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SYNOPSIS

ON

Foreign Institutional InvestmentImpact On Indian Stock Market And

Its Investment Behavior

By

SHOBHIT KAUSHIK(Registration No. 520859253)

A project report submitted in partial fulfillment of the requirements

for the degree of master of Business Administration of

Sikkim Manipal University, I!IA

INSOFT, C 2 SECTOR 10, NOIDA 201 301

CENTRE CODE 1822

Sikkim Manipal Univeri!" #$ %eal!%, Me&i'al an& !e'%n#l#(i'al 'ien'e Di!an'eE&)'a!i#n *in(

S"n&i'a!e +#)e, Manipal -.10/

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DECLARATION

Synopsis on FOREIGN INSTITUTIONAL INVESTMENT IMPACT ON INDIANSTOCK MARKET & ITS INVESTMENT E!AVIOUR" s#$%ie' in pa(ia)

*#)+))%en o* ,e (e-#i(e%en *o( ,e 'eg(ee o* Mase(s o* #siness

A'%inis(aion o Si..i% / Manipa) Uni0e(siy In'ia is %y o(igina) 2o(.

an' no s#$%ie' *o( ,e a2a(' o* any o,e( 'eg(ee 'ip)o%a *e))o2s,ip

o( any o,e( si%i)a( i)e o( p(i3es4

P)a5e6 Noi'a

Dae6 777777777

(SHOBHIT KAUSHIK)

Regis(aion No4 89:;8

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CERTIFICATE

Synopsis o* S,o$,i Ka#s,i. >Regis(aion No4 89:;8

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ACKNOWLEDGEMENT

A s#55ess*#) 5o%p)eion o* a p(oe5 is )i.e a go)'en *ea,e( *o( any 5ap4 T(#)y ,is

5anno $e #(ne' 2i,o# ap g#i'an5e an' ,e)p4 One %#s a)2ays $e o$)ige' o ,is

g#i'e an' ,e)pe(s4

I so %#5, ,an.*#) o o#( *a5#)y g#i'e Mr. Israr Alam, Insoft, Sec-1, !oida

gi0e %e so %#5, ,e)p in 5o%p)eing ,is p(oe5 (epo( an' o,e( %e%$e(s o* ,e

5o%pany so %#5, ,e)p*#) an' *a%i)ia( 2i, ,ei( (ainees4

Fina))y I a% 0e(y g(ae*#) o ,ese (e0e(en pe(sona)iies 2i,o# 2,o% i 2o#)' no

,a0e $een possi$)e *o( %e o p# *o(2a(' ,is p(oe5 in p(esen *o(%4

SHOBHIT KAUSHIK

Page B

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CONTENTS

14 INTRODUCTION

94 OECTIVES

=4 MET!ODOLOG

B4 CONCLUSION & FINDING

84 ILIOGRAP!

4 UESTIONNAIRE

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INTRODUCTION

Foreign Institutional Investment in India

The liberalisation and consequent reform measures have drawn the attention of foreign investors

leading to a rise in portfolio investment in the Indian capital market. Over the recent years, India

has emerged as a major recipient of portfolio investment among the emerging market economies.

Apart from such large inflows, reflecting the confidence of crossborder investors on the

prospects of Indian securities market, e!cept for one year, India received positive portfolio

inflows in each year. The stability of portfolio flows towards India is in contrast with large

volatility of portfolio flows in most emerging market economies. The Indian capital market was

opened up for foreign institutional investors "#IIs$ in %&&'. The #IIs started investing in Indian

markets in (anuary %&&). The Indian corporate sector has been allowed to tap international

capital markets through American *epository +eceipts "A*+s$, lobal *epository +eceipts

"*+s$, #oreign -urrency -onvertible onds "#--s$ and /!ternal -ommercial orrowings

"/-s$. 0imilarly, nonresident Indians "1+Is$ have been allowed to invest in Indian companies.

