A Study On Fdi On Bse Stock Market - Original

A COMPREHENSIVE PROJECT REPORT
ON
A STUDY OF FII INFLUENCE ON BSE STOCK
MARKET.
BY
MR. VINEETH V. POLIYATH
ENROLLMENT NO: 107310592005
BATCH: 201013
UNDER THE GUIDANCE OF
PROF. PRANAV RAYTHATHA (Internal)
Assistant Professor, Laxmi Institute of Management, Sarigam
SUBMITTED TO
GUJARAT TECHNOLOGICAL UNIVESITY, AHMEDABAD
FOR THE AWARD OF THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
THROUGH
LAXMI VIDYAPEETH`S
LAXMI INSTITUTE OF MANAGEMENT, SARIGAM
College Code: 731 Branch Code: 92
Subject code: 84001 – Comprehensive Project
DECLARATION
We hereby declare that the work incorporated in this grand project
report entitled “ “ FII’s INFLUENCE ON BSE STOCK MARKET
OVER THE PERIOD 20022012” is the outcome of original study undertaken
by me under the guidance of Prof. Pranav Raythatha (Internal) Assistant
Professor, Laxmi Institute of Management, Sarigam during 14th January 2013
to 30th May 2013. This project report has not been submitted earlier to any
other University or Institution for the award of any Degree or Diploma.
Mr. VINEETH V. POLIYATH
107310592005
BATCH: 201012
Laxmi Institute of Management, Page 2
CERTIFICATE
This is to certify that the content of this grand project report entitled “ FII’s
INFLUENCE ON BSE STOCK MARKET OVER THE PERIOD 2002
2012” by Mr. Vineeth V .Poliyath, Enrollment No. 107310592005 submitted to
Gujarat Technological University, Ahmadabad for the Award of Master of
Business Administration is original research work carried out by him under my
supervision during 14th January 2013 to 30th May 2013. On the basis of the
declaration made by him I recommend this project report for the evaluation.
This report has not been submitted either partly or fully to any other University
or Institute for award of any degree or diploma.
PROF. PRANAV RAYTHATHA
DR. KEYUR M. NAIK
Project Guide
Director
Asst. Professor
Laxmi Institute of
Laxmi Institute of Management,
Management,
Sarigam
Sarigam
INDEX
SR.
NO.
PARTICULAR
PAGE NO.
1
GENERAL INFORMATION
917
OVERVIEW OF INDIAN ECONOMY
10
2
THEORITICAL FRAMEWORK
1833
STOCK EXCHANGE BSE & NSE
19
FOREIGN INSTITUTIONAL INVESTORS
28
3
PRIMARY DATA
3439
INTRODUCTION OF THE STUDY
35
LITERATURE REVIEW
37
BACKGROUND OF THE STUDY
40
4
RESEARCH METHODOLOGY
4749
OBJECTIVE OF THE STUDY
48
SCOPE OF THE STUDY
48
METHODOLOGY OF THE STUDY
48
LIMITATION
49
5
DATA ANALYSIS & INTERPRETATION
5072
PERFORMANCE OF Sensex
52
FII'S NET INVESTMENT V/S Sensex RETURN
55
COEFFICIENT OF CORELATION &
66
TREND ANALYSIS OF FII'S INVESTMENT
71
6
FINDING, CONCLUSION & SUGGESTION
7380
BIBLIOGRAPHY
80

LIST OF TABLES
TABLE NO
TABLE
PAGE NO
4.1
LIST OF BSE SENSEX COMPANIES
22
4.2
INTERNATIONAL STOCK EXCHANGES
27
5.1
PERFORMANCE OF SENSEX 1991201
52
5.2
FII’s NET INFLOW FROM 20022012
55
5.3
FII’s NET INFLOW V/S SENSEX RETURN
57
5.4
SENSEX RETURN 2010
60
5.5
FII NET INFLOW
62
5.6
FII INFLOW V/S SENSEX RETURN
64
5.7
SENSEX FLUCTUATION
66
5.8
CORRELATION
67
5.9
CORRELATION 2012
69
5.10
CURRENT TREND OF FII’s INVESTMENT
71
5.11
TREND ANALYSISFUTURE
73

LIST OF CHARTS
CHART
CHART NAME
PAGE
NO
NO
53
5.1
SENSEX 19912010
56
5.2
FII NET INFLOW 200212
58
5.3
FII INFLOW 20002010 V/S SENSEX
RETURN
61
5.4
SENSEX RETURN 2012
63
5.5
FII NET INFLOW 2012
65
5.6
SENSEX RFTURN V/S NET INFLOW 2012
74
5.7
TREND ANALYSIS

ACKNOWLEDGEMENT
The satiation and euphonies that accompany the success completion of a task would
be incomplete without a mention of people who made it possible. So, with immense
gratitude, I acknowledge all those, whose guidance and encouragement served as a
beacon light and crowned my effort with success.
I have taken efforts in this grand project. However, it would not have been possible
without the kind support and help of many individuals and organizations. I would like
to extend my sincere thanks to all of them.
We are highly indebted to Mr. Pranav Raythatha, Assistant Professer of Laxmi
Institute of Management, Sarigam for his guidance, constant help and for providing
necessary information regarding the stock market operation and various industry
sectors.
I express my thanks for his encouragement which help me in completion of this
project.
I would like to express my special gratitude to my parents who gave us continuous
support during the grand project work.
Mr. Vineeth Poliyath
107310592005
BATCH: 201012

EXECUTIVE SUMMARY
The project deals with the “Impact of Foreign Institutional Investors on Indian Stock
Market”. This research project studies the relationship between F IIs investment and
stock indices. For this purpose India’s major index i.e. BSE Sensex is selected. This
index would be used for to represent the picture of India’s stock markets. So this
project reveals the impact of FII on the Indian capital market.
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 this study I have selected only one
independent variable i.e. FII. This study uses the concept of correlation, regression
and hypothesis to study the relationship between FII and stock index. The FII started
investing in Indian capital market from year 1991 when the Indian economy was
opened up in the same year. Their investments include equity only.
CHAPTERI
GENERNAL INFORMATION

OVERVIEW OF INDIAN ECONOMY
The Indian economy has continuously recorded high growth rates and has become an
attractive destination for investments, according to Ms Pratibha Patil, the Indian
President. "India's growth offers many opportunities for mutually beneficial
cooperation," added Ms Patil. "Today India is among the most attractive destinations
globally, for investments and business and FDI had increased over the last few years,"
said Ms Patil.
The Indian economy is expected to grow at around 7.5 per cent, according to Dr
Manmohan Singh, the Indian Prime Minister. The PM acknowledged Asia's emerging
economies were "growing well" and were, "in fact, contributing to the recovery of the
world economy".
The overall growth of gross domestic product (GDP) at factor cost at constant prices,
as per Revised Estimates, was 8.5 per cent in 201011 representing an increase from
the revised growth of 8 per cent during 200910, according to the monthly economic
report released for the month of September 2011 by the Ministry of Finance. Overall
growth in the Index of Industrial Production (IIP) was 4.1 per cent during August
2011.
The eight core Infrastructure industries grew by 3.5 per cent in August 2011 and
during AprilAugust 201112, these sectors increased by 5.3 per cent. In addition,
exports and imports in terms of US dollar increased by 44.3 per cent 41.8 per cent
respectively, during August 2011.
Over the next two years India could attract foreign direct investment (FDI) worth US$
80 billion, according to a research report by Morgan Stanley. India has received US$
48 billion FDI in the last two years. Considering the pace of FDI growth in India,
KPMG officials believe that FDI in 201112 might cross US$ 35 billion mark.

