ann tressa stephen

IMPACT OF INSTITUTIONAL INVESTORS ON NIFTY VOLATILITY

WITH SPECIAL REFERENCE

TO FOREIGN INSTITUTIONAL INVESTMENTS AND INDIVIDUAL

INVESTMENTS

Submitted By

Ann Tresa Stephen

Reg N.o: 1021238

Under the guidance of Prof. CKT Chandrashekhara

Head of AdministrationCUIM, Bangalore

A ThesisSubmitted in Partial Fulfilment of

the Requirements for the Award of the Degree ofMaster of Business Administration

Bangalore, India2012

DECLARATION

I, Ann Tresa Stephen, hereby declare that the dissertation entitled Impact of Institutional Investors

on Nifty Volatility with special Reference to Foreign Institutional Investments and Individual

investments has been undertaken by me for the award of Master of Business Administration. I have

completed this study under the guidance of Prof CKT Chandrashekhara, Head Of Administration,

Christ University Institute of Management

I also declare that this dissertation has not been submitted for the award of any Degree, Diploma,

Associateship or Fellowship of any other title in this University or any other University

Place: Bangalore Ann Tresa Stephen

Date: Register No: 1021238

CERTIFICATE

This is to certify that the dissertation submitted Ann Tresa Stephen on the title Impact of Institutional

Investors on Nifty Volatility With special Reference to Foreign Institutional Investments and

Individual investments is a record of research work done by her during the academic year 2011 – 2012

Under my guidance and supervision in partial fulfilment of the requirements for the award of the degree of

Master of Business Administration. This dissertation has not been submitted for the award of any Degree,

Diploma, Associate ship or Fellowship or any other title in this University or any other University.

Place: Bangalore Prof CKT Chandrashekhara

Date:

ACKNOWLEDGEMENT

I am indebted to many people who helped me complete this dissertation.

First, I thank the Vice-Chancellor Dr. (Fr.) Thomas C. Matthew and Pro Vice-Chancellor Dr. (Fr.) Abraham

V. M of Christ University for giving me the opportunity to do this research.

I thank Fr. Thomas T. V., Director, Christ University Institute of Management and Prof. C. K. T.

Chandrasekhara, Head of Administration for their kind support.

I thank Prof. CKT Chandrashekhara for his support and guidance during the course of my research. I

remember him with much gratitude for his patience and motivation, but for which I could not have submitted

this work.

I thank my parents for their blessings and constant support, without which this dissertation would not have

seen the light of day.

Ann Tresa Stephen

TABLE OF CONTENTS:

DECLARATION II

CERTIFICATE III

ACKNOWLEDGEMENT IV

TABLE OF CONTENTS V

ABSTRACT VI

CHAPTER 1

INTRODUCTION

1.1 BACKGROUND OF THE STUDY IX

1.2 FII AND INDIAN STOCK MARKET IX

1.3 SOURCE OF FII FLOW XI

1.4 FACTORS AFFECTING FII FLOW XII

1.5 FOREIGN INVESTMENT IN INDIAN CAPITAL MARKET XII

1.6 REGULATION RELATING TO FII XIV

1.7 NIFTY AND FII XVII

CHAPTER II

LITERATURE REVIEW

2.1 STUDIES CONDUCTED IN INDIA AND ABROAD XX

CHAPTER III

RESEARCH DESIGN AND METHOD OF STUDY

3.1 PROBLEM STATEMENT XXVII

3.2 OBJECTIVE XXVII

3.3 SCOPE OF STUDY XXVII

3.4 HYPOTHESIS XXVIII

3.5 PLAN OF ANALYSIS XXVIII

3.6 VARIABLES FOR STUDY XXIX

CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

4.1 REGRESSION AND CORRELATION ANALYSIS BETWEEN NIFTY AND FII

YEAR 2011 XXXI

4.2 YEAR 2010 XXXII

4.3 YEAR 2009 XXXIV

4.4 YEAR 2008 XXXV

4.5 QUESTIONNAIRE INTERPRETATION

1) CHI-SQUARE TEST XXXVIII

2) CHI-SQUARE TEST XXXIX

CHAPTER V

FINDINGS AND SUGGESTIONS

5.1 FINDINGS XLI

5.2 SUGGESTIONS XLII

CHAPTER VI

CONCLUSION XLIII

BIBLIOGRAPHY XLV

ANNEXURE XLVI

ABSTRACT

The Indian stock market though one of the oldest in Asia being in operation since 1875, remained largely

