Impact of Foreign Institutional

-1-
CHAPTER I
INTRODUCTION
1.1 INTRODUCTION
1.1.1 FOREIGN INSTITUTIONAL INVESTORS
FII is defined as an institution organized outside of India for the purpose of making
investments into the Indian securities market under the regulations prescribed by
SEBI.
‘FII’ include “Overseas pension funds, mutual funds, investment trust, asset
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 broad-
based fund. FIIs can invest their own funds as well as invest on behalf of their
overseas clients registered as such with SEBI. These client accounts that the FII
manages are known as ‘sub-accounts’. A domestic portfolio manager can also
register itself as an FII to manage the. funds of sub-accounts
-2-
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 fast-growing market have made India an attractive
destination for foreign institutional investors. FII is defined as an institution
organized outside of India for the purpose of making investments into the Indian
securities market under the regulations prescribed by SEBI.
Entry Options For FII
A foreign company planning to set up business operations in India has the following
options:
Incorporated Entity
By incorporating a company under the Companies Act,1956 through
• Joint Ventures; or
• Wholly Owned Subsidiaries
Foreign equity in such Indian companies can be up to 100% depending on the

requirements of the investor, subject to equity caps in respect of the area of
activities under the Foreign Direct Investment (FDI) policy.
1.1.2 Important terms to know about FIIs:
Sub-account :
Sub-account includes those foreign corporations, foreign individuals, and

institutions, funds or portfolios established or incorporated outside India on whose
behalf investments are proposed to be made in India by a FII.
Designated Bank:
Designated Bank means any bank in India which has been authorized by the
Reserve Bank of India to act as a banker to FII.
Domestic Custodian:
Domestic Custodian means any entity registered with SEBI to carry on the activity
of providing custodial services in respect of securities.
Broad Based Fund:
Broad Based Fund means a fund established or incorporated outside India, which
has at least twenty investors with no single individual investor holding more than
-3-
10% shares or units of the fund. Provided that if the fund has institutional
investor(s) it shall not be necessary for the fund to have twenty investors.
If the fund has an institutional investor holding more than 10% of shares or units in
the fund, then the institutional investor must itself be broad based fund.
1.1.3 FOREIGN INSTITUTIONAL INVESTORS REGISTRATION
Following entities / funds are eligible to get registered as FII:
• Pension Funds
• Mutual Funds
• Investment Trust
• Insurance or reinsurance companies
• Investment Trusts
• Banks
• Endowments
• University Funds
• Foundations
• Charitable Trusts or Charitable Societies
Further, following entities proposing to invest on behalf of broad based funds, are
also eligible to be registered as FIIs:
• Asset Management Companies
• Institutional Portfolio Managers
• Trustees
• Power of Attorney Holders.
The eligibility criteria for applicant seeking FII registration
As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors

are required to fulfill the following conditions to qualify for grant of registration:
-4-
• Applicant should have track record, professional competence, financial

soundness, experience, general reputation of fairness and integrity.
• The applicant should be regulated by an appropriate foreign regulatory

authority in the same capacity/category where registration is sought from SEBI.
Registration with authorities, which are responsible for incorporation, is not
adequate to qualify as Foreign Institutional Investor.
• The applicant is required to have the permission under the provisions of the
Foreign Exchange Management Act, 1999 from the Reserve Bank of India.
• Applicant must be legally permitted to invest in securities outside the country

or its in-corporation / establishment.
• The applicant must be a "fit and proper" person.
• The applicant has to appoint a local custodian and enter into an agreement
with the custodian. Besides it also has to appoint a designated bank to route its
transactions.
• Payment of registration fee of US $ 5,000.00
"Form A" as prescribed in SEBI (FII) Regulations, 1995 is to be filled before applying
for FII registration.
Supporting documents required are:
• Application in Form A duly signed by the authorized signatory of the

applicant.
• Certified copy of the relevant clauses or articles of the Memorandum and

Articles of Association or the agreement authorizing the applicant to invest on
behalf of its clients
• Audited financial statements and annual reports for the last one year ,
provided that the period covered shall not be less than twelve months.
• A declaration by the applicant with registration number and other particulars

in support of its registration or regulation by a Securities Commission or Self
Regulatory Organisation or any other appropriate regulatory authority with whom
the applicant is registered in its home country.
• A declaration by the applicant that it has entered into a custodian agreement

with a domestic custodian together with particulatrs of the domestic custodian.
• A signed declaration statement that appears at the end of the Form.

-5-
• Declaration regarding fit & proper entity.
The fee for registration as FII is US $ 5,000. The mode of payment is Demand Draft
in favour of "Securities and Exchange Board of India" payable at New York”.
SEBI generally takes 7 working days in granting FII registration. However, in cases
where the information furnished by the applicants is incomplete, seven days shall
be counted from the days when all necessary information sought, reaches SEBI.
In cases where the applicant is bank and subsidiary of a bank, SEBI seeks
comments from the Reserve Bank of India (RBI). In such cases, 7 working days
would be counted from the day no objection is received from RBI.
The FII registration is valid for 5 years. After expiry of 5 years, the registration
needs to be renewed.
Same as initial registration, Along with "Form A" and all the relevant documents, the
applicants are required to fill in additional form (Annexure 1) while applying for
renewal. US $ 5,000 needs to be paid for renewal of FII registration.
The application for renewal should be submitted three months before expiry of the
FII registration. 100 % debt FIIs are debt dedicated FIIs which invest in debt
securities only. The procedure for registration of FII/sub-account, under 100% debt
route is similar to that of normal funds besides a clear statement by the applicant
that it wishes to be registered as FII/sub-account under 100% debt route.
The FII registration application should be sent to:
Securities and Exchange Board of India
Division of FII & Custodian
Mittal Court "B" Wing, First Floor
224, Nariman Point
Mumbai 400 021
India.
1.1.4 SUB-ACCOUNT REGISTRATION
a) Institution or funds or portfolios established outside India, whether

incorporated or not.
b) Proprietary fund of FII.

-6-
c) Foreign Corporates
d) Foreign Individuals.
The FII should apply on the behalf of the Sub-account. Both the FII and the Sub-
account are required to sign the Sub-account application form.
"Annexure B" to "Form A" (FII application form) needs to be filled when applying for
sub-account registration. No document is needed to be sent with annexure B. The
fee for sub-account registration is US$ 1,000. The fee is to be submitted at the time
of submitting the application. The mode of payment is Demand Draft in the name of
"Securities and Exchange Board of India" payable at New York. SEBI generally takes
three working days in granting FII registration. However, in cases where the
information furnished by the applicants is incomplete, three days shall be counted
from the days when all necessary information sought, reaches SEBI. The validity of
sub-account registration is co-terminus with the FII registration under which it is
registered. The process of renewal of sub-account is same as initial registration.
Renewal fee in this case is US $ 1,000. OCBs / NRIs are not permitted to get
registered as FII/sub-account.
1.1..5 POST-REGISTRATION PROCESSES:
If a registered FII/sub-account undergoes name change, then the FII need to

promptly inform SEBI about the change. It should also mention the reasons for the
name change and give an undertaking that there has been no change in beneficiary
ownership.
In case of name change of FII, the request should be accompanied with documents
from home regulator and registrar of the company evidencing approval of name
change, and the original FII registration certificate issued by SEBI should be sent
back for necessary amendment.
Procedure for transferring a sub-account from one FII to another:
The FII to whom the Sub-account is proposed to be transferred has to send a

request along with a declaration that it is authorized to invest on behalf of the Sub-
account. The transferor FII should also submit a No-objection certificate.
The FII should send a request, along with no-objection certificate from existing
domestic custodian, for change in domestic custodian.
The FII would be required to send a request for cancellation of its registration or
registration of its Sub-account/s clearly mentioning the name and registration
number of the entity. The FII should ensure that it / Sub-account has nil cash /
securities holdings.
Procedure for change of local custodian:

-7-
In case of change of the local custodian of the FII / sub-account, the change should
be intimated to SEBI by the FII. On receipt of no objection from the existing
custodian and acceptance from the proposed custodian, the change of custodian
would be approved - by SEBI.
Procedure for registration as FII/sub account under 100% debt route:
The procedure for registration of FII/sub account under 100% debt route is similar to
that of normal funds besides a clear statement by the applicant that it wishes to be
registered as FII/sub account under 100% debt route. However, Government of India
allocates the overall investment limit for 100% debt funds annually. The grant of
investment limit for individual 100% debt funds is within this overall limit. The funds
have to seek further investment limit in case the limit allotted to them is exhausted
and they wish to invest further.
A Foreign Institutional Investor having an account with one custodian can open
accounts with different custodians for its different sub-accounts. However, one sub-
account cannot be custodial with more than one custodian.
Procedure if an existing sub-account wants to get registered as a Foreign

Institutional Investor:
In case if a registered sub-account wishes to get itself registered as a Foreign

Institutional Investor, then it will have to apply in Form A to SEBI for the same and
has to satisfy all the eligibility criteria norms mentioned in SEBI (Foreign
Institutional Investor) Regulations, 1995. It should also submit a letter from the old
FII indicating its 'No-objection' to such registration.
Procedure for renewal of FII/Sub-Account registration:
They have to apply before 3 months of the expiry of registration in Form A. Circular
No FITTC/CUST/09/2000 dated September 21, 2000 may be referred.
If the FII does not renew its/sub-account’s registration:
The registration of the FII / Sub-account would get expired at due date and it would
not be allowed to trade in Indian securities markets. If it is not interested in renewal
but has certain residual assets, it can apply for disinvestment in terms of Circular
No. FITTC/CUST/12/2001 dated June 04, 2001 and abides by the guidelines specified
in this regard.
1.1.6 Scope of Investments under the Portfolio Investment Scheme.
FIIs, under the Portfolio Investment Scheme, are permitted to make both primary
and secondary investments in the India capital markets. Unlike an investor which
relies solely on FDI regulations, a foreign investor which registers as a FII would be
-8-
allowed to buy and sell securities over Indian stock exchanges. In addition, FIIs are
entitled to effect transactions in a broader category of securities than an investor
relying on FDI regulations alone. FIIs are permitted to purchase equity securities
(both listed and unlisted), units of schemes floated by the Unit Trust of India and
other domestic municipal funds, warrants, debentures, bonds, governmental
securities and derivative instruments which are traded on a recognized stock
exchange. There is no limit on the amount that FIIs may invest in the Indian market,
and no lock-up periods apply to investments made by FIIs.
Exchange Controls
FIIs are required to open up one or more bank accounts with certain designated
banks and must also appoint a domestic custodian for custody of investment made
by the FII. Through the designated accounts, FIIs are authorized to freely transfer
funds from foreign currency accounts to Rupee accounts and vice versa; make
Rupee denominated investments in Indian companies; freely transfer after-tax
proceeds from Rupee accounts to foreign currency accounts, and repatriate capital,
capital gain, dividends interest income and other gains, subject to deduction for
applicable withholding taxes. So long as FIIs execute purchases and sales on a
recognized Indian stock exchange, they are not required to obtain transaction
specific approval from the Reserve Bank. FIIs are also entitled to effect transactions
using their own proprietary funds, or the funds of their sub accounts.
Investment Restrictions.
Certain limitations apply to investments by FIIs into India. First, FIIs’ and their sub-
accounts’ investment in an Indian company can not exceed ten percent (10%) of
the total issued share capital of the Indian company (five percent if the subaccount
is a foreign corporation or individual). In addition, the aggregate investment of all
FIIs in an Indian company may not exceed twenty four percent (24%) of its total
issued share capital, without the express approval of its board of directors and
shareholders. Even with board of director and shareholder approval, the same
sectoral limits which apply to foreign direct investment would continue to apply. FIIs
may register with SEBI as a debt fund or an equity fund. FIIs which are registered as
equity funds, are required to invest at least seventy percent (70%) of their funds in
equity and equity-related securities. A FII registered as a debt fund, on the other
hand, must invest one hundred percent (100%) of its funds in debt instruments.
Foreign corporations and individuals are not eligible subaccounts of a FII that is
-9-
registered as a debt fund. FIIs are not permitted to engage in short selling, other
than in respect of derivative securities traded over a recognized exchange, and
must effect transactions through a registered stock broker. Sector investment
prohibitions and caps which apply to foreign direct investment also apply to
investments by FIIs, and FII investments must also comply with the pricing
requirements applicable to foreign direct investment. In addition, FIIs are not
permitted to invest
in print media.
1.1.7 Trend of FIIs with the help of economic figures:
• 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 non-
governance issue and the global economic contagion impact on Indian markets.
• According to Mr Gautam Chand, CEO of Instanex, said FIIs are the largest
institutional investors in India with holdings valued at over US$ 751.14 billion as on
December 31, 2008.
• 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