In addition, India has entered the club of top 20 exporters of goods and reclaimed its
position among top 10 services exporters in 2010. India's goods exports rose by 31 per
cent in 2010, helping it to improve its world ranking moving up two places to 20 from
22 in 2009.
The Economic Scenario:
A report titled, 'World Investment Prospects Survey 20092012' by the United Nations
Conference on Trade and Development (UNCTAD) has ranked India at the second
place in global foreign direct investments (FDI) in 2010 and expects India to remain
among the top five attractive destinations for international investors during 201012.
India Inc announced 177 mergers and acquisitions (M&A) deals worth US$ 26.8
billion in the first nine months of 2011. For the quarter JulySeptember 2011, inbound
deals worth US$ 7.32 billion were registered as against the deals worth US$ 2.65
billion in the previous quarter. Foreign institutional investors (FIIs) have invested
more than Rs 41,000 crore (US$ 7.81 billion) in government papers and Rs 68,000
crore (US$ 12.95 billion) in corporate bonds as on October 31, 2011
The latest available data from the Reserve Bank of India show a 77 per cent jump in
the FDI in the first half of the current financial year (AprilSeptember), compared to
what was US$ 19.5 billion during the same period a year ago
The total amount of FDI equity inflows during financial year 201112 from April
2011 to September 2011 stood at US$ 19.14 billion aggregating to 74 per cent growth
over last year
India's foreign exchange (Forex) reserves have increased by US$ 2 billion to US$ 320
billion for the week ended October 28, 2011, on account of revaluation of foreign
currency assets, according to the weekly statistical bulletin released by the Reserve
Bank of India (RBI)

The Government has approved fund raising worth Rs 60,950 crore (US$ 11.61billion)
by companies through external commercial borrowings (ECB) or foreign currency
convertible bonds (FCCB) for infrastructure projects in the financial years 20092011
India's merchandise exports have registered an increase of nearly 82 per cent during
July 2011 from a year ago to touch US$ 29.3 billion, according to a release by the
Ministry of Commerce and Industry. Exports during AprilJuly 2011 reached US$
108.3 billion, up 54 per cent over the same period a year ago, according to Mr. Rahul
Khullar, Commerce Secretary. Exports in the referred period increased on back of
demand for engineering and petroleum products, gems and jewellery and readymade
garments
Private equity (PE) investments in India stood at US$ 6.14 billion in value terms,
while the number of deals increased by 33 per cent to 195, during JanuaryJune 2011,
according to data compiled by Chennaibased Venture Intelligence. The rise in the
value of the deals so far (June 2011) recorded a growth of 52 per cent, as compared to
US$ 4.04 billion raised last year
The Indian metals and minerals sector has received PE investments worth US$ 650
million in the first half of 2011, according to estimates by VC Edge. The metal
making industry has attracted PE players; in addition the mining assets are also a
major draw due to the sharp demand for ownership of raw materials
India currently holds the 12th position in Asia and 68th position in the overall list
world's most attractive tourist destinations, as per the Travel and Tourism
Competitiveness Report 2011 by the World Economic Forum (WEF). A study
conducted by global hospitality services firm, HVS, to measure marketing

effectiveness on Internet puts Karnataka Tourism's Web site in the sixth
position in India
The wind energy sector has attracted foreign direct investment (FDI) worth Rs 1,510
crore (US$ 287.62 million) over the past three years. In the renewable energy sector,
wind energy has emerged as the fastest growing category, according to Dr Farooq
Abdullah, Union Minister for New and Renewable Energy
Furthermore, the Indian Railways has generated Rs 37,392.88 crore (US$ 7.12 billion)
of revenue earnings from commoditywise freight traffic during AprilOctober 2011
as compared to Rs 34,337.11 crore (US$ 6.54 billion) during the corresponding period
last year, registering an increase of 8.90 per cent. Railways carried 536.92 million tons
(MT) of commoditywise freight traffic during AprilOctober 2011 as compared to
516.89 MT carried during the corresponding period last year, registering an increase
of 3.88 per cent.
Growth Potential Story:
India's exports grew by 36.3 per cent in September 2011, demonstrating impressive
growth. Exports stood at US$ 24.8 billion compared to US$ 18.2 billion in the same
period last year, while imports grew by 17.2 per cent to record US$ 34.5 billion.
Exports from special economic zones (SEZs) during AprilSeptember 2011 increased
by 26.2 per cent to Rs 176,479.69 crore (US$ 33.62 billion), as per a statement by the
Export Promotion Council for EOUs and SEZs (EPCES).
Andhra Pradesh (AP) with 75 notified special economic zones (SEZs), which is the
highest number of SEZs in any State in India, has attracted investment of
approximately Rs 15,000 crore (US$ 2.86 billion)
The JulySeptember 2011 quarter observed an increase in foreign institutional investor
(FII) stakes in major automakers as compared to the previous quarter of 2011
Information technology (IT) spending in India by enterprises will rise by 9.1 per cent
in 2012, according to a report by research firm Gartner. IT spending in India is
projected to touch US$ 79.8 billion in 2012 as compared to US$ 73.1 billion in 2011.
The telecommunications market is the largest IT segment in India with IT spending
forecast to reach US$ 54.7 billion in 2012, followed by the IT services market with
spending of US$ 11.1 billion. The computing hardware market in India is projected to
reach US$ 10.7 billion in 2012, while software spending will total to US$ 3.2 billion,
reported Gartner
The Government plans to set up an Rs 2,500 crore (US$ 476.19 million) development
fund for the auto component sector. The industry, which aims to almost triple its size
to US$ 115 billion by 2020, envisages annual capital investment of up to US$ 3 billion
India is the 9th or 10th largest car maker in the world, but given its very ambitious
production plans, in the next five to ten years it will jump to the third or fourth spot,
according to Diane H Gulyas, President, DuPont Performance

Polymers. The firm's Innovation Centre will focus on automobile trends working
towards making vehicles faster, lighter, safer and fuel efficient
The Rs 15,000 crore (US$ 2.86 billion) Indian forging industry is poised to grow over
20 per cent per year and see investments of about US$ 3 billion by 2015 for capacity
expansion, according to the Association of Indian Forging Industry.
A publicprivate partnership (PPP) fund worth Rs 5,000 crore (US$ 952.38 million) is
being set up to support research and development effortsespecially in the field of
vaccines, drugs and pharmaceuticals, supercomputing, solar energy and electronic
hardwareas well as commercialization of products and services, according to Mr.
Ashwani Kumar, Minister of State for Science & Technology.
In addition, the Indian banking sector is poised to become the world's third
largest in terms of assets over the next 14 years—with its asse ts poised to touch
US$ 28,500 billion by 2025—according to a report titled ‘Being fivestar
in
productivity — Roadmap for excellence in Indian banking', prepared for t
he
Indian Banks' Association (IBA) by The Boston Consultancy Group (BCG), IBA and
an industry body.
Investment in logistics sector in India is projected to grow annually at 10 per cent.
India's logistics market achieved revenues of US$ 82.1 billion in 2010 and is expected
to reach revenue worth US$ 90 billion in 2011. The logistics industry forecasts to
generate revenues worth US$ 200 billion by 2020, as per Eredene Capital PLC's 2010
11 annual report.
India's engineering research and development (ER&D) providers is estimated to
capture about 40 per cent share of global offshore revenues in 11 key verticals by
2020, according to a new report titled 'The Futures Report 2011', by Global Futures
and Foresight (GFF).
India's power sector will generate revenue of Rs 1,300,000 crore (US$ 247.62 billion)
during the Twelfth Five Year Plan (201217), as per Mr. P Uma Shankar, Secretary,
Ministry of Power. The plan is to generate 17,000 MW power during the referred
period
The food processing industry is set to triple to reach US$ 900 billion by 2020,
provided the key issues are addressed, as per a study by Boston Consulting Group
(BCG) and an industry body.
The National Agricultural Innovation Programme (NAIP) will spend Rs 500 crore
(US$ 95.24 million) more in the next two years on different projects to add value to
agriculture and allied sectors. This programme aims at developing technologybased
innovations to improve the income of farmers and those living on allied sectors.
Gaining momentum from fashion trends, many Indian consumers now spend an
equivalent amount on footwear as on their apparels, as they associate variety of shoes
to different occasions. The footwear industry in India has almost doubled in the past
five years to an estimated Rs 20,000 crore (US$ 3.81 billion).
CHAPTER II
THEORETICAL FRAMEWORK

2.1 STOCK EXCHANGE:
Stock Exchange is an organized marketplace where securities are traded. These
securities are by the government, semigovernment Bodies, Public sector undertakings
and companies for borrowing funds and raising resources. Securities are defined as
monetary claims and include stock, shares, debentures, bonds etc. If these securities
are marketable as in the case of Government stock, they are transferable by
endorsement and are like movable property. Under the securities Contract Regulation
Act of 1956, securities trading are regulated by the Central Government and such
trading can take place only in Stock Exchange recognized by the Government under
this Act. At present there are 23 recognized stock Exchanges in India.
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago.
BOMBAY STOCK EXCHANGE:
Bombay Stock Exchange is the oldest stock exchange in Asian with a rich heritage,
now spanning three centuries in its 133 years of existence. What is now popularly
known as BSE was established as “The Native Share & St ock Brokers’ Association”
in 1875. BSE is the first stock exchange in the country which obtained permanent
recognition (in 1956) from the government of India under the Securities Countracts
(Regulation) Act 1956. BSE’s pivotal and preeminent role in the development of the
Indian capital market is widely recognized. It migrated from the open outcry system to
an online screen based order driven trading system in 1955. Earlier an Association Of
Persons (AOP), BSE is now a corporatized and demutualised entity incorporated
under the provisions of the companies Act, 1956, pursuant to the BSE
(Corporatization and Demutualization) Scheme, 2005 notified by the Securities and
Exchange Board of India (SEBI). With demutualization, BSE has two of world’s best
exchanges, Deutsche Borse and Singapore Exchange, as its strategic partners. Over
the past 133 years, BSE has facilitated the growth of the