outside the global integration process until the late 1980s. In line with the global trend, reform of the Indian

stock market began with the establishment of Securities and Exchange Board of India in 1988. Among the

significant measures of integration, portfolio investment by FIIs allowed since September 1992, has been the

turning point for the Indian stock market. As of now FIIs are allowed to invest in all categories of securities

traded in the primary and secondary segments and also in the derivatives segment.

The process of integration received a major impetus when the Indian corporate was allowed to go global

with GDR / ADR issues. Starting with the maiden issue of Infosys in March 1999, ADR issues has emerged

as the star attraction due to its higher global visibility. Thus, the Indian stock market, which was in isolation

until recently, turns out to have been sensitive to developments in the rest of the world by the end of the

1990s.

The dissertation work aims to study the impact of Institutional Investors on the Nifty. Even though there are

several institutional investors, only the FII and MF operations are considered. The other institutional

investors do not participate actively in the stock market because of various restrictions.

The analysis of the data is done by taking daily net inflows of FII and MF. These inflows are compared with

the daily Nifty closing prices.

The important finding from this study is that Nifty is influenced by the FII inflows to a considerable extent.

The mutual funds are not actively participating in the index stocks. A larger portion of the equity fund

investment of mutual fund is seen in the non-index and midcap sector. This means that FII are playing in the

index and blue chip stocks and mutual funds in non-index and midcap sector.

The domestic institutional investors have to play an active role in the stock market so as to bring the stability

in the stock market. The stability of the stock market is important indicator of the economic development.

CHAPTER I- INTRODUCTION

BACKGROUND OF THE STUDY

The financial markets have expanded and deepened rapidly over the last ten years. The Indian capital

markets have witnessed a dramatic increase in institutional activity and more specifically that of FII’s. This

change in market environment has made the market more innovative and competitive enabling the issuers of

securities and intermediaries to grow.

In India the institutionalization of the capital markets has increased with FII’s becoming the dominant owner

of the free float of most blue chip Indian stocks. Institutions often trade large blocks of shares and

institutional order’s can have a major impact on market volatility. In smaller markets, institutional trades can

potentially destabilize the markets. Moreover, institutions also have to design and time their trading

strategies carefully so that their trades have maximum possible returns and minimum possible impact costs.

Some studies do examine the trading strategies and price impact of foreign institutional trades; however, the

scope is often limited to a single country. This study takes a look at the impact of FII cash flows on Index

volatility in India. FIIs are the largest investors in the Indian stock market. But the common perception that

domestic investors lack market-moving influence is not entirely based on fact.

For the study purpose the daily volatility in cash flows of FII’s were analyzed in relation to the daily

volatility in the National Stock Exchange of India benchmark Index (NIFTY) from Jan.2008 to Dec.2011.

This was done using Correlation analysis and Regression Analysis.

FII and Indian Stock Market

Given this presence of FIIs, their role in determining share price movements must be considerable. Indian

stock markets are known to be narrow and shallow in the sense that there are few companies whose shares

are actively traded. Thus, though there are more than 4,700 companies listed on the stock exchange, the BSE

Sensex incorporates just 30 companies, trading in whose shares is seen as indicative of market activity. This

shallowness would also mean that the effects of FII activity would be exaggerated by the influence their

behavior has on other retail investors, who, in herd-like fashion tend to follow the FIIs when making their

investment decisions.

These features of Indian stock markets induce a high degree of volatility for four reasons. In as much as an

increase in investment by FIIs triggers a sharp price increase, it would in the first instance encourage further

investments so that there is a tendency for any correction of price increases unwarranted by price earnings

ratios to be delayed. And when the correction begins, it would have to be led by an FII pullout and can take

the form of an extremely sharp decline in prices.