registered sub-accounts stood at 4972 as on March 17, 2009.
Future Prospects of Foreign Institutional Investments:
? Sustaining the growth momentum and achieving an annual average growth

of 9-10 % in the next five years.
? Simplifying procedures and relaxing entry barriers for business activities and
Providing investor friendly laws and tax system.
- 10 -
? 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 world-class infrastructure for sustaining growth in all the sectors

of the economy
? Allowing foreign investment in more areas.
? Effecting fiscal consolidation and eliminating the revenue deficit through

revenue enhancement and expenditure management.
? Global corporations are responsible for global warming, the depletion of

natural resources, and the production of harmful chemicals and the destruction of
organic agriculture.
? The government should reduce its budget deficit through proper pricing
mechanisms and better direction of subsidies. It should develop infrastructure with
what Finance Minister P Chidambaram International Research Journal of Finance and
Economics - Issue 5 (2006) 171 of India called “ruthless efficiency” and reduce
bureaucracy by streamlining government procedures to make them more
transparent and effective.
? Empowering the population through universal education and health care,

India must maximize the benefits of its youthful demographics and turn itself into
the knowledge hub of the world through the application of information and
communications technology (ICT) in all aspects of Indian life although, the
government is committed to furthering economic reforms and developing basic
infrastructure to improve lives of the rural poor and boost economic performance.
Government had reduced its controls on foreign trade and investment in some
areas and has indicated more liberalization in civil aviation, telecom and insurance
sector in the future.
- 11 -
1.2.1 OBJECTIVES OF THE STUDY:
Following are the objectives of the study:
• To study the scope and trading mechanism of Foreign Instititutional investors

in India.
- 12 -
• To find the relationship between the FIIs equity investment pattern and
Indian stock indices.
• To analyze the impact of FIIs equity investment on specific industrial sector

(FMCG, Consumer Durables, Auto, Banking, Real Estate) indices.
1.2.2 SCOPE AND NEED OF STUDY:
Scope of the study is very broader and covers both the stock indices and its
comparison with foreign institutional investments. But, study is only going to cover
foreign investments in form of equity. The time period is limited from January 2007
to December 2008 as it will give exact impact in both the bullish and bearish trend.
The study will provide a very clear picture of the impact of foreign institutional
investors on Indian stock indices. It will also describe the market trends due to FIIs
inflow and outflow.
The study would be helpful for further descriptive studies on the ideas that will be
explored. Moreover, it would be beneficial to gain knowledge regarding foreign
institutional investments, their process of registration and their impact on Indian
stock market.
1.2.3 RESEARCH METHODOLOGY:
Research methodology is the arrangement of conditions for collection and analysis

of data in a manner that aims to combine relevance to the research purpose with
economy in procedure. Research methodology is the conceptual structure within
which research is conducted. It constitutes the blueprint for the collection
measurement and analysis of the data.
- 13 -
The research methodology here includes:
• Research problem
• Research design
• Sampling design
• Sampling technique
• Data collection method
Research Problem
An adage says “a problem well defined is half solved”. The project deals with the
“Impact of Foreign Institutional Investors on Indian Stock Market”. This research
project studies the relationship between FIIs investment and stock indices. For this
purpose India’s two major indices i.e. Sensex and S&P CNX Nifty are selected. These
two indices, in a way, represent the picture of India’s stock markets. Five indices of
BSE i.e. BSE Auto, BSE Bankex, BSE Consumer Durables, BSE FMCG, BSE Realty are
also selected so as to further observe the effect of FII in particular industry . 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 and regression to study the relationship between FII and stock index.
The FII started investing in Indian capital market from September 1992when the
Indian economy was opened up in the same year. Their investments include equity
only. The sample data of FIIs investments consists of monthly average from January
2007 to December 2008.
RESEARCH DESIGN
Null Hypothesis (Ho): The various BSE indices and S&P CNX Nifty index does not rise
with the increase in FIIs investment.
- 14 -
Alternate Hypothesis (Ha): The various BSE indices and S&P CNX Nifty index rises
with the increase in FIIs investment.
Exploratory Research
As an exploratory study is conducted with an objective to gain familiarity with the

phenomenon or to achieve new insight into it, this study aims to find the new
insights in terms of finding the relationship between FII’S and Indian Stock Indices.
SAMPLING DESIGN
• Universe
In this study the universe is finite and will take into the consideration related news
and events that have happened in last few year.
• Sampling Unit: -
As this study revolves around the foreign institutional investment and Indian stock
market. So for the sampling unit is confined to only the Indian stock market.
SAMPLING TECHNIQUE: -
Convenient Sampling: Study conducted on the basis of availability of the Data and
requirement of the project. Study requires the events that have impact on the
Indian stock market.
- 15 -
Data collection Method
Secondary data: For the secondary data various literatures, books, journals,
magazines, web links are used. As there are not possibilities of collecting data
personally so no questionnaire is made.
RESEARCH ANALYSIS TOOLS
Regression analysis and Correlation analysis:
Regression Analysis: We can analyze how a single dependent variable is affected by

the values of one or more independent variables — for example, how an athlete's
performance is affected by such factors as age, height, and weight. We can
apportion shares in the performance measure to each of these three factors, based
on a set of performance data, and then use the results to predict the performance
of a new, untested athlete.
Correlation: This analysis tool and its formulas measure the relationship between
two data sets that are scaled to be independent of the unit of measurement. The
population correlation calculation returns the covariance of two data sets divided by
the product of their standard deviations. We can use the Correlation tool to
determine whether two ranges of data move together — that is, whether large
values of one set are associated with large values of the other (positive correlation),
whether small values of one set are associated with large values of the other
(negative correlation), or whether values in both sets are unrelated (correlation
near zero).
- 16 -
CHAPTER II
INTRODUCTION TO INDIAN
STOCK MARKET
2.1 OVERVIEW OF INDIAN STOCK MARKET
The working of stock exchanges in India started in 1875. BSE is the oldest stock
market in India. The history of Indian stock trading starts with 318 persons taking
- 17 -
membership in Native Share and Stock Brokers Association, which we now know by
the name Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent
recognition from the Government of India. National Stock Exchange comes second
to BSE in terms of popularity. BSE and NSE represent themselves as synonyms of
Indian stock market. The history of Indian stock market is almost the same as the
history of BSE.
The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is
compiled based on the performance of the stocks of 30 financially sound benchmark
companies. In 1990 the BSE crossed the 1000 mark for the first time. It crossed
2000, 3000 and 4000 figures in 1992. The reason for such huge surge in the stock
market was the liberal financial policies announced by the then financial minister
Dr. Man Mohan Singh.
The up-beat mood of the market was suddenly lost with Harshad Mehta scam. It
came to public knowledge that Mr. Mehta, also known as the big-bull of Indian stock
market diverted huge funds from banks through fraudulent means. He played with
270 million shares of about 90 companies. Millions of small-scale investors became
victims to the fraud as the Sensex fell flat shedding 570 points.
To prevent such frauds, the Government formed The Securities and Exchange Board
of India, through an Act in 1992. SEBI is the statutory body that controls and
regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio
managers investment advisors etc. SEBI oblige several rigid measures to protect
the interest of investors. Now with the inception of online trading and daily
settlements the chances for a fraud is nil, says top officials of SEBI.
Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark
was crossed in June and the 8000 mark on September 8 in 2005. Many foreign
institutional investors (FII) are investing in Indian stock markets on a very large
scale. The liberal economic policies pursued by successive Governments attracted
foreign institutional investors to a large scale. Experts now believe the sensex can
soar past 14000 mark before 2010.
The unpredictable behavior of the market gave it a tag – ‘a volatile market.’ The
factors that affected the market in the past were good monsoon, Bharatiya Janatha
Party’s rise to power etc. The result of a cricket match between India and Pakistan
also affected the movements in Indian stock market. The National Democratic
Alliance led by BJP, during 2004 public elections unsuccessfully tried to ride on the
market sentiments to power. NDA was voted out of power and the sensex recorded
the biggest fall in a day amidst fears that the Congress-Communist coalition would
stall economic reforms. Later prime minister Man Mohan Singh’s assurance of
‘reforms with a human face’ cast off the fears and market reacted sharply to touch
the highest ever mark of 8500.
- 18 -
India, after United States hosts the largest number of listed companies. Global
investors now ardently seek India as their preferred location for investment. Once
viewed with skepticism, stock market now appeals to middle class Indians also.
Many Indians working in foreign countries now divert their savings to stocks. This
recent phenomenon is the result of opening up of online trading and diminished
interest rates from banks. The stockbrokers based in India are opening offices in
different countries mainly to cater the needs of Non Resident Indians. The time
factor also works for the NRIs. They can buy or sell stock online after returning from
their work places.
The recent incidents that led to growing interest among Indian middle class are the
initial public offers announced by Tata Consultancy Services, Maruti Udyog Limited,
ONGC and big names like that. Good monsoons always raise the market sentiments.
A good monsoon means improved agricultural produce and more spending capacity
among rural folk.
The bullish run of the stock market can be associated with a steady growth of
around 6% in GDP, the growth of Indian companies to MNCs, large potential of
growth in the fields of telecommunication, mass media, education, tourism and IT
sectors backed by economic reforms ensure that Indian stock market continues its
bull run.
2.2 History of the Indian Stock Market - The Origin
Stock markets refer to a market place where investors can buy and sell stocks. The
price at which each buying and selling transaction takes is determined by the
market forces (i.e. demand and supply for a particular stock.
Let us take an example for a better understanding of how market forces determine
stock prices. ABC Co. Ltd. enjoys high investor confidence and there is an
anticipation of an upward movement in its stock price. More and more people would
want to buy this stock (i.e. high demand) and very few people will want to sell this
stock at current market price (i.e. less supply). Therefore, buyers will have to bid a
higher price for this stock to match the ask price from the seller which will increase
the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers
(i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market, its
price will fall down.
In earlier times, buyers and sellers used to assemble at stock exchanges to make a
transaction but now with the dawn of IT, most of the operations are done
electronically and the stock markets have become almost paperless. Now investors
don’t have to gather at the Exchanges, and can trade freely from their home or
office over the phone or through Internet.
- 19 -
One of the oldest stock markets in Asia, the Indian Stock Markets has a 200 years
old history.
18th Century East India Company was the dominant institution and by end of
the century, busuness in its loan securities gained full momentum
1830's Business on corporate stocks and shares in Bank and Cotton presses
started in Bombay. Trading list by the end of 1839 got broader
1840's Recognition from banks and merchants to about half a dozen brokers
1850's Rapid development of commercial enterprise saw brokerage business