Indian corporate sector by providing it with an efficient access to resources. There is
perhaps no major corporate in India which has not sourced BSE’s services in raising
resources from the capital market.
Today, BSE is the world’s number 1 exchange in terms of the number of listed
th
companies and the world’s 5 in transaction numbers. The market capitalization as
on December 31, 2007 stood at USD 1.79 trillion. An inventor can choose from more
than 4700 listed companies, which for easy reference, are classified into A, B, S, T
and Z groups.The BSE Index, SENSEX, is Indian’s first stock market index that
enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stocks
representing 12 malor sectors. The SENSEX is constructed on a ‘freefloat’
methodology, and is sensitive to market sentiments and market realities. Apart from
the SENSEX, BSE offers 21 indices, including 12 sectoral indicates. BSE has entered
into an index cooperation agreement with Deutsche Borse. This agreement has made
SENSEEX and other BSE indices available to investors in Europe and America.
Moreover, Barclays Global Investors (BGI), the global leader in ETF’S through its
Trader which tracks the SENSEX. The ETF enables investors in Hong Kong to take
an exposure to the Indian equity market. BSE provides an efficient and transparent
market for trading in equity, debt instruments and derivatives. It has a nation wide
reach with a pressure in more than 450 cities and towns of India. BSE has always been
at par with the international standards. The systems and processes are designed to
safeguard market integrity and enhance transparency in operations.BSE is the first
exchange in India and the second is the world to obtain an ISO 9001:2000
certification. It is also the first exchange in India and the second in the world to
receive Information Security Management System Standard BS 779922002
certification for its BSE Online Trading System (BOLT).BSE continues to innovate.
In recent times, it has become the first national level stock exchange to launch its
website in Gujarati and Hindi to reach out to a large number of investors. It has
successfully launched a reporting platform for corporate bonds in India christened the
ICDM or Indian Corporate Dept Market and a unique ticker screen aptly named ‘BSE
Broadcast’ which enables information dissemination to the common man on the street.
In 2006, BSE launched the Directors Database and ICERS (India Corporate Electronic

Reporting System) to facilitate information flow and increase transparency in Indian
capital market. While the Directors database provides a singlepoint access to
information in the boards of directors of listed companies, the ICERS facilities the
corporate in sharing with BSE their corporate announcements. BSE also has a wide
range of services to empower investors and facilitate smooth transactions:
Investors Services: The Department of Investor Services redresses grievances of
investors. BSE was the first exchange in the country to provide an amount of Rs.1
million towards the investor protection fund; it is an amount higher than that of any
exchange in the country. BSE launched a nationwide investor awareness
programme‘safe investing in the Stock Market’ under which 264vprogrammes were
hel d in more than 200 cities. The BSE Online Trading (BOLT): BSE Online
Trading (BOLT) facilitates online screen based trading in securities. BOLT is
currently operating in 25,000 Trader Workstations located across over 450 cities in
India.
BSEWEBX.com: In February 2001, BSE introduced the world’s first centralized
exchangebased Internet trading system, BSEWEBX.com. This initiative enables
investors anywhere in the world to trade on the BSE platform.
Surveillance: BSE’s Online Surveillance System (BOSS) monitors on a realtime
basis the price movements, volume positions and members’ positions an realtime
measurement of default risk, market reconstruction and generation of cross market
alerts.
BSE Trading Institution: BTI imparts capital market trading and certification, in
collaboration with reputed management institutes and universities. It offers over 40
courses on various aspects of the capital market and financial sector. More than
20,000 people have attended the BTI programmes.

Companies in the Sensex
List of BSE Sensex companies provides the full list of companies that have been part
of the BSE Sensex since its inception in 1986 (base lined to 1979).
Code
Name
Sector
Adj.
Weight in
Factor
Index(%)
500410
ACC
Housing Related
0.55
0.77
500103
BHEL
Capital Goods
0.35
3.26
532454
Bharti Airtel
Telecom
0.35
3
532868
DLF Universal Limited
Housing related
0.25
1.02
500300
Grasim Industries
Diversified
0.75
1.5
500010
HDFC
Finance
0.90
5.21
500180
HDFC Bank
Finance
0.85
5.03
500182
Hero Honda Motors Ltd.
Transport Equipments
0.50
1.43
500440
Hindalco Industries Ltd.
Metal,Metal Products &
0.7
1.75
Mining
500696
Hindustan Lever
FMCG
0.50
2.08
Limited
532174
ICICI Bank
Finance
1.00
7.86
500209
Infosys
Information Technology
0.85
10.26
500875
ITC Limited
FMCG
0.70
4.99
532532
Jaiprakash Associates
Housing Related
0.55
1.25
500510
Larsen & Toubro
Capital Goods
0.90
6.85
500520
Mahindra & Mahindra
0.75
1.71
Limited
532500
Maruti Suzuki
0.50
1.71
532541
NIIT Technologies
0.15
2.03
532555
NTPC
Power
0.15
2.03
500304
NIIT
0.15
2.03
Laxmi Institute of Management,
Page 22
500312
ONGC
Oil & Gas
0.20
3.87
532712
Reliance
Telecom
0.35
0.92
Communications
500325
Reliance Industries
Oil & Gas
0.50
12.94
500390
Reliance Infrastructure
Power
0.65
1.19
500112
State Bank of India
Finance
0.45
4.57
500900
Sterlite Industries
Metal, Metal Products,
0.45
2.39
and Mining
524715
Sun Pharmaceutical
Healthcare
0.40
1.03
Industries
532540
Tata Consultancy
0.25
3.61
Services
500570
Tata Motors
0.55
1.66
500400
Tata Power
Power
0.70
1.63
500470
Tata Steel
Metal, Metal Products &
0.70
2.88
Mining
507685
Wipro
0.20
1.61
TABLE NO 4.1
DLF replaced Dr. Reddy's Lab on November 19, 2007.
Jaiprakash Associates Ltd replaced Bajaj Auto Ltd on March 14, 2008.
Sterlite Industries replaced Ambuja Cements on July 28, 2008.
Tata Power Company replaced Cipla Ltd. on July 28, 2008.
Sun Pharmaceutical Industries replaced Satyam Computer Services on January 8, 2009
Hero Honda Motors Ltd. replaced Ranbaxy on June 29, 2009
Cipla to replace Sun Pharma from May 3, 2010
Grasim replaced JSPL in 2010

13. SECTORS OF BSE
HC (health care)
REALITY
AUTO
METAL
IT
CG (capital goods)
ONG (oil and gas)
POWER
PSU
CD (consumer durables)
BANK
TECH
FMCG
NAME OF BSE 30 COMPANIES
ACC, BHARTI AIRTEL, BHEL, DLF, GRASIM, HDFC, HDFC BANK, HINDALCO,
HUL, ICICI BANK, INFOSYS, ITC, JAIPRAKASH ASSOCIATES, L&T,
MAHINDRA & MAHINDRA, MARUTI SUZUKI, ONGC, NTPC, RANABAXY LAB,
RELIENCE, RELIENCE COMM, RELIENCE
INFRASTRUCTURE, SATYAM, SBI, STERLITE INDUSTRY, TATA MOTORS,
TATA POWER, TATA STEEL. TCS, WIPRO.
(AS ON FEB 15,2011)
NATIONAL STOCK EXCHANGE (NSE):
With the liberalization of the Indian economy, it was found inevitable to lift the Indian
stock market trading system on par with the international standards. On the basis of
the recommendations of highpowered Pherwani Committee, Industrial Development
Bank of India, Industrial Credit and Investment Corporation of India, Industrial
Finance Corporation of India, all Insurance Corporations, selected commercial banks
and others incorporated the National Stock Exchange in 1992.
Trading at NSE can be classified under two broad categories:
Wholesale debt market and
Capital market.
There are two kinds of players in NSE:
Trading members and
Participants.
Trading at NSE takes place through a fully automated screenbased trading
mechanism, which adopts the principle of an orderdriven market. Trading members
can stay at their offices and execute the trading, since they are linked through a
communication network. The prices at which the buyer and seller are willing to
transact will appear on the screen. When the prices match the transaction will be
completed and a confirmation slip will be printed at the office of the trading member.
NSE has several advantages over the traditional trading exchanges. They are as
follows:
NSE brings an integrated stock market trading network across the nation.
Investors can trade at the same price from anywhere in the country since intermarket
operations are streamlined coupled with the countrywide access to the securities.
Delays in communication, late payments and the malpractice's prevailing in the
traditional trading mechanism can be done away with greater operational efficiency
and informational transparency in the stock market operations, with the support of
total computerized network.