Secondly, as and when FIIs are attracted to the market by expectations of a price increase that tend to be

automatically realized, the inflow of foreign capital can result in an appreciation of the rupee vis-à-vis the

dollar (say). This increases the return earned in foreign exchange, when rupee assets are sold and the revenue

converted into dollars. As a result, the investments turn even more attractive, triggering an investment spiral

that would imply a sharper fall when any correction begins.

Thirdly, the growing realisation by the FIIs of the power they wield in what are shallow markets, encourages

speculative investment aimed at pushing the market up and choosing an appropriate moment to exit. This

implicit manipulation of the market, if resorted to often enough, would obviously imply a substantial

increase in volatility.

Finally, in volatile markets, domestic speculators too attempt to manipulate markets in periods of unusually

high prices. Thus, most recently, the Securities and Exchange Board of India (SEBI) is supposed to have

issued show-cause notices to four as-yet-unnamed entities, relating to their activities on around Black

Monday, May 17, 2004, when the Sensex recorded a steep decline to a low of 4505.

The last two years have been remarkable because, though these features of the stock market imply volatility;

there have been more months when the market has been on the rise rather than on the decline. This clearly

means that FIIs have been bullish on India for much of that time. The problem is that such bullishness is

often driven by events outside the country, whether it is the performance of other equity markets or

developments in non-equity markets elsewhere in the world. It is to be expected that FIIs would seek out the

best returns as well as hedge their investments by maintaining a diversified geographical and market

portfolio. The difficulty is that when they make their portfolio adjustments, which may imply small shifts in

favour of or against a country like India, the effects it has on host markets are substantial. Those effects can

then trigger a speculative spiral for the reasons discussed above, resulting in destabilising tendencies. Thus

the end of the bull run in January was seen to be the result of a slowing of FII investments, partly triggered

by expectations of an interest rate rise in the U.S.

These aspects of the market are of significance because financial liberalisation has meant that developments

in equity markets can have major repercussions elsewhere in the system. With banks allowed to play a

greater role in equity markets, any slump in those markets can affect the functioning of parts of the banking

system.

Similarly, if any set of developments encourages an unusually high outflow of FII capital from the market, it

can impact adversely on the value of the rupee and set of speculation in the currency that can, in special

circumstances, result in a currency crisis. There are now too many instances of such effects worldwide for it

to be dismissed on the ground that India's reserves are adequate to manage the situation.

Thus, the volatility being displayed by India's equity markets warrant returning to a set of questions that

have been bypassed in the course of neo-liberal reform in India. The most important of those questions is

whether India needs FII investment at all. With the current account of the balance of payments recording a

surplus in recent years, thanks to large inflows on account of non-resident remittances and earnings from

exports of software and Information Technology-enabled services, we do not need those FII flows to finance

foreign exchange expenditures. Neither does such capital help finance new investment, focused as it is on

secondary market trading of pre-existing equity. And finally, we do not need to shore up the Sensex, since

such indices are inevitably volatile and merely help create and destroy paper wealth and generate, in the

process, inexplicable bouts of euphoria and anguish in the financial press.

In the circumstances, the best option for the policy maker is to find ways of reducing substantially net flows

of FII investments into India's markets. This would help focus attention on the creation of real wealth as well

as remove barriers to the creation of such wealth, such as the constant pressure to provide tax concessions

that erode the tax base and the persisting obsession with curtailing fiscal deficits, both of which are driven by

Source of FII flow

The sources of these FII flows are varied. The FIIs registered with SEBI come from as many as 28 countries

(including money management companies operating in India on behalf of foreign investors).

1. US-based institutions accounted for slightly over 41%

2. UK constitute about 20%

3. Western European countries hosting another 17% of the FIIs

4. The remaining 22% by other countries

It is, however, instructive to bear in mind that these national affiliations do not necessarily mean that the

actual investor funds come from these particular countries. Given the significant financial flows among the

industrial countries, national affiliations are very rough indicators of the ‘home’ of the FII investments. In

particular institutions operating from Luxembourg, Cayman Islands or Channel Islands, or even those based

at Singapore or Hong Kong are likely to be investing funds largely on behalf of residents in other countries.

Nevertheless, the regional breakdown of the FIIs does provide an idea of the relative importance of different

regions of the world in the FII flows.

Factors affecting FII flows

FII flows and stock returns: FII flows depend on the performance of the stock exchange of the country.

