A PROJECT ON

An Empirical Investigation of FIIs Role in the Indian Equity Market :( A Firm Level Analysis)
FOR TRUSTLINE SECURITIES

SUMBITED BY: SAIKH MAHAMMAD HABIB ROLL NO: 17200910062 REG NO: 101720710058 2010-2012 FOR THE PARTIAL FULFILLMENT OF THE DEGREE MASTERS IN BUSINESS ADMINISTRATION FROM

GEORGE COLLEGE (DEPARTMENT OF MANAGEMENT STUDIES) UNDER WEST BENGAL UNIVERSITY OF TECHNOLOGY
CORPORATE GUIDE

FACULTY GUIDE: MR.SOUMYA SAHA ASSISTANT PROFFESOR

MR.DHIMAN DAS & MR.ASOK CHAUDHURI. (FINANCE)

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CONTENTS

CHAPTER 1. 2.

PARTICULARS EXECUTIVE SUMMARY INTRODUCTION

PAGE NO. 4 5-10

4. 5. 6.

COMPANY PROFILE OBJECTIVE OF THE STUDY RESEARCH METHODOLOGY CORRELATION REGGRESSION HYPOTHESIS FORMULATION DATA ANALYSIS & INTERPRETATION

11-15 16 17-21

7.

22-35

8.

CONCLUSION

36

9.

RECOMMENDATION

37

10.

LIMITATION & REFERENCE

38

ACKNOWLEDGEMENT

I sincerely and gratefully take the opportunity to express my gratitude to all of them who in some way or the other helped me to complete this project.

First I would like to acknowledge with deep gratitude the guidance, supervision and support of Mr.Dhiman Das (Technical analysis officer at Trustline securities Pvt. Ltd.) throughout the progress of this work and also for providing me an opportunity to undertake this project. Mr. Asok chaudhuri monitored my progress and arranged all facilities to make the task easier. I choose this moment to acknowledge his contribution gratefully. Our teacher Mr. Soumya Saha was always so involved in the entire process, shared his knowledge, and encouraged me to think. So I would also like to thank our respected professor Mr. Soumya Saha and our respected principal Dr. Debashish Bagchi towards completion of this Project.

Last but not the least there were so many people who shared valuable information that helped in the successful completion of the project.

Lastly, I would like to express my gratitude towards my Parents who financed this Study Paper and who have been a moral support to me.

(Saikh Mahammad Habib)

Executive Summary

As a management student it was required to undergo a Summer Internship Program in a company to have a hands on experience about the corporate world. As an aspirant Financial Management Graduate, I undertook a training program in Trustline securities pvt. Ltd... The project duration was of Eight Weeks and title of the project was An Empirical Investigation of FIIs Role in the Indian Equity Market :( A Firm Level Analysis). My entire project was designed to find out the impact of FII investment on individual firms stock return and find out whether the impact of FII investment on individual firms stock return varies with size of the firm. We have taken the day wise closing values of 7 companies 1)ACC LTD.(Large cap) 2) abb ltd.(Mid cap) 3) Ashok Leyland Ltd.( Mid cap) 4) Alstom Projects India Ltd.(Mid cap) 5) Arvind Ltd.(Small cap) 6) 3I INFOTECH LIMITED.(Small cap) 7) Amara Raja Batteries Ltd.(Small cap) we get that the degree of Correlation between the closing price returns & the Net Investment made by the Foreign Institutional Investors (FIIs) is suggesting that there is a certain degree of correlation between the two variables. The investment by the FIIs are stock specific and thus all stocks are not significantly affected by the FII investment. After through study and analysis there is no doubt that the investment made by the FIIs in equity, has a VERY significant impact on the Capital Market of our country.Through this project we see that Indian stock price increases with the increase in the investment made by the FIIs in equity.

INTRODUCTION
Foreign Institutional Investors means an institution established or incorporated outside India which proposes to make investment in India in securities. These are actually the outsiders in the financial markets of the particular company. Foreign institutional investment is a common term in the financial sector of India. Since 1990-91 Govt. of India introduced the liberalization and economic reforms to bring rapid economic growth in India so that it can take the advantage of globalization going on in the whole world. As a part of the economic reforms Govt. took several foreign investment policy under its New Industrial Policy. It encouraged foreign direct investment in India which can in turn help in technology transfer, augmentation of foreign exchange reserve and can also lead the country to its ultimate goal of globalization. At the same time Govt. of India also allowed foreign portfolio investment by different foreign institutional investors in Indian capital market. The decision was taken by the recommendation of Narashimham committee report of financial system. With all the suitable restriction imposed on foreign institutional investors, they were allowed to invest in all the securities traded on the primary and secondary market including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India, from September 14, 1992. While presenting the Budget for 199293, the then Finance Minister Dr. Manmohan Singh had announced a proposal to allow reputed foreign investors, such as Pension Funds etc., to invest in Indian capital market.

Market design in India for foreign institutional investors Entities eligible to invest under the FII route are as follows: As FII: Overseas pension funds mutual funds investment trust asset management company nominee company bank institutional portfolio manager university funds endowments foundations charitable trusts charitable societies

As Sub-accounts: The sub account is generally the underlying fund on whose behalf the FII invests. The following entities are eligible to be registered as sub-accounts partnership firms private company public company pension fund investment trust

individuals

As per the registration with SEBI, FII fall under the following two categories

Regular FIIs- those who are required to invest not less than 70 % of their investment in equity-related instruments and 30 % in non-equity instruments.