List of Top 50 Companies of NSE
(National Stock Exchange)
RELIANCE INDUSTRIES LTD, OIL AND NATURAL GAS CORPORATION LTD,
BHARTI AIRTEL LIMITED, NTPC LTD, RELIANCE COMMUNICATIONS LTD.,
ICICI BANK LTD,
INFOSYS TECHNOLOGIES LTD, TATA CONSULTANCY SERVICES LTD,
BHEL, STATE BANK OF INDIA,
STEEL AUTHORITY OF INDIA, LARSEN & TOUBRO LTD., HERO HONDA
MOTORS LTD, ZEE ENTERTAINMENT LTD, INDIAN PETROCHEMICALS
CORPORATION LTD., CIPLA LTD, BHARAT PETROLEUM CORPORATION
LTD.,VIDESH SANCHAR NIGAM LTD, DR. REDDY'S LABORATORIES,
MAHANAGAR TELEPHONE NIGAM LTD, GLAXOSMITHKLINE PHARMA
LTD.,ABB LTD. POWER GRID CORPORATION OF INDIA, RELIANCE
ENERGY LTD, SIEMENS LTD, ACC LIMITED, AMBUJA CEMENTS LTD,
HCL TECHNOLOGIES LTD, HINDALCO INDUSTRIES LTD,
NATIONAL ALUMINIUM CO LTD, SUN PHARMACEUTICALS IND.,
MAHINDRA & MAHINDRA LTD, TATA POWER CO LTD, PUNJAB
NATIONAL BANK, RANBAXY LABS LTD, ITC LTD, RELIANCE PETROLEUM
LTD., HDFC LTD, WIPRO LTD, STERLITE INDUSTRIES LTD.,
HDFC BANK LTD, TATA STEEL LIMITED, HINDUSTAN UNILEVER LTD.,
SUZLON ENERGY LIMITED, GAIL (INDIA) LTD, GRASIM INDUSTRIES LTD,
TATA MOTORS LIMITED, MARUTI UDYOG LIMITED
(AS ON FEB 15,2011)

INTERNATIONAL STOCK EXCHANGES
(TABLE NO 4.2)
Rank
Economy
Stock Exchange
Market
Trade
Capitalization
Value
(USD Billions)
(USD
Billions)
United States
New York Stock
13041
1439
Exchange
United States
NASDAQ
3649
954
Japan
Tokyo Stock
3542
311
Exchange
United
London Stock
3354
229
Kingdom
Exchange
Hong Kong
Hong Kong Stock
2696
179
Exchange
6
Europe
Euronext
2695
165
China
Shanghai Stock
2681
686
Exchange
Canada
Toronto Stock
2002
134
Exchange
India
Bombay Stock
1540
231
Exchange
10
India
National Stock
1503
791
Exchange of India
11
Brazil
BM&F Bovespa
1447
704
12
Germany
Deutsche Börse
1320
123
13
Australia
Australian
1309
101
Securities Exchange
14
China
Shenzhen Stock
1284
548
Exchange
15
Switzerland
SIX Swiss
1122
674
Exchange
16
Spain
BME Spanish
1077
149
Exchanges
Americas
21244
2617
Asia Pacific
18287
2262
Europe Africa Middle
13975
954
East
Total
51752
5833

2.2 INTRODUCTION TO FII
International portfolio flows, as are commonly known as Foreign Institutional
Investment (FII) flows, refer to capital flows made by individual and institutional
investors across national borders with a view to creating an internationally diversified
portfolio.
‘FII’ include “Overseas pension funds, mutual funds, investment trust, as set
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 investments on behalf of a broadbased fund.
Foreign institutional investor means an entity established or incorporated outside India
which proposes to make investment in India. Positive tidings about the Indian
economy combined with a fastgrowing market have made India an attractive
destination for foreign institutional investors.
Unlike Foreign Direct Investment (FDI) flows which refer to that category of
international investment aimed at obtaining a lasting interest by a resident entity in
one economy in an enterprise resident in another economy by way of exercising
significant control over its management, FII flows are not directed at acquiring
management control over foreign companies. FII flows were almost nonexistent until
1980s. Global capital flows were primarily characterized by syndicated bank loans in
1970s followed by FDI flows in 1980s.
But a strong trend towards globalization leading to widespread liberalization and
implementation of financial market reforms in many countries of the world had
actually set the pace for FII flows during 1990s.

According to Bekaert and Harvey (2000), FII investment as a proportion of a
developing country's GDP increases substantially with liberalization as such
integration of domestic financial markets with the global markets permits free flow of
capital from 'capitalrich' to 'capitalscarce' countriesin pursuit of higher rate of return
and increased productivity and efficiency of capital at global level.
Diversifying internationally i.e., holding a welldiversified portfolio of securities from
around the world in proportion to market capitalizations, irrespective of the investor's
country of residence, has long been advocated as the means to reduce overall portfolio
risk and maximize riskadjusted returns by the classical capital asset pricing model
(CAPM). But a persistent 'home bias' (i.e., the tendency to hold a greater proportion of
stocks from the home country visavis the foreign country) was noticed in the
portfolios of investors in capitalrich industrialized countries in early 1990s.
With more and more emerging market economies (EMEs) 1 deregulating their
financial markets by eliminating foreign exchange controls, reducing taxes imposed on
foreign investors, relaxing the restrictions on the purchase / sale of securities by
foreign investors in domestic markets etc., such 'home bias' has decreased over the
years. Today, EMEs, by virtue of their lower correlations in stock market returns with
the developed markets, offer greater scope to investors in developed countries to
reduce their overall portfolio risk and effectively enhance the portfolio performance
and hence have become the most preferred destinations for FII flows.
Several research studies on FII flows to EMEs over the world have highlighted that
financial market infrastructure such as the market size, market liquidity, trading costs,
extent of information dissemination etc., legal mechanisms relating to property rights
etc., harmonization of corporate governance, accounting, listing and other rules with
those followed in developed markets, and strengthening of securities markets'
enforcement are important determinants of foreign portfolio investments into emerging
markets. Of late, the Securities and Exchange Board of India (SEBI) and Reserve
Bank of India (RBI) have initiated a string of measures like allowing overseas

pension funds, mutual funds, investment trusts, asset management companies, banks,
institutional portfolio managers, university funds, endowments, foundations or
charitable trusts etc. but banning nonresident Indians (NRIs) and overseas corporate
bodies (OCBs) from trading as foreign portfolio investors, raising the caps for FII
from 24% to 49% of a nonbank company's issued capital subject to sectoral caps /
statutory ceiling as applicable, enhancing the individual investment limit from 5% to
10% of issued capital, permitting foreign investors to trade in Government securities
and derivatives, easing the norms for FII registration, reducing procedural delays,
lowering fees, mandating stricter disclosure norms, improved regulatory standards etc.
with a view to improving the scope, coverage and quality of FII flows into India. As a
result, India, also supported by her strong economic fundamentals, has become one of
the attractive destinations for FII flows in the emerging market space today. The
expansionary effect of various reform measures on FII flows over the years can be
gauged from the fact that net (i.e., gross purchases minus gross sales) FII flows into
India have risen sharply from Rs. 5126 crore in 19931994 2 to Rs. 46,215 crore in
20042005, with the number of foreign institutional investors being registered with
SEBI increasing from 3 in 19931994 to 685 in 20042005 (Source : SEBI website).
This increasing dominance of foreign investors in Indian market has necessitated
research on the implications of FII flows for the Indian stock market time and again.
Although FII flows help supplement the domestic savings and augment domestic
investments without increasing the foreign debt of the recipient countries, correct
current account deficits in the external balance of payments' position, reduce the
required rate of return for equity, and enhance stock prices of the host countries, yet
there are worries about the vulnerability of recipient countries' capital markets to such
flows. FII flows, often referred to as 'hot money' (i.e., shortterm and overly
speculative), are extremely volatile in character compared to other forms of capital
flows.

Foreign portfolio investors are regarded as 'fairweather friends' who come in when
there is money to be made and leave at the first sign of impending trouble in the host
country thereby destabilizing the domestic economy of the recipient country. Often,
they have been blamed for exacerbating small economic problems in the host nation
by making large and concerted withdrawals at the slightest hint of economic
weakness. It is also alleged that as they make frequent marginal adjustments to their
portfolios on the basis of a change in their perceptions of a country's solvency rather
than variations in underlying asset value, they tend to spread crisis even to countries
with strong fundamentals thereby causing 'contagion' in international financial markets
(FitzGerald,1999).
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 NonResident 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
In 2004, FII investments crossed $9 billion, the highest in the history of Indian capital
markets.
The total net investment for the year up to December 29 stood at US$9,072 million
while foreign investors pumped in about US$2,113 million in December.
Korea and Taiwan have always been the biggest recipients of FII money. It was only
in 2004 that India managed to receive the second highest FII inflow at over $8.5bn.