The EPS of the stock exchange of the country is one of the important factors which have a bearing on the FII

flows in to the country. The FIIs study the average EPS of various countries’ stock exchange and invest in

the profitable ones. The specific return of specific stocks also influences the FII decisions.

Country risk measures: This includes political and other risks in addition to the usual economic and

financial variables, which may be expected to have an impact on portfolio flows to India though they are

likely to matter more in the case of FDI flows.

FOREIGN INSTITUTIONAL INVESTOR

The term Foreign Institutional Investor is defined by SEBI as under:

"Means an institution established or incorporated outside India which proposes to make investment in India

in securities. Provided that a domestic asset management company or domestic portfolio manager who

manages funds raised or collected or brought from outside India for investment in India on behalf of a sub-

account, shall be deemed to be a Foreign Institutional Investor."

SUB ACCOUNT

Sub-account" includes those institutions, established or incorporated outside India and those funds, or

portfolios, established outside India, whether incorporated or not, on whose behalf investments are proposed

to be made in India by a Foreign Institutional Investor.

FOREIGN INVESTMENTS IN INDIAN CAPITAL MARKETS

India’s decision in 1991 to permit Foreign Institutional Investors (FIIs) to invest in India was a major step in

the globalization of Indian capital market. FIIs have played a major role in India’s secondary markets and

have virtually re written the rules of the market in recent years. FIIs drive the stock market, especially in

technology and media stocks, using international valuation models and even linking NASDAQ trends with

Indian market capitalization values. The Reserve Bank Of India monitors FII activity in a daily basis.

Foreign companies/Individuals are permitted to invest in equity shares traded in Indian Stock markets if they

are registered as a Foreign Institutional Investor (FII) or if they have a sub account in India.

Investment in Indian securities is also possible through the purchase of Global Depository Receipts (GDR),

American Depository Receipts (ADR), Foreign Currency Convertible Bonds and Foreign Currency Bonds

issued by Indian issuers, which are listed, traded and settled overseas and mainly denominated in US dollars.

Foreign Investors (whether registered as a FII or not) can also invest in Indian securities outside the FII

route. Such investments require case-by-case approval from the Foreign Investment Promotion Board in the

Ministry of Industry and Reserve Bank of India (RBI), or only by the RBI depending on the size of the

investment and the industry in which this investment is to be made.

FII investments in Indian capital market are more than US $ 11,000 million. Indian Stock market with a

market capitalization of over US $ 165,000 million has been a major attraction for investors all over the

world, because of the new economy boom and excellent functioning of Stock Exchanges in the Country. The

combined daily turnover of National Stock Exchange (NSE) and The Stock Exchange, Mumbai (BSE) is in

excess of US $ 30,000 million. The screen base trading of NSE and BSE provides transparency in execution

of orders, settlement & trade guarantees and elimination of risk of bad deliveries (in case of dematerialized

shares, which constitute over 90% of trade).

INVESTMENT STRUCTURE OF FII INVESTING

REGULATION RELATING TO FII OPERATION

Regulations Regarding Portfolio Investments by Foreign Institutional Investors (FIIs)

Investment by FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA

Notification No.20 dated May 3, 2000. SEBI acts as the nodal point in the entire process of FII

registration.

FIIs are required to apply to SEBI in a common application form in duplicate. A copy of the

application form is sent by SEBI to RBI along with their 'No Objection' so as to enable RBI to grant

necessary permission under FEMA.

RBI approval under FEMA enables an FII to buy/sell securities on stock exchanges and open foreign

currency and Indian Rupee accounts with a designated bank branch.

18 May 2005Page 8

PricewaterhouseCoopers

Typical Structure of FII investing

Investment Structure of FII

FII

Global Custodian

LocalCustodian

Broker

InvestmentAdvisor

• Evaluates investment opportunities for FII

• Advises FII to buy and sell particular securities

• Opens and maintains foreign currency and Rupee A/cs for the FII

• Opens and maintains Demat A/c for FII• Interacts with Broker in accordance with

instructions received from GC/FII• Ensures stocks are delivered on sale and

received on purchase

• Investment in securities• Earning income from

dealings in securities• Investment decision taken

outside India and instructs GC & Broker

• Coordinates investments made in various jurisdictions

• Ensures instructions are carried out through LC

• Buys/sells securities on behalf of FIIs as per instructions received from FII

FIIs are required to allocate their investment between equity and debt instruments in the ratio of 70:30.