100 % debt-fund FIIs- those who are permitted to invest only in debt instruments.

Govt. also allowed some entities to be registered as FIIs. They are

asset management companies nominee companies incorporated/institutional portfolio managers or their power of attorney holders (providing discretionary and non-discretionary portfolio management services)

These institutions are basically in the business of managing funds and investing them on behalf of their funds/clients. Hence, the intention of the guidelines was to allow these categories of investors to invest funds in India on behalf of their clients. These clients later came to be known as sub-accounts. The strategy behind allowing these institutional investors in Indian capital market is to have a wide variety of investors who are eligible to purchase shares and convertible debentures issued by Indian companies under the Portfolio Investment Scheme. The process of globalization and liberalization has given the foreign portfolio managers a chance for better diversification of portfolio and to find a better risk return trade off.

Ever since the opening of the Indian equity markets to foreigners, FII investments have steadily grown from about Rs. 2600 crores in 1993 to over Rs.11,000 crores in the first half of 2001 and Rs. 3,335,923.68 crore in the second quarter of 2011.

Foreign investment inflow could also flow out with change in the perception of risk to investment in the home country. The change in perception may be influenced by less favorable investors expectations to future economic activity, changes in real interest rates or currency risk.Foreign Institutional Investors (FIIs) outflows have often been blamed for the collapse of stock markets and having a destabilizing effect on local stock prices. Graphical representation of trends of FIIs in India :

The picture can clearly show that how Indian capital market is dominated by FIIs. In each of the years FIIs has occupied the largest portion of foreign portfolio investment. It also shows the downfall of FIIs during the crisis period of 2008-09.

SEBI Registered FIIs in India The continuous increase in FIIs can also seen in the increased number of FIIs registered with SEBI. As of March 2011, there were 1707 FIIs registered with SEBI Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 FII at end of March 0 3 156 353 439 496 450 506 527 490 502 540 685 882

2006-07 2007-08 2008-09 2009-10 2010-11

997 1319 1626 1713 1707

The picture below shows how FIIs interest in India capital market has increased over the years

FII at end of March 1800 1600 1400 1200 1000 800 600 400 200 0

Number of FIIs Registered

FII at end of March

19 93 95 19 96 98 20 99 01 20 02 04 20 05 07 20 08 10 -1 1

19

92

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COMPANY PROFILE

Trustline made a humble beginning in 1989 as a proprietary stock broking company and recently got converted into a public limited company in the name of TRUSTLINE SECURITIES LIMITED. With the advent of newer exchanges coming into play in the financial market of India, TRUSTLINE GROUPS foray into the commodity, currency, depository was but natural. Today TRUSTLINE GROUP is into all major areas of financial services. MEMBER : NSE, BSE, MCX-SX, USE, NSDL, CDSL MEMBER : MCX, NCDEX & NMCEIL

Group Companies TRUSTLINE SECURITIES LIMITED TRUSTLINE COMMODITIES (P) LTD. TRUSTLINE FINVEST LTD. TRUSTLINE INSURANCE BROKERS (P) LTD. TRUSTLINE REAL ESTATES (P) LTD. TRUSTLINE ACADEMY THE INVESTMENT SCHOOL

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Network

TRUSTLINE GROUP has over 400 offices pan India and has presence in all major metros of India. The offices are manned by seasoned market experts who are continuously trained and upgraded. Offices are well connected through VSAT, Lease Lines, ISDNs, Internet and all other network facilities. Able IT professionals support the entire network from the head quarter at Noida, Uttar Pradesh on real time basis. The network has strong presence in various states with the help of associates, sub- brokers and business partners with a thrust towards semi urban and rural areas.

We have offices even in those places where proper banking facilities have still not reached.

Strengths 75 Branches all over India. 350 plus business partners across 160 cities, towns & villages in India. 80000 plus registered clients. 70000 sq. ft of office with modern infrastructure at Noida. 9000 plus investors trained through stock market related education. INR 30 crores plus net worth.

Products Stock broking services by providing both ON LINE and OFF LINE trading terminals to retail, corporates, institutional & NRI clients.

Commodity futures trading services by providing both ON LINE & OFF LINE trading terminals.

Structured Currency futures trading platform for export houses, traders, retail individuals and

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Banks.

Distribution of financial products by offering Mutual Funds, IPOs, FPOs at competitive rates.

Educational courses on subjects relating to stock and commodity markets, Future & Options, Technical analysis, banking & micro finance.