In 2005 FIIs invested more in Indian equities than in Korean or Taiwanese equities .
On 9th March 2009, India's exceptional growth story and its booming economy have
made the country a favourite destination with foreign institutional investors (FIIs). It
has continued to attract investment despite the Satyam nongovernance issue and the
global economic contagion impact on Indian markets.
They are also the most successful portfolio investors in India with 102 per cent
Appreciation since September 30, 2003.
• As per SEBI, number of registered FIIs stood at 1626 and number of r egistered sub
accounts stood at 4972 as on March 17, 2009
Prohibitions on Investments:
Foreign Institutional Investors 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:
Business of chit fund
Nidhi Company
Agricultural or plantation activities
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).
Trading in Transferable Development Rights (TDRs).
FUTURE PROSPECTS OF FOREIGN INSTITUTIONAL INVESTMENTS:
Sustaining the growth momentum and achieving an annual average growth of 910 %
in the next five years.
Simplifying procedures and relaxing entry barriers for business activities and
Providing investor friendly laws and tax system.
Checking the growth of population; India is the second highest populated country in
the world after China. However in terms of density India exceeds China, as India's
land area is almost half of China's total land. Due to a high population growth, GNI
per capita remains very poor. It was only $ 2880 in 2003 (World Bank figures).
Boosting agricultural growth through diversification and development of agro
processing.
Expanding industry fast, by at least 10% per year to integrate not only the surplus
labour in agriculture but also the unprecedented number of women and teenagers
joining the labour force every year.
Developing worldclass infrastructure for sustaining growth in all the sectors
· Allowing foreign investment in more areas.
Effecting fiscal consolidation and eliminating the revenue deficit through revenue
enhancement and expenditure management.
Market Outcome in the previous years
Foreign Portfolio investments in India come in the form of investments in American
Depository Receipts (ADRs)/ Global Depository Receipts (GDRs), Foreign
Institutional Investments and investments in Offshore funds.
However, FIIs constitute a major proportion of such portfolio. The share of FIIs in
total portfolio flows was as high as 95.97% in 200304 and 93.25% in 200405. It
declined to 46% in 200607. This decline in FII investment in 200607 can be

attributed 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.
The share of FII investment in total portfolio investment for 200708 is provisionally
estimated to be 69.15%. The large FII inflows (net) in 200708 at USD 16 billion as
against USD 6.7 billion in 200607 reflects increased participation of FIIs in the
primary market as corporates raised large resources through 85 initial public offerings
(IPOs) and 7 followon public offers (FPOs) aggregating to Rs 545,110 million. (US $
13,638 million).
Looking at monthly trend in FII investments during 200708 it can be seen that net FII
investment has been positive during most of the months. The months of August 2007,
November 2007, January, 2008 and March, 2008 saw net outflows of FII investment,
with the largest pull out of US $ 2727 mn in January, 2008.
During 200809, till June 2008, FIIs have been net sellers to the tune of US $ 4,189
million. This can be attributed to the generally weak sentiments of investors following
the global credit crisis which has engulfed the developed countries and is seen to be
affecting the developing countries as well.

CHAPTER III
PRIMARY STUDY

INTRODUCTION OF THE STUDY
“ FII’s influence on the Sensex over the period 20002010 ” is a study of the
influence of FOREIGN INSTITUTIONAL INVESTERS whose activities play a vital
role in the ups and downs of the share market. The study is conducted on the Indian
stock exchange market ( BSE SENSEX) .
There are conflicting theories on the issue of whether FII flows affect or are affected
by domestic stock market returns. So, the present empirical study has been undertaken
to throw some light on the direction of causality between FII flows and Indian stock
market returns using data on both the variables from over the period 2002
2012.International portfolio flows, as are commonly known as Foreign Institutional
portfolio. Unlike Foreign Direct Investment (FDI) flows which refer to that category
of international investment aimed at obtaining a lasting interest by a resident entity in
1980s.
With more and more emerging market economies (EMEs), deregulating their financial
markets by eliminating foreign exchange controls, reducing taxes imposed on foreign
investors, relaxing the restrictions on the purchase / sale of securities by foreign
investors in domestic markets etc. they are increasing in number. Foreign Institutional
Investment (FII) flows, i.e., capital flows across national borders, to emerging market
economies (EMEs) have risen sharply over the past one and half decade due to
globalization and India is no exception in this regard. However, there is a lot of
apprehension regarding the volatile nature of such flows thereby raising questions
about the need to encourage FII flows in a narrow and shallow stock market like that
of India.

LITERATURE REVIEW
Purendra Verma (2002) has investigated the impact of FII on Capital Market to find
the relation between FII and Stock indices. For this he has taken seven indices into
consideration, out of them five are Consumer Durables, Capital Goods, Fast Moving
Consumer Goods, Health Care, Information Technology and the other two are Sensex
and Nifty. He observed these indices during January 1993 to September 2001. If BSE
& Nifty increase with rise in FII investment, He has taken hypothesis for this study.
To find out the results he used least square method. Finally, after completing his study
he concluded that except IT sector on all other indices the impact is very low during
January 1993 to September 2001 as the correlation is negative in Consumer Durables,
Capital Goods, Fast Moving Consumer Goods, Health Care, Sensex and Nifty.
Paramita Mukherjee, Suchismita Bose and Dipankar Coondoo (2002) carried out
research on the topic Foreign Institutional Investment in The Indian Equity Market an
Analysis of daily flows during Jan 1999 May 2002. The paper was conducted to
understand the relationship of foreign institutional investment (FII) flows to the Indian
equity market. FII flows to and from the Indian market tend to be caused by return in
the domestic equity market and not the other way round. Returns in the equity market
are very important to influence the flows of FIIs in the country. They concluded that
in India the prime focus should be on regaining investor’s confidence in the equity
market so as to strengthen the domestic investor’s base of the market.
S.S.S. Kumar (2005) of IIMKozhikode carried out research on the Role of
Institutional Investors in Indian Stock Market during 1992 2005. The paper was
conducted to examining whether the institutional investors, with their war chests of
money, set the direction to the market. He concluded with the use of Regression
analysis that the combined force of the FIIs and MF are a powerful force and in fact
their direction can forecast market direction. It gives it
constantly rise in Indian context since all their trades are delivery based and Market
become more efficient with the growing presence of institutional investors who
primarily go by fundamentals.

Anand Bansal and J.S. Pasricha (2009) in the paper titled Foreign Institutional
Investor’s Impact on Stock Prices in India for the purpose of analyzing Impact of FIIs
entry and the stock market behavior. Average return before and after the event day has
been calculated for different sub sample days, the change of volatility in the Indian
stock prices has been examined by comparing the variance of the returns of sub
sample days before and after the event day. They concluded that return declined
reasonably after the entry of FIIs, the correlation between FIIs investments and market
volatility and market return has been comparatively low. It means volatility in Indian
market is not the function of FIIs investment flows.
TIMS Batch 200810, Leena Kanjani, Sulabh Mehta, Anita Pariyani, Amin Pattani,
Mehul Rakholiya & Krishna Vyas conducted a research study on FII in India, they
analyzed the monthly movement of stock market from 2006 to 2009. The paper was
conducted to understand influence of FII on movement of Indian Stock market and to
understand the FII policy in India.They used Correlation and Hypothesis test
methodology and concluded that FII did have significant impact on Sensex but there is
less corelation with Benkex and IT.
Sandhya Ananthanarayanan from CRISIL, Chandrasekhar Krishnamurti from
Department of Finance and Nilanjan Sen from Nanyang Technological University
conducted this research of Foreign Institutional Investors and Security Returns:
Evidence from Indian Stock Exchanges for understanding the impact of trading of
Foreign Institutional Investors on the major stock indices of India. Their contribution
to this growing literature pertaining to globalization is twofold. First, they separate the
flows into expected and unexpected and found that unexpected flows have a greater
impact than expected flows. Second, they identify the specific flows of foreign
institutional investors flowing into (or out of) each exchange and examine the impact
on the specific stock market indices. Their principal conclusions are as follows. They
found strong evidence consistent with the basebroadening hypothesis consistent with
prior work. They do not found compelling confirmation regarding momentum or

contrarian strategies being employed by foreign institutional investors. Their findings
supported the price pressure hypothesis. They do not found any substantiation to the
claim that foreigners’ destabilize the market.
BACKGROUND OF THE STUDY
“FII’s influence on the Sensex over the period 20002010” is a study of the influence
of FOREIGN INSTITUTIONAL INVESTERS whose activities play a vital role in the
ups and downs of the share market. The study is conducted on the Indian stock
exchange market (BSE SENSEX) .
There are conflicting theories on the issue of whether FII flows affect or are affected
by domestic stock market returns. So, the present empirical study has been undertaken
to throw some light on the direction of causality between FII flows and Indian stock
market returns using data on both the variables from over the period 2000 2010.
International portfolio flows, as are commonly known as Foreign Institutional
portfolio. Unlike Foreign Direct Investment (FDI) flows which refer to that category
of international investment aimed at obtaining a lasting interest by a resident entity in
1980s.
With more and more emerging market economies (EMEs), deregulating their financial
markets by eliminating foreign exchange controls, reducing taxes imposed on foreign
investors, relaxing the restrictions on the purchase / sale of securities by foreign
investors in domestic markets etc. they are increasing in number.