However, it is also possible for an FII to declare itself a 100% debt FII in which case it can make its

entire investment in debt instruments.

FIIs can invest in listed and unlisted securities including shares, debt instruments dated Government

Securities and Treasury Bills. No individual FII/sub-account can acquire more than 10% of the paid up

capital of an Indian company.

All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of

an Indian Company. Indian Companies can raise the above mentioned 24% ceiling to the Sectoral

Cap / Statutory Ceiling as applicable by passing a resolution by its Board of Directors followed by

passing a Special Resolution to that effect by its General Body

Presence of Sectoral Cap/ Statutory ceiling means that foreign investment from all sources cannot

exceed a specified level. A Company to which no sectoral cap/statutory ceiling is applicable can raise

the limit of permissible FII investment to 100% of the paid up capital.

A Company to which a 49% cap is applicable can raise the limit of permissible FII investment to 49%

and if there is an existing foreign direct investment of 15%, possible FII investment can only be up to

34%.

No permission from RBI is needed so long as the FIIs purchase and sell on recognized stock exchange.

All non-stock exchange sales/purchases require RBI permission.

In order to ensure that the sectoral / statutory ceilings on foreign investment in a company are not

violated due to investment by FIIs, RBI monitors these ceilings for the companies in respect of which

sectoral caps /statutory ceiling have been indicated by Government of India.

When the total holdings of FIIs reaches within 2% of the applicable limit, Reserve Bank issues a notice

to all concerned that any further purchases of the shares of the said Company requires prior approval of

RBI.

High Net worth Individuals /foreign corporates can invest through SEBI Registered FIIs subject to a

sub-limit of 5% each within the aggregated limit of 24%.

Registered Foreign Institutional Investors (FIIs) are allowed to trade in all exchange traded derivative

contracts approved by SEBI from time to time subject to the limits prescribed by SEBI.

Eligibility Criteria to be fulfilled by the Applicant Seeking FII Registration

As per Regulation 6 of SEBI (Foreign Institutional Investors) Regulations, 1995, Foreign Institutional

Investors are required to fulfill the following conditions to qualify for grant of registration:

Applicant should have track record, professional competence, financial soundness, experience,

general reputation of fairness and integrity;

The applicant should be regulated by an appropriate foreign regulatory authority in the same

capacity/category where registration is sought from SEBI. Registration with authorities, which are

responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor.

The applicant is required to have the permission under the provisions of the Foreign Exchange

Management Act, 1999 from the Reserve Bank of India.

Applicant must be legally permitted to invest in securities outside the country or its in-corporation /

establishment.

The applicant must be a "fit and proper" person.

The applicant has to appoint a local custodian and enter into an agreement with the custodian.

Besides it also has to appoint a designated bank to route its transactions.

Effect Payment of registration fee of US $ 5,000.00.

Investments

Foreign corporate and foreign individuals are eligible to make investments only through the equity route.

The equity investment route permits up to 30% investments in debt instrument. At least 70% of the

investments have to be parked in equity related instruments which include:

Securities in primary and secondary markets (listed or unlisted)

Units of scheme floated by Unit Trust of India and other domestic mutual funds (listed or unlisted)

Warrants and derivative instruments

FIIs and the Sub-Accounts are permitted to tender their securities directly in response to open offer made in

terms of the SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 1997. FII and the Sub-

Accounts are also permitted to offer their shares in case of buyback of securities and also to lend securities

through an approved intermediary.

Investment limits:

A FII or a Sub-Account can hold up to 10% of paid up equity capital of any company.

The total investments made by all the foreign corporates and foreign individuals shall not exceed 5%

of total issued capital of that company within the aggregate limit for FII portfolio investments.

The total investments by FII and Sub-Accounts in any Indian Company cannot exceed 24% of its

total paid up capital.

