#i(e%en& *o( &,e 'eg(ee o* Mas&e(s o* #siness
A'%inis&(a&ion &o Si..i% / Manipa) Uni0e(si&y1 In'ia1 is %y o(igina) 2o(.
an' no& s#$%i&&e' *o( &,e a2a(' o* any o&,e( 'eg(ee1 'ip)o%a1 *e))o2s,ip1
o( any o&,e( si%i)a( &i&)e o( p(i3es4
P)a5e6 Noi'a
Da&e6 777777777
(SHOBHIT KAUSHIK)
Regis&(a&ion No4 89:;8<98=
Page 9
CERTIFICATE
Synopsis o* S,o$,i& Ka#s,i. >Regis&(a&ion No4 89:;8<98=?4Synopsis on
FOREIGN INSTITUTIONAL INVESTMENT IMPACT ON INDIAN STOCK
MARKET & ITS INVESTMENT E!AVIOUR is app(o0e' an' is a55ep&a$)e in
-#a)i&y an' *o(%4
In&e(na) E@a%ine( E@&e(na) E@a%ine(s
>M(4 7777777777777?
Page =
ACKNOWLEDGEMENT
A s#55ess*#) 5o%p)e&ion o* a p(oAe5& is )i.e a go)'en *ea&,e( *o( any 5ap4 T(#)y &,is
5anno& $e &#(ne' 2i&,o#& ap& g#i'an5e an' ,e)p4 One %#s& a)2ays $e o$)ige' &o ,is
g#i'e an' ,e)pe(s4
I so %#5, &,an.*#) &o o#( *a5#)&y g#i'e Mr. Israr Alam, Insoft, Sec-1, !oida
gi0e %e so %#5, ,e)p in 5o%p)e&ing &,is p(oAe5& (epo(& an' o&,e( %e%$e(s o* &,e
5o%pany so %#5, ,e)p*#) an' *a%i)ia( 2i&, &,ei( &(ainees4
Fina))y1 I a% 0e(y g(a&e*#) &o &,ese (e0e(en& pe(sona)i&ies 2i&,o#& 2,o% i& 2o#)' no&
,a0e $een possi$)e *o( %e &o p#& *o(2a(' &,is p(oAe5& in p(esen& *o(%4
SHOBHIT KAUSHIK
Page B
CONTENTS
14 INTRODUCTION
94 OCECTIVES
=4 MET!ODOLOGD
B4 CONCLUSION & FINDING
84 ILIOGRAP!D
E4 FUESTIONNAIRE
Page 8
INTRODUCTION
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 crossborder investors on the
prospects of Indian securities market, e!cept 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 "#IIs$ in %&&'. The #IIs started investing in Indian
markets in (anuary %&&). The Indian corporate sector has been allowed to tap international
capital markets through American *epository +eceipts "A*+s$, ,lobal *epository +eceipts
",*+s$, #oreign -urrency -onvertible .onds "#--.s$ and /!ternal -ommercial .orrowings
"/-.s$. 0imilarly, nonresident Indians "1+Is$ have been allowed to invest in Indian companies.
#IIs have been permitted in all types of securities including ,overnment securities and they
enjoy full capital convertibility. 2utual funds have been allowed to open offshore funds to invest
in equities abroad. #II investment in India started in %&&), as #IIs were allowed to invest in the
Indian debt and equity market in line with the recommendations of the 3igh 4evel -ommittee on
.alance of 5ayments. These investment inflows have since then been positive, with the
e!ception of %&&6&&, when capital flows to emerging market economies were affected by
contagion from the /ast Asian crisis. These investments account for over %7 per cent of the total
market capitalisation of the Indian stock market.
0ince %&&7&%, the ,overnment of India embarked on liberali8ation and economic
reforms with a view of bringing about rapid and substantial economic growth and move towards
globali8ation of the economy. As a part of the reforms process, the ,overnment under its 1ew
Industrial 5olicy revamped its foreign investment policy recogni8ing the growing importance of
foreign direct investment as an instrument of technology transfer, augmentation of foreign
e!change reserves and globali8ation of the Indian economy. 0imultaneously, the ,overnment, for
Page E
the first time, permitted portfolio investments from abroad by foreign institutional investors in
the Indian capital market. The entry of #IIs seems to be a follow up of the recommendation of
the 1arsimhan -ommittee +eport on #inancial 0ystem. 9hile recommending their entry, the
-ommittee, 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.
#rom 0eptember %:, %&&' with suitable restrictions, #IIs 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 0tock /!changes in
India. 9hile presenting the .udget for %&&'&), the then #inance 2inister *r. 2anmohan 0ingh
had announced a proposal to allow reputed foreign investors, such as 5ension #unds etc., to
invest in Indian capital market. To operationalise this policy announcement, it had become
necessary to evolve guidelines for such investments by #oreign Institutional Investors "#IIs$.
