Impact of Foreign Institutional Investments on Indian Mutual Funds

Impact of Foreign Institutional Investments on Indian Mutual Funds

Abstract

The current research seeks to ascertain the effect of Foreign Institutional Investments (FIIs) on the Indian stock market, since India has emerged as one of Asia's most appealing investment destinations. To accomplish the aforementioned goal, the research used daily data on the stock market index (Sensex), FII flows, and other relevant factors from January 1986 to December 2007. The mixed regression time series model and the GARCH Model were employed in the research to determine the effect of FIIs on share market return and volatility, respectively. The findings indicate that the volatility and return of the Indian stock market have decreased after the stock market was opened to FIIs.

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Introduction

An entity formed or incorporated outside India that wants to engage in securities in India is referred to as a foreign institutional investor (FII). They are FIIs as defined by Section 2 of the SEBI (FII) Regulations 1995. FII investment in India began in September 1992. This was a watershed moment since it essentially globalized the financial services sector. Mutual funds, pension funds, investment trusts, asset management firms, nominee businesses, and incorporated/institutional portfolio managers were initially permitted to invest directly in Indian stock markets. 

However, registered university funds, endowments, foundations, and charitable trusts were subsequently included. Since then, FII flows, which account for a portion of foreign portfolio investments, have grown in significance in India. FIIs are the largest institutional investors in the Indian capital market. The SENSEX has obviously been influenced by the actions of foreign institutional investors.

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Conclusion

In the past ten years, the Indian capital markets have seen some significant developments and reforms. Our study focused on the contribution of FIIs to the Indian capital market; the percentage participation of FIIs in total foreign investments clearly demonstrates their significant impact. Though the degree of connection was not particularly strong, there was a positive link between the indexes and FII inflows. The second part of the study also shows a substantial quantity of evidence demonstrating a considerable amount of FIIs share of the Indian capital market, confirming FII supremacy. With the presence of institutional investors, markets have grown more efficient. 

For More Details About Impact of Foreign Institutional Investments on Indian Mutual Funds Please Visit Our Website


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India's stock markets are an appealing investment prospect since they are not reliant on the global economy and have a big local case. Furthermore, Indian marketplaces provide a diverse range of industries and businesses. The sole element influencing FII behavior is the possibility of profit. They will invest if they believe a market has the potential for profit. FIIs have been drawn to the India market by company-specific success stories.

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