A STUDY ON FII’S AND ITS IMPACT ON STOCK MARKETWORK CARRIED OUT FOR SBICAPS SECURITIES

Faculty GuideDr. B. Charumathi

Presented by: Uday Doyal

Company Profile

SBICAP Securities Ltd (SSL) is a 100% subsidiary of SBI Capital Markets Ltd SBI Capital Markets Ltd. commenced broking activities in March 2001 SBICAP Securities Ltd. (SSL) is a company, which has been formed to take over

the broking operations of SBI Capital Markets Ltd It is an Depository participant, dealing with trading, demat and other allied

services.

Objective of the Study

To study SEBI regulations on FIIs To study the trend of FII investment in Indian equity and debt

market To examine the relationship between the FII investment and Indian

Stock Market

Research Methodology

Research Type Analytical

Source: NSE,BSE ,SEBI & Indiainfoline database

Tools Used: •Correlation•Regression•ANOVA

Package Used: Ms Excel and Statistical Package for Social Science (SPSS)

Period of Study: •Year 2000-Year 2013 (till March)•Year 2008 & 2009 (Monthly)•Year 2012-13 (July’12 to June’13)-Daily

Hypotheses H0: No significant relationship between FII & Stock MarketH1: There is significant relationship between FII & Stock Market

What is FII ?

According to SEBI, “a Foreign Institutional Investor ("FII") is as an institution established or incorporated outside India which proposes to make investment in India in securities of companies incorporated in India (Indian Companies).”

FDI vs FII Foreign direct investment (FDI) is a direct investment into production or

business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country

FII is allowed to invest upto 10% of the paid up capital of a company, which implies that any investment above 10% will be construed as FDI, though officially such a definition does not exist.

Advantage of FII inflows

To reduction in information asymmetries

Attracting foreign capital

improves the breadth and depth of Indian markets

financial innovation and development of hedging instruments

rupee appreciates.

Advantage

SEBI regulations for FII

A Foreign Institutional Investor may invest only in the following:-

securities in the primary and secondary markets including shares,

units of schemes floated by domestic mutual funds including Unit Trust of India,

dated Government Securities;

derivatives traded on a recognized stock exchange

Every FII/sub-account is required to appoint a domestic Indian custodian to hold in custody its Indian securities. Custodian of Securities is a registered and regulated entity by SEBI.

An FII can also invest in India on behalf of a sub-account which is registered as a sub-account under Section 2 (k) of the SEBI (FII) Regulations, 1995.

FII in India

The regulations for foreign investment in India have been framed by the Reserve Bank of India in terms of Sections 6 and 47 of the Foreign Exchange Management Act, 1999.

SEBI has been registering FIIs and monitoring investments made by them through the portfolio investment route under the SEBI (FII) regulations 1995.

India, the second fastest growing economy after China, has recently seen positive foreign institutional investor (FII) inflows driven by the sound fundamentals and growth opportunities

FII was allowed since September 1992, however, Investment by them were first made in January 1993

FII in India

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3*

-100,000.00

-50,000.00

0.00

50,000.00

100,000.00

150,000.00

200,000.00

-10000

0

10000

20000

30000

40000

50000

Equity Debt

FII Net Investment (Equity + Debt)

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3*

0.00

50,000.00

100,000.00

150,000.00

200,000.00

FII Net Investment

Net Investment

FII Vs SENSEXfor the year 2000-2013*

Year

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-100,000.00

-50,000.00

0.00

50,000.00

100,000.00

150,000.00

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

Net Investment BSE Sensex

*till march 2013

FII Vs Niftyfor the year 2000-2013*

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-100,000.00

-50,000.00

0.00

50,000.00

100,000.00

150,000.00

0

1000

2000

3000

4000

5000

6000

7000

Net Investment Nifty Closing Value

*till march 2013

Analysis using SPSS

Analysis FII & SENSEX FII & Nifty

Correlation 0.675 0.678

R2 0.456 .460

Sig. Level 0.008 0.008

The variables are correlated Positively.There exists significant relationship between FII & Indian Stock Market