Structure, source & implement MIG and LIG Housing schemes for individuals. Investment Approach

At the core of our investment philosophy lies this strong belief that Investing in publiclytraded-equities is no different from buying or acquiring businesses. When we invest in a stock , it is viewed as buying a piece of business, not a piece of paper. We view ourselves as Business Analysts than as Market or Investment Analysts. As a result , our focus is on the economics of business , not on the priceaction or market-action. Our key objective is, first to protect the principal and then to grow it at an above-average Long-term rate of return. We strive to meet this objective thro our stead-fast commitment to the concept of Margin of Safety (MOS) in all our investment opportunities. Fundamentally, our approach to stock selection is bottom-up , stock specific from underresearched / under-discovered universe with huge emphasis on Intrinsic Value ( Free- Cash flow ), Return on Equity(ROE) and Margin of Safety. In summary, our broad strategy is to look for profitable businesses that have superior longterm economic characteristics ( durable competitive advantage) and are run by able and honest managements and available at attractive valuations with reasonable Margin of Safety.

Management Team N. ArunaGiri, Managing Director ( Chief Investment Officer) N. Ulaganathan, Director ( Domain Consultant)

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S.V. Kumar ( Research ) Vijaya Raghava ( Business Development )

Products & Services

Portfolio Management Services(PMS) Our PMS is a long-term focused wealth-creation product with longer-time horizon , typically over 3 years in the Indian equity markets. The scheme is based on a low portfolio turnover and a high "Margin of Safety" investment approach for long-term and sustainable wealth creation. Priority is given to capital preservation and all our investment decisions are driven by solid research and high Margin of Safety. It is a discretionary PMS product . More details on the product in the enclosed kit.

Intrinsic Series PMS Fund: Type of your portfolio scheme. Is it a discretionary or non-discretionary PMS Ours is a discretionary Portfolio Management. In discretionary scheme , the portfolio manager has the absolute discretion to make all the investment , reinvestment and other decisions relating to the management of the portfolio. We do not offer non-discretionary services ( where the portfolio manager consults the investor before making investment and reinvestment decisions).

How does one sign up for TrustLine PMS and what are the documentations required The sign-up procedure is simple. Once the investor makes up his mind to go ahead with the TrustLine proposition, TrustLine will send / handover following set of documents:

TrustLine Disclosure Document ( as per SEBI Compliance).

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TrustLine Docket containing Client Registration Form , DMAT Form and Portfolio Management Agreement. This docket is provided with a complete check list for documentation. Investor will fill the registration form with required supporting documents ( basically id and address proof ) and execute the agreement. Investor to send back the docket to TrustLine (alongwith the cheque/DP slips as the case may be) after keeping a photocopy for his records. DP slip is required in the case of investor transferring securities as his initial investment.

Trustline Securities Ltd. , offers the unique feature where our customers get to trade on NSE, BSE and Derivatives all on one screen. Trustline also provides facility to put orders over the phone through Relationship Managers. Walk-in Customer can always trade through our branch offices located all across India.

Products offerings for Trading: Trust Basic

It is the most comprehensive system for Internet trading. It enables users to get a browser based trading terminal that can be accessed by a unique ID and password. This facility is available to all our customers the moment they get registered with us.

o o o o

Trade Basic provides: Web trading front end Online streaming quotes provided on the Browser Online fund transfer And many more.

Trust Power Application based terminal for active traders with online fund transfer facility. It provides better speed, greater analytical features like graphs and customized formula in the market watch.

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OBJECTIVES

My objectives for the project are as follows:

1. To find out the impact of FII investment on individual firms stock return. 2. To find out whether the impact of FII investment on individual firms stock return varies with size of the firm.

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RESEARCH METHODOLOGY

DATA In this research paper only secondary data has been consulted. No primary data was required as no survey has not been done. The data of FII investment in individual firms has been collected from SEBI website and the data related to stock price has been collected from NSE website. Both FII and stock price data of individual firm has been collected from January, 2008 to December 2010.

. Methodology

Correlation Regression Hypothesis Testing

Correlation: Correlation is a measure of the statistical relationship between two comparable time series. For investors, these series may be two commodities, two stocks, a stock and an index or even a stock and a commodity. The relationship, which can be causal, complementary, parallel or reciprocal, is stated as the correlation coefficient and always reflects the simultaneous change in value of the pairs of numerical values over time. View the correlation coefficient, which lies between the range of -1.00 to +1.00, as a positive or negative probability that the members of a market pair relate to each other. A negative reading suggests that one member of the pair consistently moves up while the other moves down. Conversely a positive reading suggests there is a tendency for the pair of markets move together in the same direction. A correlation coefficient very close to 0.00 means the two markets have no correlation, indicating that their statistical relationship is completely random.

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Formulae,

Pearsons Correlation The most familiar measure of dependence between two quantities is the Pearson productmoment correlation coefficient, or "Pearson's correlation." It is obtained by dividing the covariance of the two variables by the product of their standard deviations. Karl Pearson developed the coefficient from a similar but slightly different idea by Francis Galton.

The population correlation coefficient X,Y between two random variables X and Y with expected values X and Y and standard deviations X and Y is defined as:

where E is the expected value operator, cov means covariance, and, corr a widely used alternative notation for Pearson's correlation.

The Pearson correlation is defined only if both of the standard deviations are finite and both of them are nonzero. It is a corollary of the CauchySchwarz inequality that the correlation cannot exceed 1 in absolute value. The correlation coefficient is symmetric: corr(X,Y) = corr(Y,X).