However, in certain companies, which have passed a Special Resolution in this regard, the total FII

investment can be made up to 49% of the paid up capital. This limit of 24% / 49% is exclusively

available for investments by FII only.

It may further be noted that this limit of 24% does not include investments made by FII outside the

Portfolio investments route i.e., through the direct investment approval process. Investments made

offshore through purchases of GDR, ADR and convertibles are also excluded.

Thus, the volatility being displayed by India's equity markets warrant returning to a set of questions that

have been bypassed in the course of neo-liberal reform in India. The most important of those questions is

whether India needs FII investment at all. With the current account of the balance of payments recording a

surplus in recent years, thanks to large inflows on account of non-resident remittances and earnings from

exports of software and Information Technology-enabled services, we do not need those FII flows to finance

foreign exchange expenditures. Neither does such capital help finance new investment, focused as it is on

secondary market trading of pre-existing equity. And finally, we do not need to shore up the Sensex, since

such indices are inevitably volatile and merely help create and destroy paper wealth and generate, in the

process, inexplicable bouts of euphoria and anguish in the financial press.

In the circumstances, the best option for the policy maker is to find ways of reducing substantially net flows

of FII investments into India's markets. This would help focus attention on the creation of real wealth as well

as remove barriers to the creation of such wealth, such as the constant pressure to provide tax concessions

that erode the tax base and the persisting obsession with curtailing fiscal deficits, both of which are driven by

dependence on finance capital.

NIFTY AND FII

NIFTY: S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. It is

used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index

funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint

venture between NSE and CRISIL. IISL is India's first specialised company focused upon the index as a core

product. IISL has a marketing and licensing agreement with Standard & Poor's (S&P), who are world leaders

in index services.

The traded value for the last six months of all Nifty stocks is approximately 44.89% of the traded value of

all stocks on the NSE

Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.15%

S&P CNX Nifty is professionally maintained and is ideal for derivatives trading

The NIFTY moves up and down based on movement of 50 companies share prices listed in NSE sensitivity

index. The reasons of the rise and fall of the Sensex may be due to macro-level or micro-level factors such as

Government policies, Inflation rate, FDI & FII etc. In our research, we have only considered the FII factor to

find out that is there any impact of the FII on the movement of NIFTY. So, we have taken the help of the

Regression and Correlation tools to measure it.

CHAPTER 2- LITERATURE REVIEW

Studies conducted in India and abroad:

(Ahmad, Khan Masood, Ashraf, Shahid and Ahmed, Shahid, Foreign Institutional Investment Flows and Equity Returns in India (2005). The ICFAI Journal of Applied Finance, Vol. 11, pp. 16-30, March, 2005.)

This paper examines the relationship between foreign institutional investment and stock returns in India during 2002-04. The Foreign Institutional Investment as a percentage of market capitalization and floating stock has been improving over the years. Using NSE Nifty and FII capital flows to the equity market, Granger-causality, Cross-correlation method and GARCH have been applied to analyse the static and dynamic relationship between FII flows and Nifty. Granger-causality shows a unidirectional relationship, indicating that equity returns cause FII flows, whereas Cross-correlation method shows some evidence of contemporaneous and bi-directional causality. This is an interesting result not reported earlier, and it is possible that the impact may be strong at the level of individual stock prices. The Foreign Institutional Investors (FIIs) seem to be positive feedback traders, as there is a strong positive relationship with lagged daily returns, and the results also show a significant relationship with future equity returns. Individually, there is significant volatility clustering in FII investments and Nifty series but there is no transmission or destabilizing effect. It is suggested that information on trade by FIIs must be made publicly available more speedily.

Froot, O'Connell and Seasholes (2001) have demonstrated that international capital flows 'predict' i.e., lead price changes. They have found evidence that a one-basis point shock to international portfolio flows results in a 40 basis point increase in equity prices. The 'herding behaviour' of foreign investors is cited as the possible explanation for the reverse direction of causality from FII flows to stock market returns. Herding refers to the tendency of a majority of investors to follow each other and to either only buy or only sell at the same time. With the incentive structure for fund managers being linked to their performance relative to that of other funds, there is a great deal of incentive for a foreign portfolio investor to suffer the consequences of being wrong when everyone is wrong, rather than taking the risk of being wrong when some others are right. Thus, herding by foreign investors may be quite rational in market place. But such herding can lead to stock prices spiralling up (or down) in times of price-rise (or fall) and hence push the prices far away from their fair values and overshoot the market equilibrium.