Foreign Institutional Investment (FII) flows, i.e., capital flows across national borders,
to emerging market economies (EMEs) have risen sharply over the past one and half
decade due to globalization and India is no exception in this regard. However, there is
a lot of apprehension regarding the volatile nature of such flows thereby raising
questions about the need to encourage FII flows in a narrow and shallow stock market
like that of India.
INDUSTRY PROFILE
BROKERAGE INDUSTRY
The Indian retail brokerage industry consists of companies that primarily act as agents
for the buying and selling of securities (e.g. stocks, shares, and similar financial
instruments) on a commission or transaction fee basis. It has two main interdependent
segments: Primary market and the Secondary market. Now this market is extended to
fields like currency, commodity, mutual fund, insurance etc...
The Indian equity brokerage industry thrived on the back of equity markets' sustained
bull run during 200307. Although high competitive pressure meant continuous
compression of brokerage commissions and low electronic penetration kept operating
costs high, industry revenue was growing. Furthermore, the industry attracted
domestic and foreign investment interest at high valuations of upto 45x P/E multiples.
During this time, many of the key players started expanding their portfolio of services
to include wealth management and advisory services, sale of insurance and mutual
fund products, consumer financing and so on.
However, post2008, the economic downturn muted trading turnover, relentless
competitive pressure and decreasing margins, continued high operating costs and high
margining requirements has put the industry under pressure. Profitability is muted
and the major players are under pressure to build scale. Expansion of scale and
investments into technological systems has the potential to lead the top brokerage
firms into paths of higher growth, but the current economic climate is clearly against
heavy investments.
The basic function of a brokerage firm is to execute buy and sell orders for clients.
Traditionally these firms have offered the investigation of the quality and the
possibilities of investing in a variety of investment products. It is still accustomed for
brokerage firms to offer information about possible investments free of charge. This
activity of bringing free of charge stock investment reports is one of the main tools
that are utilized by brokerage houses to compete against other firms and to investors it
continues to be an important service

The History of Stock Brokerage Firms
Stock brokerage firms have been an established feature in the financial industry for
nearly one thousand years. Dealing in debt securities, brokers employ a variety of
systems to aid investors with the purchase and sales of stocks and bonds in a variety
of markets. The firms have changed over the years, growing to massive organizations
that can affect the entire financial sector positively or negatively with their
performance. Changing with the times, the early twentyfirst century saw a rise of
online trading that enabled the average investor to take part in the stock market for the
first time.
1. History
During the 11th century, the French began regulating and trading agricultural debts on
behalf of the banking community, creating the first brokerage system. In the 1300s,
houses began to be set up in major cities like Flanders and Amsterdam in which
commodity traders would hold meetings. Soon, Venetian brokers began to trade in
government securities, expanding the importance of the firms. In 1602, the Dutch East
India Company became the first publicly traded company in which shareholders could
own a portion of the business. The stocks improved the size of companies and became
the standard bearer for the modern financial system.
2. Significance
The earliest brokerage firms were established in London coffee houses, enabling
individuals to purchase stocks from a variety of organizations. They formally founded
the London Stock Exchange in 1801 and created regulations and memberships. The
system was copied by brokerage firms across the world, most notably on Chestnut
Street in Philadelphia. Soon, the US exchange was moved to New York City and
various firms like Morgan Stanley and Merrill Lynch were created to assist in the
brokering of stocks and securities. The firms limited themselves to researching and
trading stocks for investment groups and individuals.

3. Considerations
During the 1900s, stock brokerage firms began to move in a direction of market
makers. They adopted the policy of quoting both the buying and selling price of a
security. This allows a firm to make a profit from establishing the immediate sale and
purchase price to an investor. The conflict with brokerage firms setting prices creates
the concern that insider trading can result from the sharing of information. Regulators
have enforced a system called Chinese Walls to prevent communication between
different departments within the brokerage company. This has resulted in increased
profits and greater interconnection within the financial industry.
4. Effects
The creation of high valued brokerage firms like Goldman Sachs and Bear Sterns
created a system of consolidation. Working with hundreds of billions of dollars, the
larger firms began to merge and take over smaller firms in the last half of the 20th
century. Firms like Smith Barney were acquired by Citigroup and other investment
banks, creating massive financial institutions that valued, held, sold, insured and
invested in securities. This conglomeration of the financial sector created an
environment of volatility that caused a chain reaction when other firms like Bear
Sterns and Lehman Brothers filed for bankruptcy. Trillions of dollars of assets were
tied together in different companies and resulted in a large economic collapse in late
2008.
5. Features
A large share of the brokerage firms have moved to an online format. Smaller brokers
such as E*Trade, TD Ameritrade and Charles Schwab have taken control of most
individual investors accounts. The added convenience and personal attention paid to
the small investor has resulted in a large influx of activity. In addition, the fact that the
online resources offer uptotheminute pricing and immediate trades makes their
format appealing to the modern user. Discounted commissions have lessened the price
of trades, giving access to a wider swath of people and adding liquidity to the

market. The role of the stock brokerage firm is everchanging and proves to be a boon
for the future of the financial industry.
Full service v/s Discount brokerage houses
Full service brokerage firms continue to offer informative stock reports and a level of
service much higher than other brokerage houses. Discount brokerage houses only
dedicate themselves to execute orders for clients. Full service brokers are sellers
looking for purchasing and selling for clients and offering more customer service than
is available from discount brokers. It is many times possible that a client will not even
know who is taking care of the buy or sell order that they placed.
MARKET SIZE AND CHARACTERISTICS:
The Indian retail brokerage market is showing phenomenal growth. The total trading
volume of brokerage companies has increased from US$1239.1 billion in 2004 to
US$1492.1 billion in 2005, and is expected to reach US$6535.7 billion by 2015. Some
of the main characteristics of the brokerage industry include growth in ebroking;
growing derivatives market, decline in brokerage fees etc.
Today, as per NSDL statistics, we have only 2.4 million investors with demat
accounts in the country. Considering various investor combinations that are holding
accounts, we can presume the country has roughly 57.5 lakh active investors now.
This figure is unbelievably small compared to the potential number of investors,
which is anything between 200 million and 250 million. When we take into
consideration the way transaction risk and cost in the Indian capital market is coming
down, there will be a massive surge in the number of investors and also in volumes.
The only way to manage this kind of potential growth is to adopt stateoftheart
trading techniques.
The growth of Internetbased trading as a mass trading technique in the country is
unstoppable, going by the indicators available and the signals for the future. When it

ultimately gathers momentum, the biggest beneficiary will be the investor, who will
be able to trade with greater speed and transparency, and at lower costs...
Major players in Indian share broking industry are follows
ICICI Securities Ltd. (www.icicidirect.com)
Kotak Securities Ltd. (www.kotaksecurities.com)
Indiabulls Financial Services Limited (www.indiabulls.com) IL&FS investmart Limited
(www.investsmartindia.com)
SSKI Ltd. (www.sharekhan.com)
Motilal Oswal Securities (www.motilaloswal.com)
Fortis Securities (Religare) (www.fortissecurities.com) Karvy securities
(www.karvy.com)
Geojit BNP paribas (www.geojitbnpparibas.com) HDFC Securities (www.hdfcsec.com)
Hedge equities (www.hedgeequities.com) Jrg securities
India infoline (www.indiainfoline.com)
CHAPTER 4
RESEARCH METHODOLOGY

Objectives of the Study
To know the Indian stock exchange market BSE, NSE
To study the performance of Sensex over the period 200010
To know about FII
To study the effect of FII’s investment in BSE Sensex
To study the relationship between FII activity and Sensex To find the trend in FII’s
investment
Scope of the Study
To get in touch with the industrial and organizational environment.
To familiarize with the trends in the stock market(BSE) over the years
To familiarize with the importance of FII in Indian stock market
Methodology of the Study
The methodology of the study is through collecting the primary and secondary data.
Primary data refers to the data collected by the investigator directly through primary
sources. It includes;
Direct observation.
Interview (personal).