The Pearson correlation is +1 in the case of a perfect positive (increasing) linear relationship, 1 in the case of a perfect decreasing (negative) linear relationship , and some value between

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1 and 1 in all other cases, indicating the degree of linear dependence between the variables. As it approaches zero there is less of a relationship. The closer the coefficient is to either 1 or 1, the stronger the correlation between the variables.

If the variables are independent, Pearson's correlation coefficient is 0, but the converse is not true because the correlation coefficient detects only linear dependencies between two variables. For example, suppose the random variable X is symmetrically distributed about zero, and Y = X2. Then Y is completely determined by X, so that X and Y are perfectly dependent, but their correlation is zero; they are uncorrelated. However, in the special case when X and Y are jointly normal, uncorrelatedness is equivalent to independence.

If we have a series of n measurements of X and Y written as xi and yi where i = 1, 2, ..., n, then the sample correlation coefficient, can be used to estimate the population Pearson correlation r between X and Y. The sample correlation coefficient is written

Where x and y are the sample means of X and Y, sx and sy are the sample standard deviations of X and Y.

This can also be written as:

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Correlation of those 7 companies 2008-2010 1)ACC ltd.(Large cap) = 0.003815 2) abb ltd.(Mid cap) =0.006767 3) Ashok Leyland Ltd.( Mid cap) = 0.061316 4) Alstom Projects India Ltd.(Mid cap) =-0.10382 5) Arvind Ltd.(Small cap) =-0.02645 6) 3I INFOTECH LIMITED.(Small cap) =-0.00731 7) Amara Raja Batteries Ltd.(Small cap) =-0.04455

REGRESSION ANALYSIS

In statistics, linear regression refers to any approach to modeling the relationship between one or more variables denoted y and one or more variables denoted X, such that the model depends linearly on the unknown parameters to be estimated from the data. Such a model is called a "linear model." Most commonly, linear regression refers to a model in which the conditional mean of y given the value of X is an affine function of X. Less commonly, linear regression could refer to a model in which the median, or some other quintile of the conditional distribution of y given X is expressed as a linear function of X. Like all forms of regression analysis, linear regression focuses on the conditional probability distribution of y given X, rather than on the joint probability distribution of y and X, which is the domain of multivariate analysis.

Linear regression was the first type of regression analysis to be studied rigorously, and to be used extensively in practical applications. The reason for this is that models that depend linearly on their unknown parameters are easier to fit than models that are related nonlinearly to their parameters and the statistical properties of the resulting estimators are easier to determine.

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The Secondary source of data will be used because availability of primary data relating to the topic under study is subject to various restrictions, time and money constraints. Statistical tools like Correlation and Regression Analysis will be applied to analyze the data obtained to see whether there exist any impact of the FII Investment on the Sensex and the individual stock prices. About Top five to six stocks which have very high/low FII holding would be selected and their respective share prices for the past few years would be gathered from various secondary sources to compare and evaluate them. Each stock would be tested for FIIs effect on its individual price. Microsoft Excel 2007 and SPSS 11.5 for Windows are the softwares that will be used in the data analysis.

HYPOTHESIS I. Individual Stocks and Foreign Institutional Investors (FIIs):

H0: Investment made by the Foreign Institutional Investors (FIIs) (i.e. Foreign

Institutional Investment) in the individual shares does not have a significant impact on the price of the shares selected.

H1: Investment made by the Foreign Institutional Investors (FIIs) (i.e. Foreign

Institutional Investment) in the individual shares has a significant impact on the price of the shares selected.

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DATA ANALYSIS AND INTERPRETATION

INTERPRETATION OF CORRELATION AND REGRESSION OF FOLLOWING COMPANIES IN EACH YEAR

2008
COMPANY NAME CORRELATION R2 P- VALUE

COEFFICIENT INTERCEPT X-VARIABLE 0.000006241 0.000001213 0.0000074514 -0.00022 -0.000003165 0.003857 -0.0000017503

ACC LTD ABB LTD ASHOK LEYLAND LTD ALSTOM PROJECT LTD ARVIND LTD 3I INFOTECH LTD AMARA RAJA BATTERIES LTD

0.001516

00000.2299 0.000308 0.00294463 0.013937

0.138288 0.025857 0.049128 0.068551

-0.00325812 -0.005678 -0.0090344 -0.00988 -0.009689 -0.00876 -0.01691

0.017344 0.054265 -0.11805 -0.00217 0.103789 -0.06696

0.000046912 0.047061 0.010772 0.004483 0.078508 0.018444

CORRELATION 1)ACC ltd(large cap) Here in 2008 the correlation is 0.001516 which shows that there is perfect positive correlation means that FII increases then stock price also increases or if FII decrease then stock price also decrease. 2) ABB ltd(mid cap)

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Here in 2008 the correlation is 0.017344 which shows that there is perfect positive correlation it also shows that it has a positive relation with FII means that FII increases then stock price also increases. 3) Ashok Leyland Ltd.(mid cap) Here in 2008 the correlation is 0.054265 which shows that there is perfect positive correlation between FII and stock price of the company means two variables are same direction. 4) Alstom Projects India Ltd.(mid cap) Here in 2008 the correlation is -0.11805 which is perfect negative correlation it also shows that it has a negative relation with FII for the crisis period 5) Arvind Ltd.(small cap) Here in 2008 the correlation is -0.00217 which shows that there is negative correlation with FII means there have inverse relation between two variables. 6) 3i Infotech Ltd.(small cap) Here in 2008 the correlation is 0.0103789 which shows that there is perfect positive correlation it also shows that it has a positive relation with FII means that FII increases then stock price also increases and vice versa 7) Amara Raja Batteries Ltd.(small cap) In the yr 2008 the correlation is -0.06696 which shows that there is perfect negative correlation it means that as one variable goes up, the other goes down. Because in 20082009 their was crisis period in global world.