attracting more people into the business
1860's The number of brokers increased to 60
1860-61 The American Civil War broke out which caused a stoppage of cotton
supply from United States of America; marking the beginning of the "Share Mania"
in India
1862-63 The number of brokers increased to about 200 to 250
1865 A disastrous slump began at the end of the American Civil War (as an
example, Bank of Bombay Share which had touched Rs. 2850 could only be sold at
Rs. 87)
2.3 ACHIEVEMENTS AND MILESTONES
Pre-Independance Scenario - Establishment of Different Stock Exchanges
1874 With the rapidly developing share trading business, brokers used to gather at
a street (now well known as "Dalal Street") for the purpose of transacting business.
1875 "The Native Share and Stock Brokers' Association" (also known as "The
Bombay Stock Exchange") was established in Bombay
- 20 -
1880's Development of cotton mills industry and set up of many others
1894 Establishment of "The Ahmedabad Share and Stock Brokers' Association"
1880 - 90's Sharp increase in share prices of jute industries in 1870's was followed
by a boom in tea stocks and coal
1908 "The Calcutta Stock Exchange Association" was formed
1920 Madras witnessed boom and business at "The Madras Stock Exchange" was
transacted with 100 brokers.
1923 When recession followed, number of brokers came down to 3 and the
Exchange was closed down
1934 Establishment of the Lahore Stock Exchange
1936 Merger of the Lahoe Stock Exchange with the Punjab Stock Exchange
1937 Re-organisation and set up of the Madras Stock Exchange Limited (Pvt.)
Limited led by improvement in stock market activities in South India with
establishment of new textile mills and plantation companies
1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited
was established
1944 Establishment of "The Hyderabad Stock Exchange Limited"
1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks
and Shares Exchange Limited" were established and later on merged into "The
Delhi Stock Exchange Association Limited"
Post Independance Scenario
The depression witnessed after the Independance led to closure of a lot of

exchanges in the country. Lahore Estock Exchange was closed down after the
partition of India, and later on merged with the Delhi Stock Exchange. Bnagalore
Stock Exchange Limited was registered in 1957 and got recognition only by 1963.
Most of the other Exchanges were in a miserable state till 1957 when they applied
for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges
that were recognized under the Act were:
1. Bombay
2. Calcutta
- 21 -
3. Madras
4. Ahmedabad
5. Delhi
6. Hyderabad
7. Bangalore
8. Bombay
9. Calcutta
10. Madras
11. Ahmedabad
12. Delhi
13. Hyderabad
14. Bangalore
15. Indore
Many more stock exchanges were established during 1980's, namely:
• Cochin Stock Exchange (1980)
• Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)
• Pune Stock Exchange Limited (1982)
• Ludhiana Stock Exchange Association Limited (1983)
• Gauhati Stock Exchange Limited (1984)
• Kanara Stock Exchange Limited (at Mangalore, 1985)
• Magadh Stock Exchange Association (at Patna, 1986)
• Jaipur Stock Exchange Limited (1989)
• Bhubaneswar Stock Exchange Association Limited (1989)
• Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
• Vadodara Stock Exchange Limited (at Baroda, 1990)
• Coimbatore Stock Exchange

- 22 -
• Meerut Stock Exchange
2.4 PERFORMANCE OF INDIAN STOCK MARKET OVER FEW YEARS
At present, there are twenty one recognized stock exchanges in India which does
not include the Over The Counter Exchange of India Limited (OTCEI) and the
National Stock Exchange of India Limited (NSEIL).
Government policies during 1980's also played a vital role in the development of
the Indian Stock Markets. There was a sharp increase in number of Exchanges,
listed companies as well as their capital, which is visible from the table:
S. No. As on 31st December 1946 1961 1971 1981 1991 1995 2001 2005
1 No. of Stock Exchanges 7 7 8 8 9 14 20 23
2 No. of Listed Cos. 1125 1203 1599 1552 2265 4344 6229 8593
3 No. of Stock Issues of Listed Cos. 1506 2111 2838 3230 3697 6174
8967 11784
4 Capital of Listed Cos. (Cr. Rs.) 270 753 1812 2614 3973 9723 32041
59583
5 Market value of Capital of Listed Cos. (Cr. Rs.) 971 1292 2675 3273
6750 25302110279 478121
6 Capital per Listed Cos. (4/2) (Lakh Rs.) 24 63 113 168 175 224
514 693
7 Market Value of Capital per Listed Cos. (Lakh Rs.) (5/2) 86 107 167
211 298 582 1770 5564
Figure 2.1
2.5 TRADING PATTERN OF THE INDIAN STOCK MARKET
Indian Stock Exchanges allow trading of securities of only those public limited
companies that are listed on the Exchange(s). They are divided into two categories:
Types of Transactions
The flowchart below describes the types of transactions that can be carried out on
the Indian stock exchanges:
Figure 2.2
- 23 -
Indian stock exchange allows a member broker to perform following activities:
• Act as an agent,
• Buy and sell securities for his clients and charge commission for the same,
• Act as a trader or dealer as a principal,
Buy and sell securities on his own account and risk.
Over The Counter Exchange of India (OTCEI)
Traditionally, trading in Stock Exchanges in India followed a conventional style

where people used to gather at the Exchange and bids and offers were made by
open outcry.
This age-old trading mechanism in the Indian stock markets used to create many
functional inefficiencies. Lack of liquidity and transparency, long settlement periods
and benami transactions are a few examples that adversely affected investors. In
order to overcome these inefficiencies, OTCEI was incorporated in 1990 under the
Companies Act 1956. OTCEI is the first screen based nationwide stock exchange in
India created by Unit Trust of India, Industrial Credit and Investment Corporation of
India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance
Corporation of India, General Insurance Corporation and its subsidiaries and
CanBank Financial Services.
Advantages of OTCEI
• Greater liquidity and lesser risk of intermediary charges due to widely spread
trading mechanism across India
• The screen-based scripless trading ensures transparency and accuracy of

prices
• Faster settlement and transfer process as compared to other exchanges
• Shorter allotment procedure (in case of a new issue) than other exchanges
National Stock Exchange

- 24 -
In order to lift the Indian stock market trading system on par with the international
standards. On the basis of the recommendations of high powered Pherwani
Committee, the National Stock Exchange was incorporated in 1992 by 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.
NSE provides exposure to investors in two types of markets, namely:
1. Wholesale debt market
2. Capital market
Wholesale Debt Market - Similar to money market operations, debt market

operations involve institutional investors and corporate bodies entering into
transactions of high value in financial instrumets like treasury bills, government
securities, etc.
Trading at NSE
• Fully automated screen-based trading mechanism
• Strictly follows the principle of an order-driven market
• Trading members are linked through a communication network
• This network allows them to execute trade from their offices
• 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 , a confirmation slip
will be printed at the office of the trading member.
Advantages of trading at NSE
• Integrated network for trading in stock market of India
• Fully automated screen based system that provides higher degree of

transparency
• Investors can transact from any part of the country at uniform prices
- 25 -
• Greater functional efficiency supported by totally computerized network
CHAPTER III
SURVEY OF LITERATURE
REVIEW OF LITERATURE
1. Richard W.Sias (1996) has found that a trader-intensified transactions

database is employed to investigate: (1) the relation between order-flow imbalance
closed-end funds share prices and discounts (2) the role of institutional investors in
closed-end funds. Empirical results are consistent with the hypothesis that buyers
(sellers) of closed-end funds face upward (downward) sloping supply (demand)
- 26 -
curves. The results also demonstrate that ownership statistics fail to accurately
reflect institutional investors’ importance in closed-end funds market. The results
failed to provide the evidence that institutional investors offset the position of
individual investors or that institutional investors face systematic “noise trader
risk”.
2. Ilangovan Prof. D. et al (1997) held that Steps are taken to gain extra mileage
as regards the level of foreign investment receipts is concerned. Foreign direct
investment is proven to have well-known positive effect through technology
spillovers and stable investments tied to plant and equipment, but portfolio capital
is associated more closely with volatility and its capacity to be triggered by both
domestic as well as exogenous factors, making it extremely difficult to manage and
control.
3. Arshanapalli Bala et al (1997) has examined the nature and extent of linkage
between the U.S. and the Indian stock markets. The study uses the theory of co-
integration to study interdependence between the BSE, NYSE and NASDAQ. The
sample data consisted of daily closing prices for the three indices from January
1991 to December 1998 with 2338 observations. The results were in support of the
intuitive hypothesis that the Indian stock market was not interrelated to the US
stock markets for the entire sample period. It should be noted that stock markets of
many countries became increasingly interdependent with the US stock markets
during the same time period. India was late in effecting the liberalization policy and
when it implanted these policies it did so in a careful and slow manner. However, as
the effect of economic liberalizations started to take place, the BSE became more
integrated with the NASDAQ and the NYSE, particularly after 1998. It must be noted
that though BSE stock market is integrated with US stock markets, it does not
influence the NASDAQ and NYSE markets.
4. Michael Mosebach et al (2000) have examined the long run equilibrium

relation between the net flow of funds into equity MF and the S&P 500 index.
Applying the Engel and Granger correction methodology followed by a state space
procedure, we find that the levels of the stock market are influenced by the net flow
of funds into equity MFs. Their findings indicate that the US equity market appears
to be rationally adjusting to a structural change in the behaviour of the US investing
public.
- 27 -
5. Chakrabarti (2001) has examined in his research that following the Asian
crisis and the bust of info-tech bubble internationally in 1998-99 the net FII has
declined by US$ 61 million. But there was not much effect on the equity returns.
This negative investment would possibly disturb the long-term relationship between
FII and the other variables like equity returns, inflation, etc. has marked a regime
shift in the determinants of FII after Asian crisis. The study found that in the pre-
Asian crisis period any change in FII found to have a positive impact on the equity
returns. But in the post-Asian crisis period it was found the reverse relation that
change in FII is mainly due to change in equity returns. Hence, any empirical
exercise on FII has to take care of this fact.
6. Richard A.Ajayi et al (2001) have studied recent advances in the time-series