2-Ju

l-12

13-Ju

l-12

24-Ju

l-12

4-A

ug-1

215-A

ug-1

226-A

ug-1

26-S

ep-1

217-S

ep-1

228-S

ep-1

29-O

ct-12

20-O

ct-12

31-O

ct-12

11-N

ov-1

222-N

ov-1

23-D

ec-1

214-D

ec-1

225-D

ec-1

25-Ja

n-1

316-Ja

n-1

327-Ja

n-1

37-F

eb-1

318-F

eb-1

31-M

ar-1

312-M

ar-1

323-M

ar-1

33-A

pr-1

314-A

pr-1

325-A

pr-1

36-M

ay-1

317-M

ay-1

328-M

ay-1

38-Ju

n-1

319-Ju

n-1

3

-4000

-2000

0

2000

4000

6000

8000

0

5000

10000

15000

20000

25000

Net FII Investment BSE

FII & SensexData collected on daily basis 2012-13*

*July 2012-June 2013

FII & NiftyData collected on daily basis 2012-13*

2-Ju

l-12

8-Ju

l-12

14-Ju

l-12

20-Ju

l-12

26-Ju

l-12

1-A

ug-1

27-A

ug-1

213-A

ug-1

219-A

ug-1

225-A

ug-1

231-A

ug-1

26-S

ep-1

212-S

ep-1

218-S

ep-1

224-S

ep-1

230-S

ep-1

26-O

ct-12

12-O

ct-12

18-O

ct-12

24-O

ct-12

30-O

ct-12

5-N

ov-1

211-N

ov-1

217-N

ov-1

223-N

ov-1

229-N

ov-1

25-D

ec-1

211-D

ec-1

217-D

ec-1

223-D

ec-1

229-D

ec-1

24-Ja

n-1

310-Ja

n-1

316-Ja

n-1

322-Ja

n-1

328-Ja

n-1

33-Fe

b-1

39-Fe

b-1

315-Fe

b-1

321-Fe

b-1

327-Fe

b-1

35-M

ar-1

311-M

ar-1

317-M

ar-1

323-M

ar-1

329-M

ar-1

34-A

pr-1

310-A

pr-1

316-A

pr-1

322-A

pr-1

328-A

pr-1

34-M

ay-1

310-M

ay-1

316-M

ay-1

322-M

ay-1

328-M

ay-1

33-Ju

n-1

39-Ju

n-1

315-Ju

n-1

321-Ju

n-1

327-Ju

n-1

3

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

0

1000

2000

3000

4000

5000

6000

7000

Net FII Investment NSE

*July 2012-June 2013

Analysis using SPSS

Analysis FII & SENSEX FII & Nifty

Correlation 0.232 0.247

R2 0.054 0.061

Sig. Level 0.000 0.000

Correlation coefficient is very low. Only 6% of data are influenced There exists significant relationship between FII & Indian Stock Market

FII & Sensexfor the year 2008 & 2009(Month wise)

Jan-0

8Feb-0

8M

ar-0

8A

pr-0

8M

ay-0

8Ju

n-0

8Ju

l-08

Aug-0

8Sep-0

8O

ct-08

Nov-0

8D

ec-0

8Ja

n-0

9Feb-0

9M

ar-0

9A

pr-0

9M

ay-0

9Ju

n-0

9Ju

l-09

Aug-0

9Sep-0

9O

ct-09

Nov-0

9D

ec-0

9

-20,000.00-15,000.00-10,000.00-5,000.00

0.005,000.00

10,000.0015,000.0020,000.0025,000.00

0.002,000.004,000.006,000.008,000.0010,000.0012,000.0014,000.0016,000.0018,000.0020,000.00

FII SENSEX

Analysis using SPSS

Analysis FII & SENSEX

Correlation 0.342

R2 0.117

Sig. Level 0.102

Correlation coefficient is positive. Only 11% of data are influenced There exists no significant relationship between FII & Indian Stock Market

Findings

Major portion of FII investments have come through the primary market, than through buying via secondary markets

The FII over a longer time frame has greater impact on Stock market when compared to short time frame.

FII can explain only about 50% of the movement of stock market. In the year 2008-09, US economy was under recession , this might be cause

of declining FII in 2008. In the year 2012-13, Indian economy have undergone many swings like

running inflation rate, falling rupee, rise in gold price. This all factors have greater impact on stock market movement than FII.

Market size, Political scenario, Labour cost and productivity, Liberalized Trade Policy, Infrastructure, Incentives and Operating conditions and Disinvestment policy were the causes of FIIs investment in India.

Conclusion

FII invest in bulk .This cause herding behaviour among the DII’s . FII investment in any company’s stock assumed to have growth potentials. When FII sells more and purchase less the significance level gets reduce and

thereby reducing the association between FII and Stock Market