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OBJECTIVE OF THE STUDY
a$ The objective of the present study is to identify whether there e!ist a causal relationship
between net investment made by #II;s and the equity return in the Indian 0tock 2arket.
b$ To determine the behavior and impact of #II;s on Indian stock market through primary
data analysis.
c$ To determine what are factors which affect investment decision of #II;s.
d$ To determine whether #II;s have impact on other economical factors apart from stock
market.
Page ;
ETHODO!O"Y
RESE#RCH DESI"N FOR $RI#RY D#T# #N#!YSIS %t&roug& 'uestionnaire(
a) Type of research:
*escriptive research, also known as statistical research. The objective of descriptive research
is to describe thing, such as the market potential for a product or attitudes of consumers who
buy the product. It describes data and characteristics about the population or phenomenon
being studied. *escriptive research is to describe something < usually market characteristics
or functions. It answers the question who, what, where, when and how. The data description
is factual, accurate and systematic but the research cannot describe what caused a situation.
Thus, descriptive research cannot be used to create a causal relationship, where one variable
affects another.
*escriptive research is conducted for the following reasons=
To describe the characteristics of relevant groups such as consumers, salespeople,
organisation or market areas.
To estimate the percentage of units in a specified population e!hibiting a certain
behaviour.
To determine the perceptions of product characteristics.
To determine the degree to which marketing variables are associated.
To make specific predictions.
Page <
>ualitative research often has the aim of description and the researchers may followup
with e!aminations of why the observations e!ist and what the implications of the findings are.
*escriptive research assumes that researcher has much prior knowledge about the problem
situation. It is characteri8ed by the prior formulation of specific hypothesis. Thus, the
information needed is clearly defined. As a result, descriptive research is preplanned and
structured. It is typically based on large representative samples. A formal research design
specifies the method for selecting the sources of information and for collecting the data from
these sources. A descriptive design requires a clear specification of the who, what, when, where,
why and way "? 9;s$ of the research.
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)( Data Sour*es+
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.
The secondary data were collected from the different periodicals, books and articles published in
various maga8ines @ journals vi8. .usiness 9orld, .usiness India, .usiness Today, (ournal of
Advertising, (ournal of 2arketing, etc.
c$ Resear*& #,,roa*&+ The research approach used in this study was survey research.
d$ Resear*& Instruments= +esearch Instruments consisted of a questionnaire. >uestionnaire
prepared mostly consists of closed ended questions with multiplechoice answers.
e( Sam,ling $lan+
The following are included in the sampling plan for the purpose of present study=
a$ Universe o- sam,le+ 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$ Sam,ling 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, se! and occupation.
c$ Sam,le si.e+ The sample si8e of the study is seventy respondents. 0ince
people were not much aware about #II;s impact and its investment behavior,
so limited respondents had to be contacted before getting a successful
interview.
d$ Sam,ling ,ro*edure and et&od+ (udgemental sampling has been used for
the study. >uestionnaire was used to collect the data.
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et&odolog/+ 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. 0election 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 #II;s 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 e!ists
between perception towards #II;s impact on Indian economy and occupation of
respondents.
iv$ Weighted Average Score= To study the role of +egulation @ Trading efficiency and
dollar weakness against rupee in #II;s investment decision.
v$ Cross tabulation= The -ross Tab is used on occupation and most common route of
#II;s to invest. This will gives us picture about the perception of different group of
respondent towards #II;s investment route.
vi$ raphical !resentation= Aarious other graphical tools like 5ie chart, .ar diagram
etc. is used to plot the results.
Page 19

CONC!USION #ND FINDIN"S
Findings:
%. .0/ sense! and nifty has moderate degree of positive correlation with #II;s investment.
3ence both indices move in direction of #II;s investment. If #II;s increase both indices
increases and vice versa.
'. .0/ -* and .0/ -, has low degree of positive correlation. It signifies that consumer
durable and consumer goods sector are less dependent on #II;s.
). .0/ IT has low degree of negative correlation. It means that it doesn;t rise with rise in
#II;s.
:. After using hypothesis testing we came to conclusion that /!ports and local companies
has very less impact or no impact of #II;s in India.
B. 0imilarly, appreciation of rupee and corporate governace also has very less impact of
#II;s.
?. #II;s has impact on improvement of market efficieny. As due to increasing investment of
#II;s, 0/.I and other regulatory bodies have to improve market trading efficiency in
order to sustain #II;s investment and also to attract more investment.
C. /conomic growth, inflation and interest rate are the key parameters on which #II;s invest
in any countries. Also #II;s investment lead to economic growth of country.
Page 1=
Conclusion
%. According to findings and results, I concluded that #II did have high significant impact
on the Indian capital market. Therefore, the alternate hypothesis is accepted. #II;0 have
high impact on .0/ 0ense! and 1ifty. This signifies that market rise with increase in
#II;s and collapse when #II;s are withdrawn form market. Also .0/ -,, .0/ -*, and
.0/ IT showed positive correlation but .0/ #2-, showed negative correlation with
#II. The degree of relation was low in all the case. It shows low degree of linear relation
between #II and other stock inde!.
