INVESTMENT (FII) (With Reference to the Indian Stock Market)
By M. SHANMUKHA RAO
under the guidance of:
Prof. D. Prabhakara Rao Prof. V Krishnamohan Dept of Commerce and Management Studies Introduction In the light of the importance of foreign investment for economic growth and development. In most developing countries like India, domestic capital is inadequate for the purpose of economic growth.
Foreign capital is typically seen as a way of filling
in gaps between the domestically available supplies of savings, foreign exchange, government revenue and the planned investment necessary to achieve developmental targets. The Foreign investment is classified into Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). The FDI refers an investment made by the foreign company directly into Indian companies and influence on the operations and management of domestic company directly. Whereas FPI reflects the investment made in the Indian securities through stock exchanges. The stock market reforms, help to redesign the performance and corporate governance of the stock market; furthermore in the backing of getting the outside assets through the securities market.
The Government of India had issued guidelines on 14th
September 1992 to allow Foreign Institutional Investors (FIIs) for trading in the Indian securities market with the reasonable limitation on investments.
This investment permitted in the stock market in both
Primary and Secondary markets, including shares, debentures and warrants issued by companies which listed or to be listed on the Stock Exchanges in India and in schemes floated by mutual funds such as UTI. Entities of FIIs Foreign Institutional Investors (FIIs) including institutions such as: Pension Funds Mutual Funds University Funds Foundations Charitable Trusts Insurance companies Foreign Central Banks Sovereign Wealth Funds Investment Trusts Asset Management Companies Definition
As per SEBI (FII) Regulations, 1995 Foreign
Institutional Investor is defined as:
An institution established or incorporated
outside India, which proposes to make investment in India in securities. Need for the study The Indian stock markets performed greatly after the initiation of reforms and Indian stock market become the best destination for the foreign investors, this supported by the IMF forecasting the growth of GDP. India is one of the top emerging economies in the world, the IMF estimate the Indias GDP growth 7.3 percent for 2015-16 and 7.5 percent for the 2016-17 fiscal year; even the world economic growth cut down to 3.4 percent from 3.6 percent in the fiscal year 2015-16 (WEO, 2016). India opened doors to Foreign Institutional Investors (FIIs) on 14th September, 1992 to trade in the Indian stock market in the form of equity investment with suitable restrictions; Since FII allowed into the Indian stock market, FIIs investment constant increase identified and this investment aid to improve the liquidity and performance of Indian corporate as well as to an economic development. Indian stock market achieved the new highs in terms of trading volume and market capitalization. The FIIs funds flow highly influenced the Indian stock market indices, majorly SENSEX and NIFTY fluctuates according to the moves of FIIs.
The study conducted for the period of April 2005 to March
2015, which covers both bullish and bearish trends in the stock market during this period. In this consideration identified the importance to study about the Foreign Institutional Investment in connection with the Indian stock market. In addition to this, to get better knowledge in making decisions by retail investors and other investors for better returns. To examine, is the company's market capitalization influenced by FIIs shareholding? The study recognized as very important. Objectives of the study The following objectives were framed in this study: i) To study the trends of the Foreign Institutional Investor (FII) trading activities in Indian stock market. ii) To study the relationship between FII investment and Stock Market returns in India. iii) To study the impact of FII investment on Sector wise market returns. iv) To study the FII shareholding pattern in selected companies in NSE. Scheme of Thesis Presentation
The study is reported in the following chapters:
Chapter-1: Introduction Chapter-2: Review of Literature Chapter-3: Stock Market in India Chapter-4: An overview of Foreign Institutional Investment (FII) in India Chapter-5: Data analysis of the Study Chapter-6: Findings, Summary & Suggestions Research Methodology
The data used in the study is time series in
nature and data collected from the secondary sources; the study conducted for the period of April 2005 to March 2015. The data analyzed using the different software's like MS-Excel, SPSS, E-Views 9.0.
Statistical tools used in the study such as Mean,
Median, S.D., Skewness ,Kurtosis, JB test, Correlation, Regression, Econometrics ADF(Augmented Dicker Fuller) test, BG LM ( Bruesch Godfrey Larange Multiflier) test etc., Variables of the study
In conducting of study, the following variables
have used and these variables include FIIs activities such as: FIIs purchases and Sales FIIs Net Investment Stock Market returns (of both NSE & BSE), FIIs Shareholding and the market capitalization of selected companies. Data Sources
In this study, data collected from the various
sources includes various reports for different time period (monthly, quarterly, annually) , books, journals, magazines, articles, news papers etc.
These reports collected from BSE, NSE,
SEBI, RBI, NSDL, CDSL, IMF, IBRD, MSCI, WFE etc,. Major Findings From the study identified that the number of FIIs registered in India increased gradually, this is the sign of the strong fundamentals of the economy and also corporate earnings, accounting standards adopted according to international standards i.e., International Financial Reporting Standard (IFRS). This helps in improvement of accounting disclosure norms and corporate governance etc.