Regression equation Acc ltd.(Large cap)

o

The influence of FII on acc ltd in 2008 is given by the regression equation y= 0.00325 + 0.00000241 x The hypothesis tested with the regression equation is as follows.

H0: b 0 ( influence of FII on acc ltd) H1: b =0 ( no influence of FII on acc ltd)

At 95% confidence level the R2 value is 0.0000029935. This means that 0.000299% of the influence of FII on acc ltd is explained. The p value is 0.138288. This value is high than 0.05.

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This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is very less influence of FII on acc ltd.

Abb ltd.(Mid cap)

o

The influence of FII on abb ltd in 2008 is given by the regression equation y= 0.00567 + 0.00000121321x The hypothesis tested with the regression equation is as follows.

H0: b = 0 (no influence of FII on abb ltd) H1: b 0 (influence of FII on abb ltd)

At 95% confidence level the R2 value is 0.000308. This means that 0.0308% of the influence of FII on abb ltd is explained. The p value is 0.025857. This value is less than 0.05.This is the confidence with which null hypothesis is rejected and alternative hypothesis is accepted.Thus this regression equation proves that there is very less significant influence of FII on abb ltd in 2008.

Ashok leyland ltd.(Mid cap)

The influence of FII on ashok Leyland ltd in 2008 is given by the regression equation y= -0.009034 + 0.000007451x The hypothesis tested with the regression equation is as follows. H0: b = 0 (no influence of FII on ashok Leyland ltd) H1: b 0 (influence of FII on ashok Leyland ltd)

At 95% confidence level the R2 value is 0.002944. This means that 0.2944% of the influence of FII on ashok Leyland ltd is explained. The p value is 0.0491. This value is less than 0.05. This is the confidence with which null hypothesis is rejected and alternative hypothesis is accepted. Thus this regression equation proves that there is significant influence of FII on ashok Leyland ltd. Alstom projects India ltd.(Mid cap)
o

The influence of FII on alstom projects India ltd in 2008 is given by the regression equation y=-0.00988 -0.0022 x The hypothesis tested with the regression equation is as follows.

H0: b 0 (influence of FII on alstom ltd) H1: b =0 (no influence of FII on alstom ltd)

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At 95% confidence level the R2 value is 0.01393.This means that 1.393% of the influence of FII on alstom ltd is explained. The p value is 0.068551. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is less significant influence of FII on alstom ltd.

Arvind Ltd.(small cap)

The influence of FII on Arvind ltd in 2008 is given by the regression equation y= -0.00968 + 0.0000031567 x The hypothesis tested with the regression equation is as follows.

H0: b = 0 (no influence of FII on Arvind ltd) H1: b 0 (influence of FII on Arvind ltd)

At 95% confidence level the R2 value is 0.0000046912. This means that0.000469 % of the influence of FII on Arvind ltd is explained. The p value is 0.04706. This value is less than 0.05. This is the confidence with which null hypothesis is rejected and alternative hypothesis is accepted. Thus this regression equation proves that there is less significant influence of FII on Arvind ltd in 2008.
3i Infotech Ltd(small cap).

The influence of FII on 3i infotech ltd in 2008 is given by the regression equation y= 0.00876 + 0.003857 x The hypothesis tested with the regression equation is as follows. H0: b 0 (influence of FII on 3i infotech ltd) H1: b= 0 ( no influence of FII on 3i infotech ltd)

At 95% confidence level the R2 value is 0.010772. This means that 1.772 % of the influence of FII on 3i infotech ltd is explained. The p value is 0.078508. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is significant influence of FII on 3i infotech ltd

Amara Raja Batteries Ltd(small cap)

The influence of FII on Amara Raja Batteries in 2008 is given by the regression equation o y= -0.01691 - 0.000001750x The hypothesis tested with the regression equation is as follows.

H0: b = 0 ( no influence of FII on on Amara Raja Batteries)

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H1: b 0 ( influence of FII on on Amara Raja Batteries)

At 95% confidence level the R2 value is 0.004483. This means that 0.4483% of the influence of FII on is on Amara Raja Batteries explained. The p value is 0.018444. This value is less than 0.05. This is the confidence with which null hypothesis is rejected and alternative hypothesis is accepted. Thus this regression equation proves that there very less is significant influence of FII on on Amara Raja Batteries in 2008.

