The FII's and Indian Stock Market Returns : An Empirical Evaluation

With integration of national and international market, the Indian stock market has witnessed a phase of exponential growth and expansion post globalization, which has been continuing since then. Today, Indian economy ranks the third largest economy in the world making the Indian markets a platform of enormous opportunities for growth in returns. The investments by global participants is an evident part of any prevalent economy in the present time and investment by FIIs has increased the breadth and depth of the Indian stock market and the movement by FIIs has lead the Indian investors in the similar movement. The present paper investigates the relationship between net investments by FIIs and return on BSE 100 Index for the period from 1st April 2000 to 31st March, 2012 using monthly data. The Granger Causality test has been used to find relationship between net investment by FIIs and return on BSE 100 Index. The empirical investigation reveals that the net investments by FIIs granger cause the return on BSE 100 Index. The results highlight that investment by FIIs series the return on BSE 100 Index series has hugely varied during the boom, crisis and post crisis time period. Further, the result of regression test suggests that the net investments by FIIs have a positive and significant impact on the return on BSE 100 Index