Foreign Institutional Investment in India

Abstract

In this paper, we study the effect of foreign institutional investment (Fil) on the stock market of India and find that Fl! has a direct and significant effect on the returns of the Indian stocks. We also examine the determinants of the Fil in Indian markets and find that net Fil increases with an increase in the Indian stock returns and vice versa. We also document that high interest rates in India result in reduced Fil, and the net FIi increases with a decrease in the P /E of Indian stocks. Strong dollar lowers net Fall, and high inflation in the U.S. results in reduction of net Fil in India. We investigate the role and impact of Fil whether they stabilize or destabilize the domestic markets. Whether the Indian stock market is influenced by the Fils in a position or negative is determined. The Flis has a statistically significant influence on the stock market returns, even after fundamental economic factors are controlled is finally investigated along with the factors responsible for purchasing and selling decisions by Furls to reduce erratic investment patterns.