#IIs have been permitted in all types of securities including overnment securities and they

enjoy full capital convertibility. 2utual funds have been allowed to open offshore funds to invest

in equities abroad. #II investment in India started in %&&), as #IIs were allowed to invest in the

Indian debt and equity market in line with the recommendations of the 3igh 4evel -ommittee on

alance of 5ayments. These investment inflows have since then been positive, with the

e!ception of %&&6&&, when capital flows to emerging market economies were affected by

contagion from the /ast Asian crisis. These investments account for over %7 per cent of the total

market capitalisation of the Indian stock market.

0ince %&&7&%, the overnment of India embarked on liberali8ation and economic

reforms with a view of bringing about rapid and substantial economic growth and move towards

globali8ation of the economy. As a part of the reforms process, the overnment under its 1ew

Industrial 5olicy revamped its foreign investment policy recogni8ing the growing importance of

foreign direct investment as an instrument of technology transfer, augmentation of foreign

e!change reserves and globali8ation of the Indian economy. 0imultaneously, the overnment, for

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the first time, permitted portfolio investments from abroad by foreign institutional investors in

the Indian capital market. The entry of #IIs seems to be a follow up of the recommendation of

the 1arsimhan -ommittee +eport on #inancial 0ystem. 9hile recommending their entry, the

-ommittee, however did not elaborate on the objectives of the suggested policy. The committee

only suggested that the capital market should be gradually opened up to foreign portfolio

investments.

#rom 0eptember %:, %&&' with suitable restrictions, #IIs were permitted to invest in all the

securities traded on the primary and secondary markets, including shares, debentures and

warrants issued by companies which were listed or were to be listed on the 0tock /!changes in

India. 9hile presenting the udget for %&&'&), the then #inance 2inister *r. 2anmohan 0ingh

had announced a proposal to allow reputed foreign investors, such as 5ension #unds etc., to

invest in Indian capital market. To operationalise this policy announcement, it had become

necessary to evolve guidelines for such investments by #oreign Institutional Investors "#IIs$.

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OBJECTIVE OF THE STUDY

a$ The objective of the present study is to identify whether there e!ist a causal relationship

between net investment made by #II;s and the equity return in the Indian 0tock 2arket.

b$ To determine the behavior and impact of #II;s on Indian stock market through primary

data analysis.

c$ To determine what are factors which affect investment decision of #II;s.

d$ To determine whether #II;s have impact on other economical factors apart from stock

market.

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ETHODO!O"Y

RESE#RCH DESI"N FOR $RI#RY D#T# #N#!YSIS %t&roug& 'uestionnaire(

a) Type of research:

*escriptive research, also known as statistical research. The objective of descriptive research

is to describe thing, such as the market potential for a product or attitudes of consumers who

buy the product. It describes data and characteristics about the population or phenomenon

being studied. *escriptive research is to describe something < usually market characteristics

or functions. It answers the question who, what, where, when and how. The data description

is factual, accurate and systematic but the research cannot describe what caused a situation.

Thus, descriptive research cannot be used to create a causal relationship, where one variable

affects another.

*escriptive research is conducted for the following reasons=

To describe the characteristics of relevant groups such as consumers, salespeople,

organisation or market areas.

To estimate the percentage of units in a specified population e!hibiting a certainbehaviour.

To determine the perceptions of product characteristics.

To determine the degree to which marketing variables are associated.

To make specific predictions.

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>ualitative research often has the aim of description and the researchers may followup

with e!aminations of why the observations e!ist and what the implications of the findings are.

*escriptive research assumes that researcher has much prior knowledge about the problem

situation. It is characteri8ed by the prior formulation of specific hypothesis. Thus, the

information needed is clearly defined. As a result, descriptive research is preplanned and

structured. It is typically based on large representative samples. A formal research design

specifies the method for selecting the sources of information and for collecting the data from

these sources. A descriptive design requires a clear specification of the who, what, when, where,

why and way "? 9;s$ of the research.