2009
COMPANY NAME CORRELATION

R2

P- VALUE

COEFFICIENT INTERCEPT X-VARIABLE -0.0000013529 -0.0000016183 0.00000529826 -0.0000055221 -0.000308 0.00015 0.000296

ACC LTD ABB LTD ASHOK LEYLAND LTD ALSTOM PROJECT LTD ARVIND LTD 3I INFOTECH LTD AMARA RAJA BATTERIES LTD

-0.02988 -0.02313 0.073328 -0.03411 -0.22739 0.1016 0.077956

0.000893 0.000535 0.005377 0.001163 0.051707 0.000103 0.006077

0.181178 0.269332 0.0432109 0.075148 0.095255 0.172151 0.138448

0.0026440 0.002339 0.0113627 0.009348 0.019205 0.011444 0.032974

CORRELATION 1)ACC ltd(large cap) In the yr 2009 the correlation is -0.02988 which shows that there is perfect negative correlation it means that as one variable goes up, the other goes down. Because in 20082009 their was crisis period in global world

26

2) ABB ltd(mid cap) In the yr 2009 the correlation is -0.02313 which shows that there is perfect negative correlation it means that as one variable goes up, the other goes down. Because in 20082009 their was crisis period in global world. 3) Ashok Leyland Ltd.(mid cap) During the period of crisis ,both in the yr 2008 & 2009 the correlation is positive. It has positive correlation because in this period FII inflow is continue as it is a developing company and market capitalization also increases. 4) Alstom Projects India Ltd.(mid cap) In the yr 2009 the correlation is -0.03411 which is perfect negative correlation it means that as one variable goes up, the other goes down. Because in 2008-2009 there was crisis period in global world. 5) Arvind Ltd.(small cap) In the yr 2009 the correlation is -0.22739 which shows that there is perfect negative correlation it means that as one variable goes up, the other goes down. Because in 20082009 their was crisis period in global world and the market capitalization of the company is not increasing in this period. 6) 3i Infotech Ltd.(small cap) In the yr 2009 the correlation is 0.01016 which shows that there is perfect positive correlation it means that there have effect of FII on stock price. 7) Amara Raja Batteries Ltd.(small cap) In 2009 the correlation is 0.077956 which shows that there is perfect positive correlation it also shows that it has a positive relation with two variables means that FII increases then stock price also increases.

Regression equation
Acc ltd.(Large cap)

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The influence of FII on acc ltd in 2009 is given by the regression equation y= 0.00246 -0.000013529x The hypothesis tested with the regression equation is as follows.

H0: b 0 ( influence of FII on acc ltd) H1: b =0 ( no influence of FII on acc ltd)

At 95% confidence level the R2 value is 0.000893. This means that 0.0893% of the influence of FII on acc ltd is explained. The p value is 0.181178. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is very less influence of FII on acc ltd. Abb ltd.(Mid cap)
o

The influence of FII on abb ltd in 2009 is given by the regression equation y= 0.002339 + 0.000001618 x The hypothesis tested with the regression equation is as follows.

H0: b 0 ( influence of FII on abb ltd) H1: b =0 ( no influence of FII on abb ltd)

At 95% confidence level the R2 value is 0.000535. This means that 0.0535% of the influence of FII on abb ltd is explained. The p value is 0.26933. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is less influence of FII on abb ltd in 2009. Ashok leyland ltd.(Mid cap)
o

The influence of FII on ashok Leyland ltd in 2009 is given by the regression equation y= 0.011363 + 0.0000052982 x The hypothesis tested with the regression equation is as follows. H0: b = 0 (no influence of FII on ashok Leyland ltd) H1: b 0 (influence of FII on ashok Leyland ltd)

At 95% confidence level the R2 value is 0.00537. This means that 0.537% of the influence of FII on ashok Leyland ltd is explained. The p value is 0.04320. This value is less than 0.05. This is the confidence with which null hypothesis is rejected and alternative hypothesis is accepted. Thus this regression equation proves that there is significant influence of FII on ashok Leyland ltd. alstom projects India ltd.(Mid cap)

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The influence of FII on acc ltd in 2009 is given by the regression equation y= 0.009349 + 0.0000045211x The hypothesis tested with the regression equation is as follows.

H0: b 0 (influence of FII on alstom ltd) H1: b= 0 (no influence of FII on alstom ltd)

At 95% confidence level the R2 value is 0.001163. This means that 0.1163% of the influence of FII on alstom ltd is explained. The p value is 0.075148. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is significant influence of FII on alstom ltd. Arvind Ltd.(small cap)
o o

The influence of FII on Arvind ltd in 2009 is given by the regression equation y= 0.01920 - 0 .00308 x The hypothesis tested with the regression equation is as follows. H0: b 0 (influence of FII on Arvind ltd) H1: b = 0 ( no influence of FII on Arvind ltd)

At 95% confidence level the R2 value is 0.05170. This means that 5.17% of the influence of FII on Arvind ltd is explained. The p value is 0.09525. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is significant influence of FII on Arvind ltd in 2009. 3i Infotech Ltd(small cap).
o o

The influence of FII on 3i infotech ltd in 2009 is given by the regression equation y= 0.011444 +0 .00015 x The hypothesis tested with the regression equation is as follows.