In 1990s, several research studies have explored the cause and effect relationship between FII flows and domestic stock market returns but the results have been mixed in nature.

Tesar and Werner (1994,1995), Bohn and Tesar (1996), and Brennan and Cao (1997) have examined the estimates of aggregate international portfolio flows on a quarterly basis and found evidence of positive, contemporaneous correlation between FII inflows and stock market returns.

Jo (2002) has shown empirically tested instances where FII flows induce greater volatility in markets compared to domestic investors while Bae et.al. (2002) have proved that stocks traded by foreign investors experience higher volatility than those in which such investors do not have much interest.

On the contrary, Gordon and Gupta (2003) have shown that lagged domestic stock market returns are an important determinant of FII flows.

Bekaert and Harvey (1998), and Errunza (2001) have found evidences that FII flows do not have significant impact in increasing volatility of stock returns.

In Indian context, Chakrabarti (2001) has observed that foreign institutional investors do not appear to be at an informational disadvantage compared to domestic investors in the Indian markets. Using a monthly data-set for the period May 1993 to December 1999, he has found that FII net inflows are not only correlated with the returns in Indian equity market but are more likely the effect than the cause of the Indian equity market returns. Contrary to the general perception of foreign investors' activities having a strong demonstration effect and driving the domestic stock market in India, evidence from causality tests conducted by

Mukherjee, Bose and Coondoo (2002) suggests that FII flows to and from the Indian market tend to be caused by returns in the domestic equity market and not the other way round.

(Li, 2002)The impact study of FIIs flows on domestic stock market is important from government as well as investor point of view, for example, does the opening up of the market for FII increase speculation in the market and thus make the market more volatile and more vulnerable to foreign shocks

(Calvo and Mendoza, 2000)The immediate impact of market opening to FIIs is the surge in trading volume and capital inflows to domestic stock markets, result of which the boom in stock prices. The stock market boom, typically, does not last for the entire period is of capital inflows. It usually starts with the initial surge in capital inflows and ends before the episode of capital inflows completely subsides

Similarly Lin et al. (2006) conclude that the investment performance of FIIs high holding stocks is significantly better than that of FIIs low holding stocks. They presented the evidence that FIIs trading behaviour has generated better returns and portfolio performance since the stock market’s full liberalization.

[Hindu Business Line, 1999]The extent of FII influence on market players can probably be gauged from the fact that SEBI asked the stock exchanges not to release FII trading details as SEBI decided to release the data with a one day lag and after due confirmation with the FIIs' custodians.

To give better empirical content to the general understanding that FIIs influence the Indian equity markets we tried to get detailed data on FII transactions. Our efforts at getting FII-wise information from the RBI and SEBI, however, did not meet with any success.9 In view of this, we had to rely on other sources

Recently, a new index, Instanex FII index15, has come into existence. This is similar to the Sensex and Nifty. It gives a feel of the FII pulse, and their moves in the stock markets. The Instanex FII index tracks the 15 stocks in which FII funds have been invested. These 15 stocks under the Instanex index account for 55 per cent of the market capitalization of the FII holdings. Long-term investors can track the FII investment data released by SEBI. The net FII investment data helps in understanding the mood of the FIIs. Since they are key drivers of stock markets, tracking their investment data helps in understanding the decisive direction of the stock markets.

(Gordon and Gupta, 2003; Wang and Shen, 1999). However, there are also evidences that relationship between FII and Stock market is weak but in general, FIIs buying pushes the stocks up and their selling shows the stock market the downward path. Digging into a subjective interpretation of the correlation between Sensex rally from 2006 to 2008 and FII investment for the same period, one can see that when the Sensex crossed the 15, 000 marks for the first time, net FII investment was Rs. 31.79 billion. When the

Sensex crossed 17,000 marks, the net FII investment strangely had fallen down to Rs. 10.04 billion. At 19,000 marks, FII investment was lower at Rs. 7.81 billion. But suddenly, when the Sensex breached the 20,000, net FII investment was at Rs. 18.48 billion. That puts paid to the theory that FII have mostly been reason for the rise in the Sensex (Moin, 2010). FII contribution to the rise of the Sensex is more psychological than real.