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)( Data Sour*es+

The primary sourcesof information necessary for the analysis is collected from the survey which

was carried out by administering questionnaires designed specifically to achieve the objectives

The primary data are collected during the survey with the help of a questionnaire. On the basis of

this primary data the analysis, interpretation and the finding of the study have been concluded

and hence the primary objectives of the study are achieved.

The secondary datawere collected from the different periodicals, books and articles published in

various maga8ines @ journals vi8. usiness 9orld, usiness India, usiness Today, (ournal of

Advertising, (ournal of 2arketing, etc.

c$ Resear*& #,,roa*&+The research approach used in this study was survey research.

d$ Resear*& Instruments= +esearch Instruments consisted of a questionnaire. >uestionnaire

prepared mostly consists of closed ended questions with multiplechoice answers.

e( Sam,ling $lan+

The following are included in the sampling plan for the purpose of present study=

a$ Universe o- sam,le+The sample has been taken from the individuals who are

some how related to share market or those who have knowledge about stock

market.

b$ Sam,ling unit+The sampling unit consists of different individuals having

some basic level of knowledge about share market. The respondents profiling

is done in four broad categories, age, income, se! and occupation.

c$ Sam,le si.e+The sample si8e of the study is seventy respondents. 0ince

people were not much aware about #II;s impact and its investment behavior,

so limited respondents had to be contacted before getting a successful

interview.

d$ Sam,ling ,ro*edure and et&od+(udgemental sampling has been used for

the study. >uestionnaire was used to collect the data.

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et&odolog/+The information collected from the survey was analysed using different statistical

techniques and data interpretation techniques. The analysis techniques used in the present study

are=

i$ Reliability Testing= This test is conducted to see whether all question of

questionnaire is related to each other or not. And if not than which are the factor that

are not related. 0election and reduction of factors is done through factor analysis.

ii$ Factor analysis= This test has been applied on the statements which are defining the

impact of several factors on #II;s investment. The main purpose of this test is to

reduce the number of factor to more concrete and significant factor, so we can easily

derived conclusion.

iii$ Chi-square test= This test has been applied to study whether the relationship e!ists

between perception towards #II;s impact on Indian economy and occupation of

respondents.

iv$ Weighted Average Score= To study the role of +egulation @ Trading efficiency and

dollar weakness against rupee in #II;s investment decision.

v$ Cross tabulation= The -ross Tab is used on occupation and most common route of

#II;s to invest. This will gives us picture about the perception of different group of

respondent towards #II;s investment route.

vi$ raphical !resentation= arious other graphical tools like 5ie chart, ar diagram

etc. is used to plot the results.

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CONC!USION #ND FINDIN"S

Findings:

%. 0/ sense! and nifty has moderate degree of positive correlation with #II;s investment.

3ence both indices move in direction of #II;s investment. If #II;s increase both indices

increases and vice versa.

'. 0/ -* and 0/ - has low degree of positive correlation. It signifies that consumer

durable and consumer goods sector are less dependent on #II;s.

). 0/ IT has low degree of negative correlation. It means that it doesn;t rise with rise in

#II;s.

:. After using hypothesis testing we came to conclusion that /!ports and local companies

has very less impact or no impact of #II;s in India.

B. 0imilarly, appreciation of rupee and corporate governace also has very less impact of

#II;s.

?. #II;s has impact on improvement of market efficieny. As due to increasing investment of

#II;s, 0/I and other regulatory bodies have to improve market trading efficiency in

order to sustain #II;s investment and also to attract more investment.

C. /conomic growth, inflation and interest rate are the key parameters on which #II;s invest

in any countries. Also #II;s investment lead to economic growth of country.

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Conclusion

%. According to findings and results, I concluded that #II did have high significant impact

on the Indian capital market. Therefore, the alternate hypothesis is accepted. #II;0 have

high impact on 0/ 0ense! and 1ifty. This signifies that market rise with increase in

#II;s and collapse when #II;s are withdrawn form market. Also 0/ -, 0/ -*, and

0/ IT showed positive correlation but 0/ #2- showed negative correlation with

#II. The degree of relation was low in all the case. It shows low degree of linear relation

between #II and other stock inde!.