H0: b 0 (influence of FII on 3i infotech ltd) H1: b = 0 ( no influence of FII on 3i infotech ltd)

At 95% confidence level the R2 value is 0.000103. This means that 0.0103% of the influence of FII on is 3i infotech ltd explained. The p value is 0.172151. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there very less is significant influence of FII on 3i infotech ltd in 2009. Amara Raja Batteries Ltd(small cap)

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The influence of FII on Amara Raja Batteries in 2009 is given by the regression equation y= 0.03297+ 0.000296x The hypothesis tested with the regression equation is as follows.

H0: b 0 (influence of FII on Amara Raja Batteries) H1: b= 0 ( no influence of FII on Amara Raja Batteries)

At 95% confidence level the R2 value is 0.006077. This means that0.6077 % of the influence of FII on Amara Raja Batteries is explained. The p value is 0.138448. This value is more than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is less influence of FII on Amara Raja Batteries in 2009.

2010
COMPANY NAME CORRELATION

R2

P- VALUE

COEFFICIENT INTERCEPT X-VARIABLE 0.0000025345 0.00000941818 0.00000350403 -0.00000951470 -0.000006833 -0.000001276 -0.0000035851

ACC LTD ABB LTD ASHOK LEYLAND LTD ALSTOM PROJECT LTD ARVIND LTD 3I INFOTECH LTD AMARA RAJA BATTERIES LTD

0.6165 0.020341 0.014974 -0.05712 -0.02685 -0.02804 -0.09742

0.003800 0.000414 0.000224 0.003263 0.000721 0.000786 0.00949

0.372611 0.952465 0.432335 0.590764 0.165331 0.297734 0.490018

0.0009845 0.00014241 0.002208 0.001634462 0.0064164 -0.003090 0.0018605

1)ACC ltd(large cap) After crisis period in 2010 the situation begins to change and their have been a positive relation ,so the correlation in this yr was 0.06165 which shows that there is perfect positive

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correlation it also shows that it has a positive relation with two variables means that FII increases then stock price also increases and vice versa.

2)ABB ltd(mid cap) After crisis period in 2010 the situation begins to change and their have been a positive relation between two variables, so the correlation in this yr was 0.020341 which is perfect positive correlation it means that FII increases then stock price also increases and vice versa 3) Ashok Leyland Ltd.(mid cap) After crisis period in 2010 the situation begins to change but for this company as last two years the correlation is positive so in this year it must be also positive. So the correlation value for the year is 0.014974. from the last 3 yrs result I come to know that the FII investment in this company is high so two variables goes same direction. 4) Alstom Projects India Ltd.(mid cap) . After crisis period in 2010 the situation begins to change but for this company correlation of this two variables remains negative which is -0.05712. From last 3 yrs result I came to a conclusion that FII may not have any effect on change of stock price. 5) Arvind Ltd.(small cap) After crisis period in 2010 the situation begins to change but for this company correlation of this two variables remains negative which is -0.02685 means one goes up other goes down. From last 3 yrs result I came to a conclusion that FII may not have any effect on change of stock price. 6) 3i Infotech Ltd.(small cap) In 2010 the correlation is -0.02804 which shows that there is perfect negative correlation it also shows inverse relation with two variables. because FII investment is decrease in the crisis period and after this period FII not may be increase in 2010. 7) Amara Raja Batteries Ltd.(small cap) In 2010 the correlation is -0.09742 which shows that there is perfect negative correlation it also shows inverse relation with two variables. because FII investment is decrease in the crisis period and after this period FII not may be increase in 2010.

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Regression equation Acc ltd.(Large cap)

The influence of FII on acc ltd in 2010 is given by the regression equation y= 0.000984 + 0.000025345 x The hypothesis tested with the regression equation is as follows.

H0: b 0 ( influence of FII on acc ltd) H1: b =0 ( no influence of FII on acc ltd)

At 95% confidence level the R2 value is 0.003800. This means that o.38% of the influence of FII on acc ltd is explained. The p value is 0.372611 This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is very less influence of FII on acc ltd in 2010. Abb ltd.(Mid cap) The influence of FII on abb ltd in 2010 is given by the regression equation y= 0.000142 + 0.000094181x The hypothesis tested with the regression equation is as follows. H0: b 0 ( influence of FII on abb ltd) H1: b =0 ( no influence of FII on abb ltd)

At 95% confidence level the R2 value is 0.000413. This means that 0.0413% of the influence of FII on abb ltd is explained. The p value is 0.9524. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is significant influence of FII on abb ltd in 2010.

Ashok leyland ltd.(Mid cap)

o

The influence of FII on ashok Leyland ltd in 2010 is given by the regression equation

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y= 0.002208 +0.00000 3504 x The hypothesis tested with the regression equation is as follows. H0: b = 0 (no influence of FII on ashok Leyland ltd) H1: b 0 (influence of FII on ashok Leyland ltd)

At 95% confidence level the R2 value is 0.000224. This means that 0.0224% of the influence of FII on ashok Leyland ltd is explained. The p value is 0.43233. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is significant influence of FII on ashok Leyland ltd.

alstom projects India ltd.(Mid cap)

o

The influence of FII on alstom ltd in 2010 is given by the regression equation y= 0.001634 + 0.0000095147x The hypothesis tested with the regression equation is as follows. H0: b = 0 (no influence of FII on alstom ltd) H1: b 0 (influence of FII on alstom ltd)

At 95% confidence level the R2 value is 0.00326. This means that 0.326% of the influence of FII on alstom ltd is explained. The p value is 0.5907. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is very less significant influence of FII on alstom ltd in 2010. Arvind Ltd.(small cap)
o o

The influence of FII on Arvind ltd in 2010 is given by the regression equation y= 0.006416 +0.00000 6833x The hypothesis tested with the regression equation is as follows.