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$.
Also #II is not the only factor affecting the stock indices. There are other major factors that
influence the bourses in the stock market. I also analy8ed that #II had significant impact on the
stock inde! for the period starting from April %&&6 to #ebruary '7%7.
'. According to findings, I conclude that various factor affect #II;s investment decision.
2ost important parameter on which #II;s invests are economic growth, interest rate,
inflation rate, regulation and trading efficiency and risk. Also before research I thought
that #II;s have impact on e!ports, local companies and corporate governance. .ut after
hypothesis testing, I came to no that there is no significant impact of #II;s on those
factors.
Page 1B
BIB"IO#$A%&'( $)F)$)!*)S
A number of websites, newspaper article annual reports of +.I, maga8ines, bulletin of 0/.I are
used for study purpose. They are as follows=
Internet sites +
0001se)i1gov1in
0001r)i1org1in2&ome1as,3
0001nseindia1*om
0001)seindia1*om
0001mone/*ontrol1*om
Boo4s+
Foreign dire*t investment in India )/ !ata C&a4ravart&/1
Foreign institutional investors )/ " "o,al 5ris&na urt&/1
Journal o- Finan*ial Resear*&
Re,orts and )ulletins+
SEBI &and)oo4 6778
SEBI )ulletin 6797
Page 18
:uestionnaire -or Foreign Institutional Investments
Be&aviors and its im,a*t on Indian sto*4 mar4et
Part A) Personal Inforat!on"
%$ 1ame= DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD
'$ ,ender= 2ale #emale
)$ Occupation=
.usiness man .roker Investor
0tudent Others
:$ Eour current age is=
"a$ '7)7 "b$ )% to :7
"c$ :% to BB "d$ B? to ?B
"e$ Over ?B
B$ Eour annual Income 4evel is=
"a$ Fp to ),77,777 "b$ ),77,77% < 6,77,777
"c$ 6,77,77% < %B,77,777 "d$ %B,77,77% < and above
"f$ 1ot earning presently
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Page 1G
Part #) Fore!$n Inst!t%t!onal In&estent A'areness le&el
E? Do yo# .no2 a$o#& &,e go0e(ning $o'ies $e,in' FIIHsI
"a$ Ees "b$ 1o
G? J,a& .in' o* i%pa5& '#e yo# &,in. FIIHs ,a0e on In'ian
E5ono%y an' 5api&a) %a(.e&I
a$3igh Impact "b$ 4ow Impact
c$ 1o Impact "d$ *o 1ot know
6$ *o you know about limitation on foreign institutional investmentG
"a$ Ees "b$ 1o
&$ 9hich is the most common route #or #II;s investment in IndiaG (rate
accordingly 1 most common and 5 least common route.)
FIIs invested through following medium:

% ' ) :

B
2utual fund companies
3edge fund
Insurance and reinsurance companies
Investment trust
Institutional portfolio managers
.anks
Individual investor
Page 1;
Part () Fore!$n Inst!t%t!onal In&estent
1:? Do yo# &,in. *o))o2ing a(e &,e i%po(&an& (eason *o( g(o2&, in
FII In0es&%en&sI ( Rate accordingly )
Not at
all
importa
nt
Slightly
important
Importa
nt
Very
importa
nt
Of utmost
importan
ce
4ong term -apital gain
+upee appreciation
/conomic growth
Interest rate
Inflation rate
Infrastructure
/!change rate
+isk
11? Do yo# &,in. FIIHs ,a0e i%pa5& on *o))o2ing *a5&o(s an' i* yes1
2,a& is &,e )e0e) o* i%pa5&I
Aery
3igh
3igh 4ow Aery low
Appreciation of currency
/!ports
0tock market
4ocal companies
-apital formation
Improve market efficiency
0trengthening corporate governance
19? D#e yo# &,in. (eg#)a&ion an' &(a'ing eK5ien5y ,a0e i%pa5&
on FIIHs in0es&%en& 'e5isionI
% ' ) : B
Page 1<
4ess Impact
3igh
impact
1=? Does FIIHs ,a0e any i%pa5& o* Do))a( 2ea.ness agains& (#pee1
i* yes 2,a& is )e0e) o* i%pa5&I
% ' ) : B
4ess Impact
3igh
impact
1B? J,i5, se5&o( 'o yo# &,in. FIIHs &(a'e' %os& a5&i0e)yI
a$ Oil and ,as "b$ IT
c$ .anking "d$ #2-,
e$ 5ower "f$ Others
18? J,a& a)) (e)a@a&ion '#e yo# &,in. %#s& $e g(an&e' &o FIIHsI

1E? Any o&,e( in*o(%a&ion yo# )i.e &o s,a(e 2i&, #sLL
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