analysis to examine the inter-temporal relation between stock indices and exchange
rates for a sample of eight advanced economies. An error correction model (ECM) of
two variables employed to simultaneously estimate short-run and long-run
dynamics of variables. The ECM result revealed significant short-run and long-run
relationship between two financial markets. Specifically, the results show that
increase in aggregate stock prices has negative short-run effect on domestic
currency value. In the long-run, however, stock prices have positive effect on
domestic currency value. On the other hand currency depreciation has negative
short-run and long-run effects on stock market.
7. Stanley Morgan (2002) has examined that FIIs have played a very important
role in building up India’s forex reserves, which have enabled a host of economic
reforms. Secondly, FIIs are now important investors in the country’s economic
growth despite sluggish domestic sentiment. The Morgan Stanley report notes that
FII strongly influence short-term market movements during bear markets. However,
the correlation between returns and flows reduces during bull markets as other
market participants raise their involvement reducing the influence of FIIs. Research
by Morgan Stanley shows that the correlation between foreign inflows and market
returns is high during bear and weakens with strengthening equity prices due to
increased participation by other players.
8. Sivakumar S (2003) has analysed the net flows of foreign institutional

investment over the years, it also briefly analyses the nature of FII flows based on
research, explores some determinants of FII flows and examines if the overall
experience has been stabilising or destabilising for the Indian capital market.
- 28 -
9. Rai Kulwant et al (2003) heldf that the present study tries to examine the
determinants of Foreign Institutional Investments in India, which have crossed
almost US$ 12 billions by the end of 2002. Given the huge volume of these flows
and its impact on the other domestic financial markets understanding the behavior
of these flows becomes very important at the time of liberalizing capital account. In
this study, by using monthly data, we found that FII inflow depends on stock market
returns, inflation rate (both domestic and foreign) and ex-ante risk. In terms of
magnitude, the impact of stock market returns and the ex-ante risk turned out to be
major determinants of FII inflow. This study did not find any causation running from
FII inflow to stock returns as it was found by some studies. Stabilizing the stock
market volatility and minimizing the ex-ante risk would help in attracting more FII
inflow that has positive impact on the real economy.
10. Agarwal, Chakrabarti et al (2003) have found in their research that the equity
return has a significant and positive impact on the FII. But given the huge volume of
investments, foreign investors could play a role of market makers and book their
profits, i.e., they can buy financial assets when the prices are declining thereby
jacking-up the asset prices and sell when the asset prices are increasing. Hence,
there is a possibility of bi-directional relationship between FII and the equity returns.
11. Raju M.T, Ghosh Anirban (2004) held that volatility estimation is important for
several reasons and for different people in the market. Pricing of securities is
supposed to be dependent on volatility of each asset. In this paper we not only
extend the study period of the earlier paper but also expand coverage in terms of
number of countries and statistical techniques. Mature markets / Developed
markets continue to provide over long period of time high return with low volatility.
Amongst emerging markets except India and China, all other countries exhibited
low returns (sometimes negative returns with high volatility). India with long history
and China with short history, both provide as high a return as the US and the UK
market could provide but the volatility in both countries is higher. The third and
fourth order moments exhibit large asymmetry in some of the developed markets.
Comparatively, Indian market show less of skewness and Kurtosis. Indian markets
have started becoming informationaly more efficient. Contrary to the popular
perception in the recent past, volatility has not gone up. Intra day volatility is also
very much under control and has came down compared to past years.
12. Sandhya Ananthanarayanan (2004) held that as part of its initiative to

liberalize its financial markets, India opened her doors to foreign institutional
investors in September, 1992. This event represents a landmark event since it
resulted in effectively globalizing its financial services industry. We study the
- 29 -
impact of trading of Foreign Institutional Investors on the major stock indices of

India. Our major findings are as follows. First, we find that unexpected flows have a
greater impact than expected flows on stock indices. Second, we find strong
evidence consistent with the base broadening hypothesis. Third, we do not detect
any evidence regarding momentum or contrarian strategies being employed by
foreign institutional investors. Fourth, our findings support the price pressure
hypothesis. Finally, we do not find any substantiation to the claim that foreigners’
destabilize the market.
13. Kwangsoo Ko et al (2004) have examined the characteristics of institutional

and foreign investor stock ownership, and the stock price performance according to
their ownership for two major Asian markets, Japan and Korea. The differences in
abnormal returns are more evident for foreign ownership portfolios than for
institutional ownership portfolios, especially in Korea. If we consider either
institutional or foreign investors, the differences in abnormal returns remain still
significant in Korea, but not in Japan. Both institutional investors’ incentive for stock
holding and the extent of stock market efficiency would be the possible
explanations for the different results between Japan and Korea.
14. David A. Carpenter et al (2005) has examined that the Indian government
has established a regulatory framework for three separate investment avenues:
foreign direct investment; investment by foreign institutional investors; and
investment by foreign venture capital investors. While these investment
alternatives have created clear avenues for foreign investment in India, they remain
subject to many conditions and restrictions which continue to hamper foreign
investment in India.
15. Bose Suchismita et al (2005) has examined the impact of reforms of the
foreign institutional investors' (FIIs) investment policy, on FII portfolio flows to the
Indian stock markets, an aspect, studies on determinants of FII flows to India so far
have not taken into consideration. FIIs have been allowed to invest in the domestic
financial market since 1992; the decision to open up the Indian financial market to
FII portfolio flows was influenced by several factors such as the disarray in India's
external finances in 1991 and a disorder in the country's capital market. Aimed
primarily at ensuring non-debt creating capital inflows at a time of an extreme
balance of payment crisis and at developing and disciplining the nascent capital
market, foreign investment funds were welcomed to the country. Analysis also helps
to evaluate the impact of liberalization policies as well as measures for
strengthening of policy framework for FII flows, in the post-Asian crisis period
- 30 -
16. Samy Dr. P. Chella et al (2006) held that Investors can pick up stocks at these
levels for a growth story for long term i.e. for equities a 5 years holding period is
reasonable to give a very above average return. Caution may be exercised to buy
only good, well established market movers and never, to buy on margins or play
intraday or dabble in derivatives market, which is high risk.
17. Sikdar Soumyen (2006) held that the surge in inflows has not been matched
by a corresponding growth in the absorptive capacity of the Indian economy. The
major reason is the persistent slowdown of industrial activity since 1997. At the
same time, the Reserve Bank of India (RBI) has been reluctant to let the rupee find
its market-clearing level under the circumstances. This has resulted in steady
accretion to our foreign exchange reserves (FER) over the last few years. Problems
of Foreign Capital are widening of current account deficit, monetization,
appreciation of real exchange, etc.
18. Andy Lin Chih-Yuan Chen (2006) has explored the relationship between
qualified foreign institutional investors (QFIIs) and Taiwan’s stock market and
evaluates the effect of QFIIs’ investment transactions on Taiwan’s stock market. By
taking the date of easing regulatory restrictions on foreigners’ stock investment
holdings as a cutoff point, the research uses the highest and lowest 10 stocks of
QFII holdings in three industry sectors as sample portfolios to study the prior- and
post-event returns.
19. Dhamija Nidhi (2007) held that the increase in the volume of foreign
institutional investment (FII) inflows in recent years has led to concerns regarding
the volatility of these flows, threat of capital flight, its impact on the stock markets
and influence of changes in regulatory regimes. The determinants and destinations
of these flows and how are they influencing economic development in the country
have also been debated. This paper examines the role of various factors relating to
individual firm-level characteristics and macroeconomic-level conditions influencing
FII investment. The regulatory environment of the host country has an important
impact on FII inflows. As the pace of foreign investment began to accelerate,
regulatory policies have changed to keep up with changed domestic scenarios. The
paper also provides a review of these changes.
20. P. Krishna Prasanna (2008) has examined the contribution of foreign

institutional investment particularly among companies included in sensitivity index
- 31 -
(Sensex) of Bombay Stock Exchange. Also examined is the relationship between

foreign institutional investment and firm specific characteristics in terms of
ownership structure, financial performance and stock performance. It is observed
that foreign investors invested more in companies with a higher volume of shares
owned by the general public. The promoters’ holdings and the foreign investments
are inversely related. Foreign investors choose the companies where family
shareholding of promoters is not substantial. Among the financial performance
variables the share returns and earnings per share are significant factors
influencing their investment decision.
CHAPTER IV
ISSUE STUDIED
4.1 To study the scope and trading mechanism of Foreign Instititutional Investors in
India.
The scope and the trading mechanism of Foreign Institutional investors in India is
discussed as follow:
- 32 -
The eligibility criteria for applicant seeking FII registration
As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors

are required to fulfill the following conditions to qualify for grant of registration:
• Applicant should have track record, professional competence, financial

soundness, experience, general reputation of fairness and integrity.
• The applicant should be regulated by an appropriate foreign regulatory

authority in the same capacity/category where registration is sought from SEBI.
Registration with authorities, which are responsible for incorporation, is not
adequate to qualify as Foreign Institutional Investor.
• The applicant is required to have the permission under the provisions of the
Foreign Exchange Management Act, 1999 from the Reserve Bank of India.
• Applicant must be legally permitted to invest in securities outside the country

or its in-corporation / establishment.
• The applicant must be a "fit and proper" person.
• The applicant has to appoint a local custodian and enter into an agreement
with the custodian. Besides it also has to appoint a designated bank to route its
transactions.
• Payment of registration fee of US $ 5,000.00
"Form A" as prescribed in SEBI (FII) Regulations, 1995 is to be filled before applying
for FII registration.
Supporting documents required are:
• Application in Form A duly signed by the authorized signatory of the

applicant.
• Certified copy of the relevant clauses or articles of the Memorandum and