Secondary data refers to the data collected from;
Books
Journals
Websites
Company manuals etc.
Limitation of the study
Time
Analysis is conducted only on the basis of some factors therefore cent percent
accuracy is not possible.
Lack of reliability of Secondary data
CHAPTER V
DATA ANALYSIS AND INTERPRETATION

TYPES OF STUDY AND ANALYSIS CONDUCTED
THE PERFORMANCE OF SENSEX
By Sensex return
From 20022013
In 2012 ( monthly basis)
INFLUENCE OF FII ON SENSEX
By Sensex return V/S FII’s net inflow
From 20022012
In 2012 (monthly basis)
Number of FII’s registered and the Sensex returns
FII’S INFLOW V/S SENSEX RETURNS
Coefficient of Correlation method
Regression method
TRENDS IN THE FII’S INVESTMENT
Trend analysis
5.1 SENSEX PERFORMANCE OVER THE YEARS
Indices :SENSEX
Period : ( Year 1991 to Year 2013 )
Year
Open
High
Low
Close
1991
1,027.38
1,955.29
947.14
1,908.85
1992
1957.33
4,546.58
1945.48
2,615.37
1993
2,617.78
3,459.07
1980.06
3,346.06
1994
3,436.87
4,643.31
3405.88
3,926.90
1995
3,910.16
3,943.66
2891.45
3,110.49
1996
3,114.08
4,131.22
2,713.12
3,085.20
1997
3,096.65
4,605.41
3,096.65
3,658.98
1998
3,658.34
4,322.00
2,741.22
3,055.41
1999
3,064.95
5,150.99
3,042.25
5,005.82
2000
5,209.54
6,150.69
3,491.55
3,972.12
2001
3,990.65
4,462.11
2,594.87
3,262.33
2002
3,262.01
3,758.27
2,828.48
3,377.28
2003
3,383.85
5,920.76
2,904.44
5,838.96
2004
5,872.48
6,617.15
4,227.50
6,602.69
2005
6,626.49
9,442.98
6,069.33
9,397.93
2006
9,422.49
14,035.30
8,799.01
13,786.91
2007
13,827.77
20,498.11
12,316.10
20,286.99
2008
20,325.27
21,206.77
7,697.39
9,647.31
2009
9,720.55
17,530.94
8,047.17
17,464.81
2010
17,473.45
21,108.64
15,651.99
20,509.09
2011
20,621.61
20,664.80
15,135.86
15,454.92
2012
15,534.67
19,612.18
15,358.02
19,426.71
2013
19,513.45
20,443.62
18,144.22
19,704.33

CHART NO. 5.1
INTERPRETATION
The Bombay stock exchange (BSE SENSEX) which is one of the most important
secondary market in India ,has seen many ups and downs from its years of its starting
in 1991. The market opened at 1027.38 point and closed at 1908.85 with a high value
of 1955.29 and with a low value of 947.14 in the same year.
Since then, the values in the Sensex has increased and decreased. From the table, it
can be found that the Sensex crossed the four digit number in 2006 , and at 13786.91
from the previous year value of 9397.93 (2005)
The changes in the value of Sensex depends upon many factors, like ..
National and global issues
Legal and political issues
GDP growth rate of the nation
· Activities of the foreign investments Etc….

From the table it is found that in the year 2008 the Sensex closed at 9647.31 from the
previous year’s 20286.99. The reason for the huge fall in market was due to global
recession which not only caught Indian market but also the overall international
markets too
When the recession began to end in the world, the Sensex and other markets could see
increase in value. And at the end of 2010 the Sensex closed at 20509.09
FII’s INVESTMENT
TABLE OF FII’s NET INFLOW
Year
Gross Purchase
Gross
Net
(Cr)
Sale
Investment
(Cr)
(Cr)
2000
74791.5
68421.6
6370.08
2001
51761.2
38651
13128.2
2002
46479.1
42849.8
3629.6
2003
94412
63953.5
30459
2004
185672
146706.8
38965.8
2005
286021.4
238840.9
47181.9
2006
475624.9
439084.1
36540.2
2007
814877.9
743392
71486.3
2008
721607
774594.3
52987.4
2009
624239.7
540814.7
83424.2
2010
766283.2
633017.1
133266.8
2011
611055.6
613770.8
2714.2
2012
669184.4
540823.9
128360.7
2013 till
MAY
65796.04
50791.74
15004.46
Source : moneycontrol.com
TABLE NO 5.2

FII’s NET INFLOW
CHART NO. 5.2
FII NET INFLOW VS SENSEX RETURN
Year
Net INVESTMENT FLOW
Return %
2000
6370.08
2001
13128.2
106.0916032
2002
3629.6
72.35264545
2003
30459
739.1833811
2004
38965.8
27.92869103
2005
47181.9
21.08541336
2006
36540.2
22.5546237
2007
71486.3
95.63740757
2008
52987.4
174.1224542
2009
83424.2
257.4415805
2010
133266.8
59.74597299
2011
2714.2
102.0366663
2012
128360.7
4829.227765
2013 till
MAY
15004.46
88.31070569
TABLE NO 5.3

SENSEX RETURN (%) V/S FII NET INFLOW
INTERPRETATION
When comparing the Sensex returns and the FII net inflow from the years , it can be
found that the Sensex gain height returns in the year 2009 (81.03%) and the FII net
inflow at that year was 85367 Cr.
And the Sensex loss maximum point (46.522) when the net inflow was 53051 Cr in
the year 2008. Recession and many other global and national issues were key factors
for this change.
The negative sign show that in 2008 FII’s were not investing their money. They were
sellers.
*(The Sensex return is not only depend upon FII)*
ANALYSIS OF SENSEX RETURN TO FII’s INVESTMENT 2012
TABLE OF SENSEX RETURN 2012
Month
Close
Return %
Jan12
17,193.55
Feb12
17,752.68
3.251975
Mar12
17,404.20
1.96297
Apr12
17,318.81
0.49063
May12
16,218.53
6.35309
Jun12
17,429.98
7.469543
Jul12
17,236.18
1.11188
Aug12
17,429.56
1.121942
Sep12
18,762.74
7.64896
Oct12
18,505.38
1.37165
Nov12
19,339.90
4.509607
Dec12
19,426.71
0.448865
Jan13
19,894.98
2.410444
Feb13
18,861.54
5.19448
Mar13
18,835.77
0.13663
TABLE NO 5.4
The Sensex gain maximum return 11.670% during the month of September 2010. And
loss 3.49% in May by making the Sensex to close at 16944.63
CHART OF SENSEX RETURN 2012
CHART NO 5.4
FII NET INFLOW IN 2012
TABLE OF FII NET INFLOW 2012
Month
Gross Purchase(Cr)
Gross Sale(Cr)
Net Investment(Cr)
Jan
50,467.40
40,109.90
10,357.70
Feb
79,898.60
54,686.60
25,212.10
Mar
63,795.10
55,413.80
8,381.10
Apr
41,091.90
42,200.50
1,109.10
May
42,443.30
42,790.70
347.1
Jun
44,751.20
45,252.40
501.3
Jul
49,557.40
39,284.80
10,272.70
Aug
48,136.50
37,332.50
10,803.90
Sep
66,752.50
47,491.20
19,261.50
Oct
56,832.40
45,468.20
11,364.20
Nov
51,143.80
41,567.00
9,577.20
Dec
74,314.30
49,226.30
25,087.80
Source : moneycontrol.com
TABLE NO 5.5

CHART OF NET INFLOW 2012
CHART 5.5
SENSEX GAIN VS FII NET INFLOW 2012
TABLE NO 5.6
Month
Net Investment(Cr)
Return %
Feb12
25,212.10
3.251975
Mar12
8,381.10
1.96297
Apr12
1,109.10
0.49063
May12
347.1
6.35309
Jun12
501.3
7.469543
Jul12
10,272.70
1.11188
Aug12
10,803.90
1.121942
Sep12
19,261.50
7.64896
Oct12
11,364.20
1.37165
Nov12
9,577.20
4.509607
Dec12
25,087.80
0.448865

CHART NO 5.6
INTERPRETATION
From the given table, the Sensex gain maximum return 11.670% during the month of
September 2010 when the FII’s inflow was 29195 Cr.. And the Sensex loss 3.49% in
the month of May, where the FII net inflow was 8629.90.
That means the Sensex was changing according to the inflow and out flow of
investment during the months of 2010.
*(The Sensex return is not only depend upon FII)*

5.4 Calculation of correlation between FII investment and sensex movement
Analysis is done for finding the correlation between FII investment and the sensex
fluctuation during the period from 20002010. Net yearly FII investment is calculated
by subtracting the gross sell value from the gross purchase value in the particular year
by FII. And the fluctuation in sensex is calculated by subtracting previous years
closing point from the current year.
CALCULATION OF SENSEX FLUCTUATION
Years
CLOSE PRICE
FLUCTUATION
2000
3972.12
1033.70
2001
3262.33
709.79
2002
3377.28
114.95
2003
5838.96
2461.68
2004
6602.69
763.73
2005
9397.93
2795.24
2006
13786.91
4388.98
2007
20286.99
6500.08
2008
9647.31
10639.68
2009
17464.81
7817.50
2010
20509.09
3044.28
2011
15454.92
5054.17
2012
19426.71
3971.79
2013
20223.98
797.27
TABLE NO 5.7