H0: b 0 ( influence of FII on Arvind ltd) H1: b= 0 ( no influence of FII on Arvind ltd)

At 95% confidence level the R2 value is 0.00072076. This means that 0.072% of the influence of FII on Arvind ltd is explained. The p value is 0.165331. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there is very less significant influence of FII on arvind ltd in 2010.

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3i Infotech Ltd(small cap).

o o

The influence of FII on 3i infotech ltd in 2010 is given by the regression equation y=- 0.00309 - 0 .0000012762x The hypothesis tested with the regression equation is as follows.

H0: b 0 (influence of FII on 3i infotech ltd) H1: b = 0 ( no influence of FII on 3i infotech ltd)

At 95% confidence level the R2 value is 0.0007860. This means that 0.076% of the influence of FII on is 3i infotech ltd explained. The p value is 0.297734. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there very less is significant influence of FII on 3i infotech ltd in 2010.
Amara Raja Batteries Ltd(small cap)
o o

The influence of FII on Amara Raja Batteries in 2010 is given by the regression equation y= 0.001861 - 0 .0000035851x The hypothesis tested with the regression equation is as follows.

H0: b 0 (influence of FII on Amara Raja Batteries) H1: b = 0 ( no influence of FII on Amara Raja Batteries)

At 95% confidence level the R2 value is 0.009490. This means that 0.949% of the influence of FII on is Amara Raja Batteries explained. The p value is 0.490018. This value is high than 0.05. This is the confidence with which null hypothesis is accepted and alternative hypothesis is rejected. Thus this regression equation proves that there less is significant influence of FII on Amara Raja Batteries in 2010.

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ANALYSIS AND INTERPRETATION

If we consider the correlation for the whole 3 year period, we can see that the correlation between FII and stock price is positive for the large cap company and two other mid cap company also but for one mid company and for the small cap companies the correlation is negative, which means that FII have impact on Indian company basis on market capitalization.
o

But if we look at the yearly result of correlation we can see that in the year of 2008 it showed a negative impact. then again from 2009 it has started rising and still it is showing a rising trend in the market on the basis of market capitalization. we get that the degree of Correlation between the closing price returns & the Net Investment made by the Foreign Institutional Investors (FIIs) is suggesting that there is a certain degree of correlation between the two variables.

Now we will explain in detail the reason behind the result of correlation we have got for different years. 2008 was a year of great importance as financial crisis broke down and the whole world was badly affected by this. The financial sector crisis Arose in the latter half of 2007, and was felt badly in the whole world by the collapse of Lehman Brothers on 23 September 2008.India, being an integrated part of the global economic order, was also exposed to the adverse impact of the global economic crisis. The direct relationship between the % of FII holding in a particular stock and the influence on its stock price cannot be traced in all stocks i.e. the trend is not same for all. FII investment if volatile in nature affects the stock prices of a stock. Companies having good fundamentals and of Large cap / Mid cap category are less affected by FII investment than the small caps. The investment by the FIIs are stock specific and thus all stocks are not significantly affected by the FII investment.

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CONCLUSION

After through study and analysis there is no doubt that the investment made by the FIIs in equity, has a VERY significant impact on the Capital Market of our country. Being a developing economy tremendous scope for growth and high returns attracts Foreign Funds. The FIIs gain not only by investing in the equity in stock price but also from the currency fluctuations which eventually adds to their gains. This is the reason because of which India is an attractive destination for investment by the FIIs where there is good macro-economic data, a sustainable and increasing growth rate, healthy Returns on Investment and the overall INDIA GROWTH STORY. Looking at the past and current trend, heavy investment from abroad can be expected in the future which could lead to healthy returns for long term investors investing in quality stocks. High Turnover on the companies ensures that there is greater participation by the people and gives a confirmation to a Trend.

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RECOMMENDATION

Through this project we see that Indian stock price increases with the increase in the investment made by the FIIs in equity. Thus the government should encourage the inflow of money by the FIIs and at the same time keep a check on excessive speculation or volatility by the FII participants as they have a very significant impact on the Small cap companies. The SEBI should consider for increasing the Retail Participation by increasing the percentage allotment reserved for the Retail segment in an Initial Public Offer. Investment in a fundamentally sound company which has had a consistent and stable FII shareholding can lead to healthy returns. FII is thus an important economic indicator which can help us analyze a particular stock and the whole stock market in a better manner.

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Limitations
The topic selected is itself vast and due to lack of time a detailed study of all the factors was not possible. All the information and data collected were from secondary sources, which may not be very reliable. Also lack of detailed data availability like the daily/monthly investments of FIIs in each shares added to the limitations of this Project.

Reference: www.nseindia.in www.trustline.in www.sebi.in www.ssrn.net

Bibliography: STATISTICAL METHODS N.G.DAS FINANICAL MANAGEMENT PRASSANA CHANDRA

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