Articles of Association or the agreement authorizing the applicant to invest on
behalf of its clients
• Audited financial statements and annual reports for the last one year ,
provided that the period covered shall not be less than twelve months.
• A declaration by the applicant with registration number and other particulars

in support of its registration or regulation by a Securities Commission or Self
- 33 -
Regulatory Organisation or any other appropriate regulatory authority with whom

the applicant is registered in its home country.
• A declaration by the applicant that it has entered into a custodian agreement

with a domestic custodian together with particulatrs of the domestic custodian.
• A signed declaration statement that appears at the end of the Form.
• Declaration regarding fit & proper entity.
The fee for registration as FII is US $ 5,000. The mode of payment is Demand Draft
in favour of "Securities and Exchange Board of India" payable at New York”.
SEBI generally takes 7 working days in granting FII registration. However, in cases
where the information furnished by the applicants is incomplete, seven days shall
be counted from the days when all necessary information sought, reaches SEBI.
In cases where the applicant is bank and subsidiary of a bank, SEBI seeks
comments from the Reserve Bank of India (RBI). In such cases, 7 working days
would be counted from the day no objection is received from RBI.
The FII registration is valid for 5 years. After expiry of 5 years, the registration
needs to be renewed.
Same as initial registration, Along with "Form A" and all the relevant documents, the
applicants are required to fill in additional form (Annexure 1) while applying for
renewal. US $ 5,000 needs to be paid for renewal of FII registration.
The application for renewal should be submitted three months before expiry of the
FII registration. 100 % debt FIIs are debt dedicated FIIs which invest in debt
securities only. The procedure for registration of FII/sub-account, under 100% debt
route is similar to that of normal funds besides a clear statement by the applicant
that it wishes to be registered as FII/sub-account under 100% debt route.
SUB-ACCOUNT REGISTRATION
e) Institution or funds or portfolios established outside India, whether

incorporated or not.
f) Proprietary fund of FII.
g) Foreign Corporates
h) Foreign Individuals.
The FII should apply on the behalf of the Sub-account. Both the FII and the Sub-
account are required to sign the Sub-account application form.
- 34 -
"Annexure B" to "Form A" (FII application form) needs to be filled when applying for
sub-account registration. No document is needed to be sent with annexure B. The
fee for sub-account registration is US$ 1,000. The fee is to be submitted at the time
of submitting the application. The mode of payment is Demand Draft in the name of
"Securities and Exchange Board of India" payable at New York. SEBI generally takes
three working days in granting FII registration. However, in cases where the
information furnished by the applicants is incomplete, three days shall be counted
from the days when all necessary information sought, reaches SEBI. The validity of
sub-account registration is co-terminus with the FII registration under which it is
registered. The process of renewal of sub-account is same as initial registration.
Renewal fee in this case is US $ 1,000. OCBs / NRIs are not permitted to get
registered as FII/sub-account.
POST-REGISTRATION PROCESSES:
If a registered FII/sub-account undergoes name change, then the FII need to

promptly inform SEBI about the change. It should also mention the reasons for the
name change and give an undertaking that there has been no change in beneficiary
ownership.
In case of name change of FII, the request should be accompanied with documents
from home regulator and registrar of the company evidencing approval of name
change, and the original FII registration certificate issued by SEBI should be sent
back for necessary amendment.
Procedure for transferring a sub-account from one FII to another:
The FII to whom the Sub-account is proposed to be transferred has to send a

request along with a declaration that it is authorized to invest on behalf of the Sub-
account. The transferor FII should also submit a No-objection certificate.
The FII should send a request, along with no-objection certificate from existing
domestic custodian, for change in domestic custodian.
The FII would be required to send a request for cancellation of its registration or
registration of its Sub-account/s clearly mentioning the name and registration
number of the entity. The FII should ensure that it / Sub-account has nil cash /
securities holdings.
Procedure for change of local custodian:
In case of change of the local custodian of the FII / sub-account, the change should
be intimated to SEBI by the FII. On receipt of no objection from the existing
custodian and acceptance from the proposed custodian, the change of custodian
would be approved - by SEBI.
- 35 -
Procedure for registration as FII/sub account under 100% debt route:
The procedure for registration of FII/sub account under 100% debt route is similar to
that of normal funds besides a clear statement by the applicant that it wishes to be
registered as FII/sub account under 100% debt route. However, Government of India
allocates the overall investment limit for 100% debt funds annually. The grant of
investment limit for individual 100% debt funds is within this overall limit. The funds
have to seek further investment limit in case the limit allotted to them is exhausted
and they wish to invest further.
A Foreign Institutional Investor having an account with one custodian can open
accounts with different custodians for its different sub-accounts. However, one sub-
account cannot be custodial with more than one custodian.
Procedure if an existing sub-account wants to get registered as a Foreign

Institutional Investor:
In case if a registered sub-account wishes to get itself registered as a Foreign

Institutional Investor, then it will have to apply in Form A to SEBI for the same and
has to satisfy all the eligibility criteria norms mentioned in SEBI (Foreign
Institutional Investor) Regulations, 1995. It should also submit a letter from the old
FII indicating its 'No-objection' to such registration.
Procedure for renewal of FII/Sub-Account registration:
They have to apply before 3 months of the expiry of registration in Form A. Circular
No FITTC/CUST/09/2000 dated September 21, 2000 may be referred.
If the FII does not renew its/sub-account’s registration:
The registration of the FII / Sub-account would get expired at due date and it would
not be allowed to trade in Indian securities markets. If it is not interested in renewal
but has certain residual assets, it can apply for disinvestment in terms of Circular
No. FITTC/CUST/12/2001 dated June 04, 2001 and abide by the guidelines specified
in this regard.
INVESTMENT OPPORTUNITIES
Financial instruments are available for FII investments:
a. Securities in primary and secondary markets including shares, debentures

and warrants of companies, unlisted, listed or to be listed on a recognized stock
exchange in India;
b. Units of mutual funds;

- 36 -
c. Dated Government Securities;
d. Derivatives traded on a recognized stock exchange;
e. Commercial papers.
Investment limits on equity investments by FII/sub-account:
a. FII, on its own behalf, shall not invest in equity more than 10% of total issued
capital of an Indian company.
b. Investment on behalf of each sub-account shall not exceed 10% of total

issued capital of an India company.
c. For the sub-account registered under Foreign Companies/Individual category,

the investment limit is fixed at 5% of issued capital.
These limits are within overall limit of 24% / 49 % / or the sectoral caps prescribed
by Government of India / Reserve Bank of India.
Investment limits on debt investments by FII/sub-account:
The FII investments in debt securities are governed by the policy if the Government
for FII investments in Government debt, currently of India. Currently following limits
are in effect:
100 % Debt Route US $ 1.55 billion
70 : 30 Route US $ 200 million
Total Limit US $ 1.75 billion
o For corporate debt the investment limit is fixed at US $ 500 million.
Other investment limits:
Normal FII (70:30 Route) 100% Debt FII
Total investment in equity and equity related instruments shall not be less than
70% of aggregate of all investments. 100% investment shall be made in debt
security only.
Securities to be registered in name of :
a. In the name of FII when making investments on its own behalf
b. In the name of sub-account when making investments on behalf of Sub-

account
- 37 -
DERIVATIVES POSITION LIMITS
a. The FII position limits in a derivative contracts (Individual Stocks)
The FII position limits in a derivative contract on a particular underlying stock i.e.
stock option contracts and single stock futures contracts are:
o For stocks in which the market wide position limit is less than or equal to Rs.
250 Cr, the FII position limit in such stock shall be 20% of the market wide limit.
o For stocks in which the market wide position limit is greater than Rs. 250 Cr,
the FII position limit in such stock shall be Rs. 50 Cr.
b. FII Position limits in Index options contracts
FII position limit in all index options contracts on a particular underlying index shall
be Rs. 250 Crores or 15 % of the total open interest of the market in index options,
whichever is higher, per exchange.
This limit would be applicable on open positions in all option contracts on a

particular underlying index.
c. FII Position limits in Index futures contracts:
FII position limit in all index futures contracts on a particular underlying index shall
be Rs. 250 Crore or 15 % of the total open interest of the market in index futures,
whichever is higher, per exchange.
This limit would be applicable on open positions in all futures contracts on a

particular underlying index.
In addition to the above, FIIs shall take exposure in equity index derivatives subject
to the following limits:
i. Short positions in index derivatives (short futures, short calls and long puts)
not exceeding (in notional value) the FII’s holding of stocks.
ii. Long positions in index derivatives (long futures, long calls and short puts)
not exceeding (in notional value) the FII’s holding of cash, government securities, T-
Bills and similar instruments.
d. FII Position Limits in Interest rate derivative contracts
At the level of the FII
The notional value of gross open position of a FII in exchange traded interest rate
derivative contracts shall be:
i. US $ 100 million.
- 38 -
ii. In addition to the above, the FII may take exposure in exchange traded in
interest rate derivative contracts to the extent of the book value of their cash
market exposure in Government Securities.
At the level of the sub-account
The position limits for a Sub-account in near month exchange traded interest rate
derivative contracts shall be higher of:
? Rs. 100 Cr or
? 15% of total open interest in the market in exchange traded interest rate
derivative contracts.
4.2 To find the relationship between the FIIs equity investment pattern and Indian
stock indices.
The sample data consists of 24 observations for FII, Sensex and S&P CNX Nifty
starting from January 2007 to December 2008. Average index of all the indices and
monthly average of net investments made by FII is taken into consideration in the
study. FII was taken as independent variable. Stock indices were taken as
dependent variable. The data was taken from various financial sites.
- 39 -
The relationship between the FII’s equity investment pattern and Indian stock
indices is studied for the year 2007 & 2008 with the help of correlation and
regression analysis. The results and the analysis are shown below:
Correlations(2007)
FIIs Sensex
FIIs Pearson Correlation 1 .173
Sig. (2-tailed) .590
N 12 12
Sensex Pearson Correlation .173 1
N 12 12
Fig 4.1: Correlation between the FII’s equity investment pattern and Sensex for the
year 2007
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .173a .030 -.067 2727.50409
a. Predictors: (Constant), FII
Model Sum of Squares df Mean Square F Sig.

- 40 -
1 Regression 2302261.126 1 2302261.126 .309 .590a
Residual 7.439E7 10 7439278.580
Total 7.670E7 11
b. Dependent Variable: sensex
Fig 4.2 Regression between the FII’s equity investment pattern and Sensex for the
year 2007
Analysis for the year 2007 on the basis of the above results obtained:
The data includes 12 observations of monthly Sensex and FIIs in year 2007. The
correlation and regression is calculated with the help of SPSS.
Number of Observations = 12
Correlation = 0.173 and regression = 0.590
? There is positive effect of FII on Sensex but the correlation coefficient is low.
This means that Sensex has a relation with FII but the FII is not influencing the
Sensex much.
? The regression coefficient is 0.590 which reflects 59.0 % variability in Sensex

with the independent variable i.e FII and how much the FII affects the Sensex in
2007.
? The standard error comes out to be 2727.50409 which is very high and so it
means that the deviation from the mean value is very high. This does not mean the
relation is false but we can say that the error in linear relation is high.
Correlations
FII Sensex
FII Pearson Correlation 1 .130

- 41 -
N 12 12
Sensex Pearson Correlation .130 1
N 12 12
Fig 4.3 Correlation between the FII’s equity investment pattern and Sensex for the
year 2008
Model Summary
1 .130a .017 -.082 3262.54183
1 Regression 1815662.926 1 1815662.926 .171 .688a
Residual 1.064E8 10 1.064E7
Total 1.083E8 11
Fig 4.4 Regression between the FII’s equity investment pattern and Sensex for the
year 2008
The data includes 12 observations of monthly Sensex and FIIs in year 2008. The
No, of Observations = 12, Correlation = 0.130,
Regression = 0.688, Standard Error = 3262.54183

- 42 -
? The effect of FII on Sensex if positive, But the correlation coefficient is very
low and it is only 0.130. This means that Sensex has a relation with FII but the FII is
not influencing the Sensex much.
? The standard error comes out to be 3262.54183 which is high. This does not
mean that the relation is false but the error in linear relation is high.
? In 2008, the regression coefficient is 0.688 which means 68.8% variability in