The number of FIIs registered in India decreased to
previous year registrations in the year 1998-99 from 496 to 450 for the first time, again declined in the year 2001-02 from 527 to 490 and 2012-13 onwards for three consecutive financial years from 1765 to 1757, 1710 and 1444 respectively. The majority of share in Foreign Institutional Investment (FII) contributed to Indian stock market by the United States for the end of March 2015, which having share of 36 per cent in the overall FIIs investment in the country wise, before 2013 Mauritius has taken first place in the contribution of FIIs.
The net FIIs flows were found the positive for
the major study period both in the equity market and the debt market except in the year 2008-09, in this year FIIs pulled out their funds from the Indian stock market heavily. In this year FIIs evacuated around Rs. 45,811 Crores from the Indian stock market, which affected by the global recession In the year 2009-10 found , the Indian stock market revived from the global recession. This proved by the massive inflow of FIIs into India stock market and net FIIs recorded around Rs. 1,42,658 Crores. Whereas, in the preceding year negative flows identified in the stock market.
The large FII flows found in the year 2014-15,
which greatly reflected by the stable new government formation. This improved confidence in the overseas investors and helped to infusion of FIIs into Indian stock market. The net FIIs have highly correlated with the NSE Nifty in compared to the BSE Sensex and correlation coefficient found that 56 and 54 percent respectively The CNX Midcap returns found higher than other market capitalization indices returns i.e., CNX 100, CNX 500, CNX Small cap.
In BSE 500 returns shown high correlation in
comparison to BSE 100, Midcap and Small cap returns In the sectoral returns, CNX Bank returns extremely correlated with the Net FIIs flows and this correlation followed by the CNX Pharma, CNX IT, CNX Auto and CNX FMCG returns NSE Nifty had given good returns and also it proved that it is safest in terms of risk NSE Small Cap market identified as the risky market among the other NSE market indices, but it provided good returns in the study period During the study period found that NSE Auto sector gave the highest returns when compared to other sector returns of NSE and second highest returns from the CNX Pharma sector followed by the FMCG, Banking, and IT sectors. The BSE giant index Sensex gave the highest returns and safest market to invest in the other BSE market indices and the returns followed by the BSE 100, BSE 500, BSE Midcap and BSE Small Cap markets
The BSE Auto sector gave maximum returns
among the other sectoral market in BSE followed by the BSE Health Care sector, BSE FMCG, BSE Banking and BSE Information Technology sector.
The FIIs shareholding higher in the Private
companies in comparison to government companies. The Net FIIs impact high on Nifty returns in compared to the BSE Sensex returns during the study period
In governmental companies, the ONGC has
highest market capitalization among the other governmental companies in NSE Nifty selected companies, i.e., BHEL, BPCL, GAIL, PNB, SBI.
The FIIs holdings found the maximum in the
HDFC among the selected companies of NSE Nifty companies, the average shareholding of FIIs around the 65.83 per cent for the study period. SUGGESTIONS
The interest in the economy ought to be
improved apart the rising demand for investable assets. This should be possible by making powerful, more FII inflows into the nation, especially given the favorable position that FII is a type of non-debt making inflows and hence does not expand the nation's obligation liabilities. The FIIs flow creates instability in the stock market due to limited restrictions on investment. This ought to be checked by regulatory authorities to protect the interest of retail and other domestic investors The FIIs investment supposed to be increased in the small and mid-cap companies for their liquidity improvement, which battles high lack of the capital requirements. The administrative powers should consider the confinements on sectoral caps in expanding the substance of demand in the present day situation. The restrictions on investment of FIIs ought to be liberalized in the governmental companies. Limitations of the study The study used secondary data and which collected from the annual and quarterly reports of the selected variables. The reliability of data depends on upon the published reports by the respective organizations. The study conducted for selected stock market indices, of both BSE and NSE. Stock market returns are influenced by many factors, but a study conducted main consideration to FIIs investment only. To study the FIIs shareholding pattern, only the selected companies have taken for the study. CONCLUSION India becomes one of the prominent emerging stock markets as a result of the various economic growth aspects of the country.
The overseas investors are attracted by superior returns
from the Indian stock market. The FIIs increased funds into the Indian stock market and determine the returns of Indian stock market; and also causes the fluctuations in major Indian stock indices of both BSE Sensex and NSE Nifty.
The Net FIIs equity investment impacted greater on the
NSE Nifty in comparison to BSE Sensex. The stock market returns in the study proved, the greater risk involved for higher returns. The FIIs held maximum holding in the non- governmental scripts than governmental. Scope for further Research There is a satisfactory extent of undertaking further research on Foreign Institutional Investments and related issues.
Firstly, Consideration of more economic variables like
DOLLEX, macroeconomic variables of host nations and so forth might be taken up for examination.
Secondly, comparative study amongst FIIs and Domestic
Institutional investors might be embraced to recognize the patterns and strategies adopted.
Thirdly, the impact of policy changes on FII flows on the
stock market can be analyzed through event study methodology. Finally, future researchers can look at the benefits and risks of FII investments in light of firm specific characteristics. THANK YOU