Fdi and Indian Stock Market

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FDI AND INDIAN ST MARKET

Abstract—Unprecedented globalizations have witnessed
double digit economic growth resulting in fierce competition and accelerated pace of innovation. As a result inflow of
Foreign Direct investments has become a striking measure of
economic development in both developed and developing
countries. FDI and FII thus have become instruments of
international economic integration and stimulation.
Fast
growing economies like Singapore, China, Korea etc have
registered incredible growth at onset of FDI. Though US
captures most of the FDI inflows, developing countries still account for significant growth of FDI and rise in FII. FDI not only gives access to foreign capital but also provides domestic countries with cutting edge technology, desired skill sets, tools of innovation and other complementary skills. The policies

drafted to stimulate the flow of foreign capital in to India provided much needed impetus for India to emerge as an
attractive destination for foreign investors. External factors such as global economic cues, FDI & FII, Exchange rate and
Internal factors such as demand and supply, market cap, EPS
generally drive and dictates the Indian stock market. The
current paper makes an attempt to study the relationship and impact of FDI & FII on Indian stock market using statistical measures correlation coefficient and multi regression.
S ensex a nd N ifty w ere c onsidered a s t he
r epresentative o f s tock m ar k et a s t hey a re t he
m ost popular Indian stock market indices. Based on 11 years data starting from 2001 to 2011, it was found that the flow of FDI & FII was moving in tandem with Sensex and Nifty. The
study concludes that Flow of FDIs and FIIs in India
determines the trend of Indian stock market.
Index Terms— FDI, FII, Sensex, Nifty, Impact

I. INTRODUCTION
Unprecedented globalizations have witnessed double digit
economic growth resulting in fierce competition and
accelerated pace of innovation. As a result inflow of
Foreign Direct investments has become a striking measure
of economic development in both developed and
developing countries.
Manuscript received August 3, 2012.
Dr. Syed Tabassum Sultana, Associate Professor, Department of Business Management, Matrusri Institute of PG Studies, Hyderabad, India (email: ststab111@yahoo.co.in)
Prof. S Pardhasaradhi, Professor & Director, Directorate of Placement Department of Business Management, Osmania University, Hyderabad, India

FDI and FII thus have become instruments of international
economic integration and stimulation.
Fast growing
economies like Singapore, China, Korea etc have
registered incredible growth at onset of FDI. Though US
captures most of the FDI inflo ws, developing countries
still account for significant growth of FDI and rise in FII. FDI not only gives access to foreign capital but also
provides domestic counties with cutting edge technology,
desired skill sets, tools of innovation and other
complementary skills. Apart from helping in creating
additional economic activity and generating employment,
foreign investment also facilitates flow of sophisticated
technology into the country and helps the industry to
march into advanced technology. A favorable business
environment fostered Indian economy after 1991, when the
government of India opened the door for foreign capital in
the way of direct investment and through foreign
institutional investors. The policies drafted to stimulate the flow of foreign capital in to India provided much needed
impetus for India to emerge as an attractive destination for foreign investors. Consequently, the international capital
inflows have been increased tremendously during last two
decades.
Any investment that flows from one country into
another is known as foreign investment. Inflow of
investment from other countries is encouraged since it
complements and stimulates domestic investments in
capital-scarce economies of...
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