BSE Sensex due to independent variable FII which is much higher than during 2007
in the bullish run.
Correlations
FII nifty
Sig. (2-tailed) 0.642
N 12 12
nifty Pearson Correlation .036 1
N 12 12
Fig 4.5 Correlation between the FII’s equity investment pattern and Nifty for the
year 2007
Model Summary
1 .036a .001 -.099 491.63092

- 43 -
1 Regression 3183.097 1 3183.097 .013 0.642
Residual 2417009.575 10 241700.957
Total 2420192.672 11
Fig 4.6 Regression between the FII’s equity investment pattern and Nifty for the
year 2007
The data includes 12 observations of monthly Nifty and FIIs in year 2007. The
? The nifty is positively correlated with FIIs. The correlation coefficient is 0.036
which is almost near to zero and so we can say that FII are almost unrelated to nifty
in 2007.
? The coefficient of determination = Explained Variance/Total Variance
Explained Variance = FIIs impact on overall fluctuation in Nifty
Unexplained Variance = impact of other factors
R square is 0.001 which means 1% change in nifty due to explained variance and all
other volatility is due to other factors.
? The standard error is 491.63092 which is high. This does not mean that the
relation is false but the error in linear relation is high.
? The regression coefficient is 0.642 which means 64.2% variability in Nifty due
to a single factor FII.
Correlations
FII nifty

- 44 -
N 12 12
nifty Pearson Correlation -.348 1
N 12 12
Fig 4.7 Correlation between the FII’s equity investment pattern and Nifty for the
year 2008
Model Summary
1 .348a .121 .033 713.96136
1 Regression 703762.386 1 703762.386 1.381 0.267
Residual 5097408.282 10 509740.828
Total 5801170.668 11
b. Dependent Variable: nifty
Fig 4.8 Regression between the FII’s equity investment pattern and Nifty for the
year 2008
The data includes 12 observations of monthly Nifty and FIIs in year 2008. The

- 45 -
? The nifty in 2008 is positively correlated to FII. The correlation coefficient is

0.348 which is much higher than 0.036 of last year. It interprets that Nifty is more
correlated to FII in 2008 as comparable to the 2007.
? The regression coefficient is 0.267 in 2008. By regression it is analyzed how a

single dependent variable is affected by an independent variable. It can be
interpreted that with the fall in market in 2008 the FII have started withdrawing
from the NSE.
? But the correlation is high due to withdrawing of money by FIIs in 2008 which
reflects the relationship between the two.
? The coefficient of determination is 0.121 which is 12.1% change in Nifty due

to explained variance i.e. FII.
4.3 To analyze the impact of FIIs equity investment on specific industrial sector
(FMCG, Consumer Durables, Auto, Banking, Real Estate) indices.
The relationship between the FII’s equity investment pattern and specific industrial
stock indices is studied for the year 2007 & 2008 with the help of correlation and
regression analysis. The results and the analysis is shown below:
Correlations
FII auto
N 12 11
auto Pearson Correlation .084 1
N 11 11
- 46 -
Fig 4.9 Correlation between the FII’s equity investment pattern and Auto sector for
the year 2007
Model Summary
1 .053a .003 -.097 326.82145
1 Regression 3009.574 1 3009.574 .028 .807a
Residual 1068122.632 10 106812.263
Total 1071132.206 11
Fig 4.10 Regression between the FII’s equity investment pattern and Auto sector for
the year 2007
The data includes 12 observations of monthly Auto sector indices and FIIs in year
2007. The correlation and regression is calculated with the help of SPSS.
? FII has no significant relation with BSE Automobiles, as the value of

correlation is 0.084. This does not mean that there is no relation at all between
- 47 -
them. It shows the absence of linear relation between the two variables but not a
lack of relationship altogether.
? The regression coefficient is 0.807 which means 80.7 % impact of FII on BSE
automobiles. It reflects how the market is going up with the increase in FIIs.
? The standard error comes out to be 326.82145 which is high. This does not
mean that the relation is false but the error in linear relation is high.
Correlations
FII auto
N 12 12
auto Pearson Correlation .116 1
N 12 12
Fig 4.11 Correlation between the FII’s equity investment pattern and Auto sector for
the year 2008.
Model Summary
1 .116a .013 -.085 957.46389

- 48 -
1 Regression 125352.999 1 125352.999 .137 .719a
Residual 9167371.017 10 916737.102
Total 9292724.016 11
b. Dependent Variable: auto
Fig 4.12 Regression between the FII’s equity investment pattern and Auto sector for
the year 2008
The data includes 12 observations of monthly Automobiles sector indices and FIIs in
year 2008. The correlation and regression is calculated with the help of SPSS.
? The correlation coefficient is 0.116 which means there is no significant

correlation between Automobiles sector and FIIs in 2008. It shows the absence of
linear relation between the two variables but not a lack of relationship altogether.
But as comparable to 2007 there is more positive relation between the above two
variables.
? The coefficient of determination which is 13% also reflects more clear picture
that how explained variance i.e. FII are affecting BSE Auto index.
- 49 -
? The regression coefficient is 0.719 which means that in 2008 with the
withdrawal of money by FIIs in 2008 the Auto Sector index has also fallen. This can
easily be seen as the reduction in regression coefficient from 0.807 to 0.719.
Correlations
FII bankex
N 12 12
bankex Pearson Correlation .166 1
N 12 12
Fig 4.13 Correlation between the FII’s equity investment pattern and banking sector
for the year 2007
Model Summary
1 .053a .003 -.097 326.82145
1 Regression 3009.574 1 3009.574 .028 .606a
Residual 1068122.632 10 106812.263
Total 1071132.206 11

- 50 -
Fig 4.14 Regression between the FII’s equity investment pattern and banking sector
for the year 2007
The data includes 12 observations of monthly Banking sector indices and FIIs in
? There is positive effect of FII on BSE Banking sector index but the correlation
coefficient is 0.166 which is low. This means that BSE Banking sector index has a
relation with FII but the FII is not influencing the the index much.
? The R square is 0.03 which means FII has a 3% influence on all fluctuations in
the Banking index.
? The regression is 0.870 from which it can be analysed that how BSE banking
is affected by the values of independent variable FII. It can be seen that BSE
banking is affected a lot by FII and with more FIIs index is also going up.
- 51 -
Correlations
FII bankex
N 12 11
bankex Pearson Correlation .149 1
N 11 11
Fig 4.15 Correlation between the FII’s equity investment pattern and banking sector
for the year 2008
Model Summary
1 .064a .004 -.096 2021.30305
1 Regression 165442.207 1 165442.207 .040 .662a
Residual 4.086E7 10 4085666.028
Total 4.102E7 11
b. Dependent Variable: bankex
Fig 4.16 Regression between the FII’s equity investment pattern and banking sector
for the year 2008
- 52 -
The data includes 12 observations of monthly Banking sector indices and FIIs in

correlation between banking sector and FIIs in 2008. It shows the absence of linear
relation between the two variables but not a lack of relationship altogether. But as
comparable to 2007 there is less positive relation between the above two variables.
Explained Variance = FIIs impact on overall fluctuation in BSE Banking
? The regression coefficient is 0.662 which means that with the change in FII
there is less change in the banking sector index and fewer amounts is withdrawn
from this.
Correlations
FII consumerdurables
N 12 11
consumerdurables Pearson Correlation .173 1
N 11 11
- 53 -
Fig 4.17 Correlation between the FII’s equity investment pattern and consumer
durables sector for the year 2007
Model Summary
1 .077a .006 -.093 1035.50370
1 Regression 64755.976 1 64755.976 .060 .610a
Residual 1.072E7 10 1072267.920
Total 1.079E7 11
b. Dependent Variable: consumerdurables
Fig 4.18 Regression between the FII’s equity investment pattern and consumer
The data includes 12 observations of monthly Consumer durables sector indices and
FIIs in year 2007. The correlation and regression is calculated with the help of SPSS.

- 54 -
? There is positive effect of FII on BSE CD sector index but the correlation
coefficient is 0.166 which is low. This means that BSE CD sector index has a relation
with FII but the FII is not influencing the the index much.
Explained Variance = FIIs impact on overall fluctuation in BSE CD
? The regression is 0.610 from which it can be analyzed that how BSE CD is
affected by the values of independent variable FII. It can be seen that BSE banking
is affected a lot by FII and with more FIIs index is also going up.
Correlations
FII consumerdurables
FII
Pearson Correlation 1 .192
N 12 11
consumerdurables Pearson Correlation .192 1
Fig 4.19 Correlation between the FII’s equity investment pattern and consumer
Model Summary
1 .045a .002 -.098 1175.87269

- 55 -
1 Regression 28461.276 1 28461.276 .021 .572a
Residual 1.383E7 10 1382676.572
Total 1.386E7 11
b. Dependent Variable: consumerdurables
Fig 4.20 Regression between the FII’s equity investment pattern and consumer
The data includes 12 observations of monthly Consumer durables sector indices and
FIIs in year 2008. The correlation and regression is calculated with the help of SPSS.
No, of Observations = 12, Correlation = 0.192

correlation between BSE CD sector and FIIs in 2008. It shows the absence of linear
relation between the two variables but not a lack of relationship altogether. But as
comparable to 2007 there is more positive relation between the above two
variables.
- 56 -
withdrawal of money by FIIs in 2008 the Auto Sector index has also fallen. This can
easily be seen as the reduction in regression coefficient from 0.610 to 0.572.
Correlations
FII fmcg
N 12 11
fmcg Pearson Correlation .252 1
N 11 11
Fig 4.21 Correlation between the FII’s equity investment pattern and fmcg sector for
the year 2007
Model Summary
1 .178a .032 -.065 187.05383

- 57 -
1 Regression 11453.182 1 11453.182 .327 .454a
Residual 349891.339 10 34989.134
Total 361344.521 11
b. Dependent Variable: fmcg
Fig 4.22 Regression between the FII’s equity investment pattern and fmcg sector for
the year 2007
The data includes 12 observations of monthly FMCG sector indices and FIIs in year
? There is a positive correlation between FMCG and FIIs and the correlation
coefficient is 0.252. It reflects FMCG and FII inflow/Outflow moving in same
direction.
? The R square is .032 which means that FII has a big impact on the FMCG
sector index.
? The regression is 0.454 from which it can be analyzed that how BSE FMCG is
affected by the values of independent variable FII. It can be seen that BSE banking
is affected a lot by FII and with more FIIs index is also going up.
Correlations
FII fmcg

- 58 -
N 12 12
fmcg Pearson Correlation .403 1
N 12 12
Fig 4.23 Correlation between the FII’s equity investment pattern and fmcg sector for
the year 2008
Model Summary
1 .403a .162 .078 185.75990
1 Regression 66780.008 1 66780.008 1.935 .194a
Residual 345067.407 10 34506.741
Total 411847.415 11
b. Dependent Variable: fmcg
Fig 4.24 Regression between the FII’s equity investment pattern and fmcg sector for
the year 2008
- 59 -
The data includes 12 observations of monthly FMCG sector indices and FIIs in year

correlation between BSE FMCG sector and FIIs in 2008. It shows the absence of
But as comparable to 2007 there is more positive relation between the above two
variables.
withdrawal of money by FIIs in 2008 the FMCG Sector index has also fallen. The less
investment in FMCG sector index is the reason for this. This can easily be seen as
the reduction in regression coefficient from 0.494 to 0.194.
Correlations
FII realty
N 12 11
realty Pearson Correlation .228 1
N 11 11
Fig 4.25 Correlation between the FII’s equity investment pattern and realty sector
for the year 2007
Model Summary
- 60 -
1 .146a .021 -.077 2294.77791
1 Regression 1143793.783 1 1143793.783 .217 .501a
Residual 5.266E7 10 5266005.670
Total 5.380E7 11
b. Dependent Variable: realty
Fig 4.26 Regression between the FII’s equity investment pattern and realty sector
for the year 2007
The data includes 12 observations of monthly Realty sector indices and FIIs in year
? There is a positive correlation between Realty and FIIs and the correlation
coefficient is 0.252. It reflects Realty and FII inflow/Outflow moving in same
direction.