One of the reasons for high degree 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 positive results "may be$.

Also #II is not the only factor affecting the stock indices. There are other major factors that

influence the bourses in the stock market. I also analy8ed that #II had significant impact on the

stock inde! for the period starting from April %&&6 to #ebruary '7%7.

'. According to findings, I conclude that various factor affect #II;s investment decision.

2ost important parameter on which #II;s invests are economic growth, interest rate,

inflation rate, regulation and trading efficiency and risk. Also before research I thought

that #II;s have impact on e!ports, local companies and corporate governance. ut after

hypothesis testing, I came to no that there is no significant impact of #II;s on those

factors.

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BIB"IO#$A%&'( $)F)$)!*)S

A number of websites, newspaper article annual reports of +I, maga8ines, bulletin of 0/I areused for study purpose. They are as follows=

Internet sites +

0001se)i1gov1in

0001r)i1org1in2&ome1as,3

0001nseindia1*om

0001)seindia1*om

0001mone/*ontrol1*om

Boo4s+

Foreign dire*t investment in India )/ !ata C&a4ravart&/1

Foreign institutional investors )/ " "o,al 5ris&na urt&/1

Journal o- Finan*ial Resear*&

Re,orts and )ulletins+

SEBI &and)oo4 6778

SEBI )ulletin 6797

Page 18

http://www.nseindia.com/http://www.bseindia.com/http://www.moneycontrol.com/http://www.bseindia.com/http://www.moneycontrol.com/http://www.nseindia.com/

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:uestionnaire -or Foreign Institutional Investments

Be&aviors and its im,a*t on Indian sto*4 mar4et

Part A) Personal Inforat!on"

%$1ame= DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD

'$ ender= 2ale #emale

)$ Occupation=

usiness man roker Investor

0tudent Others

:$ Eour current age is=

"a$ '7)7 "b$ )% to :7

"c$ :% to BB "d$ B? to ?B"e$ Over ?B

B$ Eour annual Income 4evel is=

"a$ Fp to ),77,777 "b$ ),77,77% < 6,77,777

"c$ 6,77,77% < %B,77,777 "d$ %B,77,77% < and above

"f$ 1ot earning presently

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Part #) Fore!$n Inst!t%t!onal In&estent A'areness le&el

? Do yo# .no2 a$o# ,e go0e(ning $o'ies $e,in' FIIHs

"a$ Ees "b$ 1o

? J,a .in' o* i%pa5 '#e yo# ,in. FIIHs ,a0e on In'ian

E5ono%y an' 5apia) %a(.e

a$3igh Impact "b$ 4ow Impact

c$ 1o Impact "d$ *o 1ot know

6$ *o you know about limitation on foreign institutional investmentG

"a$ Ees "b$ 1o

&$ 9hich is the most common route #or #II;s investment in IndiaG (rateaccordingly 1 most common and 5 least common route.)

FIIs invested through following medium:

% ' ) :

B

2utual fund companies

3edge fund

Insurance and reinsurance companies

Investment trust

Institutional portfolio managers

anks

Individual investor

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4ess Impact3igh

impact

1=? Does FIIHs ,a0e any i%pa5 o* Do))a( 2ea.ness agains (#peei* yes 2,a is )e0e) o* i%pa5

% ' ) : B

4ess Impact3igh

impact

1B? J,i5, se5o( 'o yo# ,in. FIIHs (a'e' %os a5i0e)y

a$ Oil and as "b$ IT

c$ anking "d$ #2-

e$ 5ower "f$ Others

18? J,a a)) (e)a@aion '#e yo# ,in. %#s $e g(ane' o FIIHs

1? Any o,e( in*o(%aion yo# )i.e o s,a(e 2i, #s

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