Analysis
TABLE OF CORRELATION
BSE
Years
FLUCTUATION(X)
(Cr)(Y)
n(XY)
X^2
Y^2
2002
114.95
3629.6
4589447.72
13213.5025
13173996.16
2003
2461.68
30459
824783422.32
6059868.422
927750681
2004
763.73
38965.8
327352854.77
583283.5129
1518333570
2005
2795.24
47181.9
1450732075.72
7813366.658
2226131688
2006
4388.98
36540.2
1764116276.96
19263145.44
1335186216
2007
6500.08
71486.3
5111333357.94
42251040.01
5110291088
2008
10639.68
52987.4
6201458780.35
113202790.5
2807664559
2009
7817.50
83424.2
7173855518.50
61113306.25
6959597146
2010
3044.28
133266.8
4462715992.94
9267640.718
17760039982
2011
5054.17
2714.2
150898310.35
25544634.39
7366881.64
2012
3971.79
128360.7
5608039191.18
15775115.8
16476469304
∑
16164.38
517612.90
33079875228.76
300887405.21
55142005110.91
∑/n
1469.49
47055.72
3007261384.43
TABLE NO 5.8
ΣX= 16164.38Cr
Mean , ΣX/11 =1469.49 Cr
ΣY = 517612.90 Cr
Mean Σy/11 = 47055.72Cr

Coefficient of Correlation
Coefficient of Correlation =
r = 53596330224.069 / √32129925359.72
r= 0.17
INTERPRETATION
The Coefficient of Correlation analysis between FII’s net inflow and Sensex return
from 20022012 gives a correlation of 0.17 which is a low degree negative
correlation that means the Sensex movement is negatively corelated to the FII
investment during the period 2002 to 2012. Negative values indicate a relationship
between x and y such that as values for x increase, values for y decrease.
.
CORRELATION BETWEEN FII & BSE FLUCTUATIONS IN THE YEAR 2012
Net
FLUCTUATION
Month
Investment(Cr)
n(XY)
X^2
Y^2
(Y)
(X)
Jan
Feb
25,212.10
559.13
1,40,96,841.473
63,56,49,986.41
312626.3569
Mar
8,381.10
348.48
29,20,645.728
7,02,42,837.21
121438.3104
Apr
1,109.10
85.39
94,706.049
12,30,102.81
7291.4521
May
347.1
1,100.28
3,81,907.188
1,20,478.41
1210616.078
Jun
501.3
1,211.45
6,07,299.885
2,51,301.69
1467611.103
Jul
10,272.70
193.80
19,90,849.260
10,55,28,365.29
37558.44
Aug
10,803.90
193.38
20,89,258.182
11,67,24,255.21
37395.8244
Sep
19,261.50
1,333.18
2,56,79,046.570
37,10,05,382.25
1777368.912
Oct
11,364.20
257.36
29,24,690.512
12,91,45,041.64
66234.1696
Nov
9,577.20
834.52
79,92,364.944
9,17,22,759.84
696423.6304
Dec
25,087.80
86.81
21,77,871.918
62,93,97,708.84
7535.9761
∑
1,18,003.00
2,233.16
4,40,68,510.94
2,15,10,18,219.60
57,42,100.25
TABLE NO 5.9
∑X = 118003.00
Mean = ∑X/11 = 10727.55
∑Y = 2233.16
Mean = ∑Y/11 = 203.01

COEFFICIENT OF CORRELATION
= 221234040.85/ √ (98673.67*7627.33)
5068770244.14 / 752616202.39
0.29
INTERPRETATION
It is a low degree positive correlation. It means that the Coefficient of Correlation
analysis between FII’s net inflow and Sensex return gives a correlation of 0.29 which
is a low degree positive correlation that means the Sensex movement is not much
related to the FII investment during the period 2012. Positive values indicate a
relationship between x and y variables such that as values for x increase, values for y
also increase. However the performance of Sensex is less dependent to Net FII Inflow
since it is indirectly proportional to the movement of FII’s Investment.
5.5 TREND ANALYSIS
TABLE OF TREND ANALYSIS
Years
Net Investment (Cr)
% Change
2000
6370.1
100
2001
13128
106.09
2002
3629.6
72.35
2003
30459
739.18
2004
38966
27.929
2005
47182
21.085
2006
36540
22.55
2007
71486
95.637
2008
52987
174.1
2009
83424
257.4
2010
133267
59.746
2011
2714
102
2012
128361
4829
2013 till MAY
15004
88.31
TABLE NO 5.10
Here the base year is 2000, in which FII net inflow was 6370.50 Cr. And it is assigned
as 100 point. The trend analysis is conducted by calculating percentage change in FII
net inflow in each year in relation to the base year

INTERPRETATION
From the analysis it is known that the net inflow of money by FII during the period
from 200108 is fluctuating in nature. The growing Indian economy and increasing
GDP growth rate has resulted in a positive trend towards FII investment, and from the
year 2010 it shows the negative growth.
FUTURE TREND ANALYSIS
TABLE OF TREND ANALYSIS
YEARS
NET FII INFLOW
2013
86338
2014
92770
2015
99202
2016
105634
2017
112065
2018
118497
2019
124929
2020
131360
TABLE NO 5.11
Based on calculation in Excel
CHART NO 5.7
INTERPRETATION
From the trend analysis (advanced) of FII net inflow to the Indian economy, it is
found that the trend is increasing in nature. That means the FII’s will increase their
inflow of money in future also.
CHAPTER VI
FINDINGS, CONCLUSION & SUGGESTIONS

6.1 FINDINGS
THE PERFORMANCE OF SENSEX
From the study it is found that the performance of Sensex is fluctuating. The Sensex
saw many ups and downs from its opening year 1991
FII’S INFLOW TO INDIAN MARKET
The study on the inflow of FII to the Indian equity market has shown that the inflow is
also fluctuating and it is increasing in recent years.
NUMBER OF REGISTERD FII’s V/S SENSEX RETURN
The study on increasing number of FII registered under by SEBI, shows that the value
of Sensex is not much related to the number of FII registered in recent years .Today
,there are 1747 FII registered in the country as against last year number of 1706 an
additional of 41. Year 2009 saw 112 FII getting registered. This means despite record
inflow, the number of registered FIIs had declined. This means that the investment
that the Indian market has received is majority through the FII registered earlier
RELATIONSHIP BETWEEN FII’S INVESTMENT AND SENSEX
RETURN
From the correlation study between sensex movement and FII inflow , found that the
fluctuations in sensex is not much related to the FII investment

FINDINGS FROM TREND ANALYSIS
From the trend analysis it is observed that the trend in FII inflow to the Indian
economy is positive in nature. However it is purely based on the assumption without
involving the economic and global crisis.
6.2 CONCLUSION
Foreign Institutional Investors, who invest their money in different countries in order
to get a good portfolio of investment. And India has been in the list of their portfolio
for many years. The increasing GDP growth rate and the overall development of India
in different sectors like industrial and agricultural field and others are the prime reason
for the increasing nature of FII’s inflow.
There is a positive as well as negative correlation between stock indices and FIIs but
FIIs didn’t have any significant impact on Indian Stock Market. Also the coefficient
of determination is less in all the case. It shows the absence of linear relation between
FII and stock index. This does not mean that there is no relation between them. One of
the reasons for absence of any linear relation can also be due to the sample data. The
data was taken on yearly basis.
Also FII is not the only factor affecting the stock indices. There are other major
factors that influence the bourses in the stock market. And from the FII’s analysis on
Sensex return, it can be concluded that FII do have any significant impact on the
Indian Stock Market but there are other factors like government policies, budgets,
bullion market, inflation, economical and political condition, etc. do also have an
impact on the Indian stock market.

6.3 SUGGESTIONS & RECOMMENDATIONS
After the analysis of the project study, following recommendations can be made:
From the analysis there could not find a good positive relationship between FII's and
sensex return (may be because of the data collected is on the yearly basis & Sensex
return is not only dependent upon FII's investment only). They are needed to be
encouraged to enter in Indian market. Because their absence result in huge change in
the market
Number of FII's get registered is decreasing in nature. It may be because of nature of
procedure. Simplifying procedures and relaxing entry barriers for business activities
and providing investor friendly laws and tax system for foreign investors helps them
to come and invest in India
Somewhere, a restriction related to the track record of Sub Accounts is also to be
made on the investors who withdraw money out of the Indian stock market .
Encourage industries to grow to make FIIs an attractive junction to invest.
BIBLIOGRAPHY
BOOKS
I.M Panday “ Financial Management” , Vikas Publishing house Private ltd, New
Delhi, 2009
Kothary CR “Reserch Methodology” New Age International Publishers, New Delhi
2006
Prasanna Chandra, ‘Financial Management’ , Tata McGraw – Hill publishing
company Ltd, New Delhi. 2001.
Uma Sekaran ,”Reserch Methodology For Business, John Wile And Sons,Inc
WEBSITES
www . bse.india..com
www . nse india. com
www. money control. com
www.hedgeequities.com
www.sebi.com

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