- 61 -
R square is 0.021 which means 21% change in realty sectoral indices due to
explained variance and all other volatility is due to other factors.
? The regression is 0.501 from which it can be analyzed that how BSE realty is
affected by the values of independent variable FII. It can be seen that BSE realty is
affected a lot by FIIs inflow and with more FIIs inflow, index is also going up.
Correlations
FII realty
N 12 12
realty Pearson Correlation .129 1
N 12 12
Fig 4.27 Correlation between the FII’s equity investment pattern and realty sector
for the year 2008
Model Summary
1 .348a .121 .033 713.96136
1 Regression 703762.386 1 703762.386 1.381 .690a
Residual 5097408.282 10 509740.828
Total 5801170.668 11
- 62 -
b. Dependent Variable: nifty
Fig 4.28 Regression between the FII’s equity investment pattern and realty sector
for the year 2008
The data includes 12 observations of monthly Realty sector indices and FIIs in year

correlation between BSE realty sector and FIIs in 2008. It shows the absence of
But as comparable to 2007 there is less positive relation between the above two
variables.
? The regression coefficient is 0.690 in 2008 which means that with the fall in
FIIs in this year there is a big variability in realty sector as well. But there are many
other factors which are affecting realty sector other than FII in 2008.
- 63 -
CHAPTER V
FINDINGS, CONCLUSIONS,
LIMITATIONS
- 64 -
&
RECOMMENDATIONS
5.1 FINDINGS
After the analysis following are the findings of the study:
1) Impact of FIIs on Sensex: In 2007, the correlation coefficient is more than in

2008 which interprets that the relationship between these two variables is more in
the period when there is bearish trend. But in both the years FIIs were not much
positively correlated, so a less significant impact of FIIs is seen. The error is very
high in both the years which doesn’t mean that relation is false but we can say that
the error in linear relation is high.
2) Impact of FIIs on Nifty: The correlation coefficient of FIIs and Nifty is unrelated
in 2007 and 2008. The regression coefficient predicts the value from an
independent variable i.e. FII for the dependent variable Nifty. Regression coefficient
is 0.267 in 2008 and 0.911 in 2007 which replicates that how Nifty index has gone
down by withdrawal of FIIs.
3) Impact of FIIs on Industrial Sectoral Indices: In different Industrial sectoral

indices of BSE ( BSE Auto, BSE Banking, BSE CD, BSE FMCG, BSE Realty) the
correlation is always less. And also the coefficient of determination reveals that the
explained variance ( FII ) doesn’t has much impact on the sectoral indices. And in
- 65 -
2008 the regression coefficient is giving a clear picture that the withdrawal by FIIs is
resulting a fall in indices and so FIIs are playing good role during this time.
4) FIIs have less impact on Indian stock indices and other unexplained variables
are also influencing the Indices.
5) In bearish trend of 2008 the volatility in Indian Stock indices due to FIIs is
more than in bullish trend of 2007. No doubt FII inflow is more in 2007. The
domestic investors were also playing an important role in 2007 but in 2008 FIIs are
influencing market more as domestic investors are not in the market.
5.2 CONCLUSION
In developing countries like India foreign capital helps in increasing the productivity
of
labour and to build up foreign exchange reserves to meet the current account
deficit. Foreign Investment provides a channel through which country can have
access to foreign
capital.
According to Data analysis and findings, 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. There is a
positive correlation between stock indices and FIIs but FIIs didn’t have any
significant impact on Indian Stock Market. The null hypothesis is rejected. BSE CD
and Nifty showed some positive correlation with FII in 2007 and 2008 but rest of the
indices showed very less positive correlation with FII. 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 monthly basis. The data on daily basis can give more
- 66 -
positive results (may be). Also FII is not the only factor affecting the stock indices.
There are other major factors that influence the bourses in the stock market.
5.3 LIMITATIONS
Besides following scientific methodologies the study has come across some
limitations. These are:
? The study is based on Sensex sample. The Sensex companies have an

external image that they are the best performers in the country. If the sample
companies consist of probably a heterogeneous group then the results may give
better insight in to relationship of the specific variables.
? The data is taken on monthly basis. The data on daily basis can give more
positive results.
? Due to time constraint, my project report is not fully exhaustive.
? Secondary data that I have used in this study may not give true picture of the
concern.
- 67 -
5.4 RECOMMENDATIONS
After the analysis of the project study, following recommendations can be made:
1) Simplifying procedures and relaxing entry barriers for business activities and
providing investor friendly laws and tax system for foreign investors.
2) Allowing foreign investment in more areas. In different industries indices the

FIIs should be encouraged through different patterns like futures, options, etc.
3) 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
who have invested with the help of participatory notes.
4) We have to modernize and also have to save our culture. Similarly the laws
should be such that it protect domestic investors and also promote trade in country
through FIIs.
5) Encourage industries to grow to make FIIs an attractive junction to invest.

- 68 -
CHAPTER VI
BIBLIOGRAPHY
- 69 -
References:
References for articles:
Andy Lin Chih-Yuan Chen (2006): “The Impact of Qualified Foreign Institutional
Investors on Taiwan’s Stock Market”, Journal : Journal of FII , their flow to India and
Government policies Vol 23. Publisher: SSRN Group Publishing Limited.
Arshanapalli Bala and Kulkarni Mukund S. (1997) : “Impact of U.S. stock market on
Indian stock markets”, Journal: International Journal of market fluctuations in stock
market, Vol: 11. Publisher: MCB UP Ltd.
Bose Suchismita and Coondoo Dipaankar (2005): “The Impact of FII Regulations in
India”, Journal: International Journal of financial market trends. Vol 30. Publisher:
MCB UP Ltd
Chakrabarti (2001), Journal: Journal of foreign institution investments Vol 27.
Publisher: SSRN Group Publishing Limited.
David carpenter Partner Mayer, Brown, Rowe & Maw LLP (2005): “Foreign
Investment in India” Journal: Journal of financial research. Vol 19.Publisher: MCB UP
Ltd
Ilangovan Prof. D. & Mr. Tamilselvan M. (1997) : “Extra Mileage In Foreign

Investment in Resurging India”, Journal: International Journal of foreign money
supply Management, Vol: 28. Publisher: MCB UP Ltd.
- 70 -
Kwangsoo Ko , Keunsoo Kim & Sung Hoon Cho (2004) : “Performance of Institutional
and Foreign Investors in the Japanese and Korean Stock Markets”, Journal: Journal of
Institutional Investors . Vol 15. Publisher: Emerald Group Publishing Limited
Michael Mosebach and Mohammad Najand of Old Dominion University (2000): “Are
the structural changes in MF investing, driving the US stock markets to its current
levels”, Journal: International Journal of bull and bear pulls, Vol: 25. Publisher: MCB
UP Ltd.
Nidhi Dhamija lecturer at Hindu College at Delhi University (2007) : “Foreign

Institutional Investment in India”, Journal: Research on Indian Stock Volatilty. Vol 14.
Publisher: Emerald Group Publishing Limited.
Rai Kulwant & Bhanumurthy N R (2003) : “Determinants of Foreign Institutional

Investment in India”, Journal: Journal of Institutional Investors . Vol 15. Publisher:
Emerald Group Publishing Limited
Raju M.T, Ghosh Anirban (2004) : “Stock Market Volatility – An International

Comparison”, Journal: Research on Indian Stock Volatilty. Vol 14. Publisher: Emerald
Group Publishing Limited.
Richard W.Sias of Washington State University (1996) : “Price pressure and the role
of substitutional investors in closed-end funds” , Journal: Journal of ICFAI, Vol: 25.
Publisher: MCB UP Ltd.
Richard A.Ajayi and Mbodja Mougou of Wayne State University (2001) : “On the
dynamic relation between stock prices and exchange rates” , Journal: Journal of
ICFAI, Vol: 25. Publisher: MCB UP Ltd.
Samy Dr. P. Chella and Murugan Bala (2006): “A Study on Capital Stock Market
Movement in India – Present Scenario”, Journal: European Business Review. Vol 15.
Publisher: MCB UP Ltd.
Sandhya Ananthanarayanan of Nanyang Technological University(2004) : “Foreign

Institutional Investors and Security Returns: Evidence from Indian Stock
Exchanges”, Journal: International Journal of foreign money supply Management,
Vol: 28. Publisher: MCB UP Ltd.
Sikdar Soumyen (2006) : “Foreign Capital Inflow into India: Determinants and
Management”, Journal: Journal of Institutional Investors . Vol 17. Publisher: Emerald
Group Publishing Limited
- 71 -
Sivakumar S (October 2003) : “FIIs: Bane or boon?” , Journal : Journal of stock

market volatility , Vol: 34. Publisher: MCB UP Ltd.
Stanley Morgan (2002) :“FII’s influence on Stock Market”, Journal: Journal of impact
of Institutional Investors on ism. Vol 17. Publisher: Emerald Group Publishing
Limited
Trivedi & Nair, and Agarwal, Chakrabarti (2003) , Journal: International Journal of
foreign money supply Management, Vol: 19. Publisher: MCB UP Ltd.
References from weblinks:
http://stockstalks.com/stocktalksforums/index.php?
PHPSESSID=1c9e4a95fb85330dc5c1d0bd081d10fe&topic=6.0
http://www.sebi.gov.in/workingpaper/stock.pdf
http://www.sharetipsinfo.com/Fii-Newsstockmarket.html
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=755324
http://ezinearticles.com/?A-Study-on-Capital-Stock-Market-Movement-in-India---
Present-Scenario&id=719360
http://news.indiamart.com/news-analysis/fii-s-influence-on-s-2626.html
http://www.rediff.com/money/2003/oct/06spec2.htm
- 72 -
www.ide.go.jp/English/Publish/De/pdf/04_04_02.pdf
http://www.mayerbrown.com/publications/article.asp?id=2099
http://www.isb.edu/CAF/htmls/Sandhya&Sen.pdf
http://mar.sagepub.com/cgi/content/abstract/2/3/287
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=565861
http://www.joaag.com/uploads/4_PrasannaFinal3_2_.pdf
http://knowledge.wharton.upenn.edu/articlepdf/885.pdf?
CFID=4849913&CFTOKEN=38706388&jsessionid=a83084e3a6ca3577732b738405
bd1766251b
http://cmr.ba.ouhk.edu.hk/cmr/webjournal/v9n2/CMR503E05.pdf
http://www.ibef.org/economy/foreigninvestors.aspx
http://www.isb.edu/faculty/rajeshchakrabarti/FII_Basu.pdf
http://www.citeman.com/4005-fiis-and-their-impact-on-indian-stock-market/
www.bseindia.com
- 73 -
www.nseindia.com
www.sebi.org.
www.rbi.org
www.moneycontrol.com
Journals:
Economic Political Weekly
ICFAI Journals
Magazines and Newspapers:
Economic times
- 74 -
- 75 -
CHAPTER VII
ANNEXURE
- 76 -
BSE Automobile sectoral Index from January 2007 to December 2008
Month Close
Jan-075,515.36
Feb-07 5,109.38
Mar-07 4,869.13
Apr-07 4,998.71
May-07 5,012.28
Jun-074,739.57
Jul-07 4,933.83
Aug-07 4,878.05
Sep-07 5,332.26
Oct-07 5,507.17
Nov-07 5,469.50
Dec-07 5,667.45
Jan-084,832.48
Feb-08 4,887.17
Mar-08 4,524.77
Apr-08 4,726.00
May-08 4,355.76
Jun-083,585.62
Jul-08 3,679.51
- 77 -
Aug-08 4,001.23
Sep-08 3,674.98
Oct-08 2,685.62
Nov-08 2,330.56
Dec-08 2,444.71
BSE Banking sectoral Index from January 2007 to December 2008
Month Close
Jan-077,260.09
Feb-07 6,408.01
Mar-07 6,542.01
Apr-07 6,882.89
May-07 7,607.35
Jun-078,009.94
Jul-07 8,148.68
Aug-07 7,858.79
- 78 -
Sep-07 9,469.26
Oct-07 10,655.33
Nov-07 10,870.88
Dec-07 11,418.00
Jan-0810,713.91
Feb-08 10,113.73
Mar-08 7,717.61
Apr-08 8,819.68
May-08 7,714.59
Jun-085,915.98
Jul-08 6,516.41
Aug-08 7,009.69
Sep-08 6,478.85
Oct-08 5,011.24
Nov-08 4,645.40
Dec-08 5,454.54
- 79 -
- 80 -
BSE Sensex Index from January 2007 to December 2008
Month Close
7-Jan 14,090.92
7-Feb 12,938.09
7-Mar 13,072.10
7-Apr 13,872.37
7-May 14,544.46
7-Jun 14,650.51
7-Jul 15,550.99
7-Aug 15,318.60
7-Sep 17,291.10
7-Oct 19,837.99
7-Nov 19,363.19
- 81 -
7-Dec 20,286.99
8-Jan 17,648.71
8-Feb 17,578.72
8-Mar 15,644.44
8-Apr 17,287.31
8-May 16,415.57
8-Jun 13,461.60
8-Jul 14,355.75
8-Aug 14,564.53
8-Sep 12,860.43
8-Oct 9,788.06
8-Nov 9,092.72
8-Dec 9,647.31
BSE CD Index from January 2007 to December 2008
Month Close
- 82 -
Jan-073,800.93
Feb-07 3,509.38
Mar-07 3,570.33
Apr-07 3,685.86
May-07 4,195.08
Jun-074,250.65
Jul-07 4,172.07
Aug-07 4,299.00
Sep-07 4,804.24
Oct-07 5,283.38
Nov-07 5,365.83
Dec-07 6,956.79
Jan-085,103.86
Feb-08 4,699.34
Mar-08 3,883.29
Apr-08 4,543.11
May-08 4,320.82
Jun-083,477.60
Jul-08 3,685.84
Aug-08 3,840.79
Sep-08 2,929.18
Oct-08 2,072.98
Nov-08 1,793.57
Dec-08 1,913.74
- 83 -
BSE FMCG Index from January 2007 to December 2008
Month Close
Jan-071,906.21
Feb-07 1,785.88
Mar-07 1,739.10
Apr-07 1,800.55
May-07 1,907.38
Jun-071,829.33
Jul-07 1,973.16
Aug-07 1,973.93
Sep-07 2,161.35
Oct-07 2,126.59
Nov-07 2,154.81
Dec-07 2,319.92
Jan-082,167.34
Feb-08 2,274.39
Mar-08 2,290.07
Apr-08 2,461.38
May-08 2,427.76
- 84 -
Jun-082,080.33
Jul-08 2,139.18
Aug-08 2,215.60
Sep-08 2,160.76
Oct-08 1,799.83
Nov-08 1,936.60
Dec-08 1,987.38
BSE FMCG Index from January 2007 to December 2008
Month Close
Jan-077,276.60
Feb-07 5,649.84
Mar-07 5,646.06
Apr-07 6,182.62
May-07 7,368.82
Jun-076,933.91
Jul-07 7,854.05
Aug-07 7,241.65
Sep-07 9,178.53
Oct-07 10,502.77
Nov-07 10,626.31
Dec-07 12,727.42
Jan-089,871.06
- 85 -
Feb-08 9,565.67
Mar-08 7,554.80
Apr-08 8,505.49
May-08 7,008.66
Jun-084,543.47
Jul-08 5,079.01
Aug-08 4,995.25
Sep-08 3,508.77
Oct-08 1,978.24
Nov-08 1,561.01
Dec-08 2,274.13
Nifty Fifty Index from January 2007 to December 2008
Date Nifty fifty
2-Jan-07 2244.25
1-Feb-07 2249.73
1-Mar-07 1976.37
2-Apr-07 1852.39
3-May-07 2187.41
1-Jun-07 2346.26
2-Jul-07 2482.41
1-Aug-07 2400.99
- 86 -
3-Sep-07 2504.33
1-Oct-07 2897.75
1-Nov-07 3139.15
3-Dec-07 3452.65
1-Jan-08 3838.3
1-Feb-08 2804.45
3-Mar-08 2688.8
1-Apr-08 2371.25
2-May-08 2781.3
2-Jun-08 2521.95
1-Jul-08 1847.8
1-Aug-08 2160.8
1-Sep-08 2154.85
1-Oct-08 1804.55
3-Nov-08 1338.4
1-Dec-08 1146.85
FII Net Purchase/ Sales for the Year 2007 and 2008.
Month Equity (Rs. Crore)
Gross Gross Net Purchase
Purchase Sales /Sales

- 87 -
Feb-09 21,863.20 24,553.70 -2,690.50
Jan-0928,679.20 32,929.40 -4,250.20
Dec-08 29,197.60 27,866.70 1,330.90
Nov-08 28,273.80 31,094.10 -2,820.30
Oct-08 49,339.30 63,587.90 -14,248.60
Sep-08 68,029.60 75,966.60 -7,937.00
Aug-08 46,401.90 48,467.70 -2,065.80
Jul-08 64,526.30 65,539.20 -1,012.90
Jun-0861,490.60 72,068.30 -10,577.70
May-08 60,640.30 65,557.60 -4,917.30
Apr-08 62,969.60 61,990.60 979
Mar-08 70,322.70 70,198.30 124.4
Feb-08 76,437.10 71,017.20 5,419.90
Jan-08103,129.00 120,455.30 -17,326.30
Dec-07 80,988.10 76,091.40 4,896.70
Nov-07 89,510.00 94,107.40 -4,597.40
Oct-07 124,882.30 109,304.70 15,577.60
Sep-07 70,694.60 51,746.10 18,948.50
Aug-07 58,223.20 65,750.00 -7,526.80
Jul-07 80,216.20 62,083.40 18,132.80
Jun-0754,748.50 46,808.90 7,939.60
May-07 51,574.90 47,000.40 4,574.50
Apr-07 44,701.50 39,269.70 5,431.80
Mar-07 50,552.60 49,149.30 1,403.30
Feb-07 51,568.90 45,503.90 6,065.00
Jan-0747,506.77 47,412.32 94.45

- 88 -

Impact of Foreign Institutional

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Impact of Foreign Institutional

Uploaded by

Copyright:

Available Formats

-1-

1.1.1 FOREIGN INSTITUTIONAL INVESTORS

Foreign institutional investor means an entity established or incorporated outside

Entry Options For FII

By incorporating a company under the Companies Act,1956 through

• Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the

1.1.2 Important terms to know about FIIs:

Sub-account includes those foreign corporations, foreign individuals, and

Broad Based Fund:

1.1.3 FOREIGN INSTITUTIONAL INVESTORS REGISTRATION

Following entities / funds are eligible to get registered as FII:

• Insurance or reinsurance companies

• Charitable Trusts or Charitable Societies

• Asset Management Companies

• Institutional Portfolio Managers

• Power of Attorney Holders.

The eligibility criteria for applicant seeking FII registration

As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors

• Applicant should have track record, professional competence, financial

• The applicant should be regulated by an appropriate foreign regulatory

• Applicant must be legally permitted to invest in securities outside the country

• The applicant must be a "fit and proper" person.

• Payment of registration fee of US $ 5,000.00

Supporting documents required are:

• Application in Form A duly signed by the authorized signatory of the

• Certified copy of the relevant clauses or articles of the Memorandum and

• A declaration by the applicant with registration number and other particulars

• A declaration by the applicant that it has entered into a custodian agreement

• A signed declaration statement that appears at the end of the Form.

• Declaration regarding fit & proper entity.

The FII registration application should be sent to:

Securities and Exchange Board of India

Division of FII & Custodian

Mittal Court "B" Wing, First Floor

224, Nariman Point

Mumbai 400 021

1.1.4 SUB-ACCOUNT REGISTRATION

a) Institution or funds or portfolios established outside India, whether

b) Proprietary fund of FII.

1.1..5 POST-REGISTRATION PROCESSES:

If a registered FII/sub-account undergoes name change, then the FII need to

Procedure for transferring a sub-account from one FII to another:

The FII to whom the Sub-account is proposed to be transferred has to send a

Procedure for change of local custodian:

Procedure for registration as FII/sub account under 100% debt route:

Procedure if an existing sub-account wants to get registered as a Foreign

In case if a registered sub-account wishes to get itself registered as a Foreign

Procedure for renewal of FII/Sub-Account registration:

If the FII does not renew its/sub-account’s registration:

1.1.6 Scope of Investments under the Portfolio Investment Scheme.

1.1.7 Trend of FIIs with the help of economic figures:

• In 2005 FIIs invested more in Indian equities than in Korean or Taiwanese

• As per SEBI, number of registered FIIs stood at 1626 and number of

Future Prospects of Foreign Institutional Investments:

? Sustaining the growth momentum and achieving an annual average growth

? Checking the growth of population; India is the second highest populated

? Boosting agricultural growth through diversification and development of agro

? Developing world-class infrastructure for sustaining growth in all the sectors

? Allowing foreign investment in more areas.

? Effecting fiscal consolidation and eliminating the revenue deficit through

? Global corporations are responsible for global warming, the depletion of

? Empowering the population through universal education and health care,