Chakrabarti (2001) made an empirical investigation to see the interrelationship between FIIs flows and equity returns in India using monthly data. He came with the evidence that the FIIs flows were highly correlated with equity returns in India. He also found that FIIs flows are more likely to be the effect than the cause of these returns, which contradicted the view that the FIIs determined market returns in general.

Kulwant Rai & N. R. Banumurthy (2004) marked that FII inflows depends on stock market returns, inflation rate, and ex- ante risk. In terms of magnitude, the impact of stock market returns, and ex- ante risk turned out to be the major determinants of FII inflows. Stabilising the stock market volatility and minimising the ex- ante risk would help to attract more FII, an inflow of which has positive impact on the real economy.

Sandhya (2004) reported that unexpected flow from FIIs had a greater impact on stock market than expected flow.

Bansal (2009) opined that when there was a decline in return after the entry of FII in India, the volatility had been reduced. The volatility of Indian stock market was not only because of FII inflow. There were also some other factors which influence the volatility of Indian stock market

SSS Kumar(Role of Institutional investors in Indian Stock markets)An important feature of the development of stock market in India in the last 15 years has been the growing participation of Institutional Investors, both foreign institutional investors and the Indian mutual funds combined together, the total assets under their management amounts to almost 18% of the entire market capitalization. His paper examines the role of these investors in Indian stock markets and finds that the market movement can be explained using the direction of the funds flow from these investors. He concludes that, the Indian stock markets have really come of age there were so many developments in the last 15 years that make the markets on par with the developed markets. The important feature of developed markets is the growing clout of institutional investors and this paper sets out to find whether our markets have also being dominated by institutional investors. The regression results show that the combined might of the Flls and mutual funds are a potent force, and they infact direction can forecast market direction using the direction of the flow of funds from Flls and mutual funds, the Granger causality test has showed that the mutual funds in fact lead the market rise or fall and Flls follow suit.

In the Journal of academic research in economics, a paper titled foreign institutional investors impact on stock markets in India by Anand Bansal and J S Pasricha, This paper studies the impact of market opening to FIIs, on Indian stock market behaviour. India announced its policy regarding the opening of stock market to FIIs for investment in equity and related instruments. Using stock market data related to Bombay Stock Exchange, for both before and after the FIIs policy announcement day. An empirical examination has been conducted to assess the impact of the market opening on the returns and volatility of stock return. We found that while there is no significant changes in the Indian stock market average returns, volatility is significantly reduced after India unlocked its stock market to foreign investors. It concludes that, On the basis of above discussion, it can be said that while return declined reasonably after the entry of FIIs, the volatility has been reduced significantly after their entry. Besides, FIIs investment flows, there may be other

reasons as well that may have some degree of influence on market volatility and return. While the FIIs investment flows and contemporaneous SENSEX, NIFTY, market capitalization and market turnover have been strongly correlated in India, the correlation between FIIs investments and market volatility and market return has been comparatively low. It means volatility in Indian market is not the function of FIIs investment flows. There may be some other reasons which induced the volatility in Indian market over the time.

Chakrabarti (2001) has examined in his research that following the Asian crisis and the bust of info-tech bubble internationally in 1998-99 the net FII has declined by US$ 61 million. But there was not much effect on the equity returns. This negative investment would possibly disturb the long-term relationship between FII and the other variables like equity returns, inflation, etc. has marked a regime shift in the determinants of FII after Asian crisis. The study found that in the pre-Asian crisis period any change in FII found to have a positive impact on the equity returns. But in the post-Asian crisis period it was found the reverse relation that change in FII is mainly due to change in equity returns. Hence, any empirical exercise on FII has to take care of this fact.

Stanley Morgan (2002) has examined that FIIs have played a very important role in building up India’s forex reserves, which have enabled a host of economic reforms. Secondly, FIIs are now important investors in the country’s economic growth despite sluggish domestic sentiment. The Morgan Stanley report notes that FII strongly influence short-term market movements during bear markets. However, the correlation between returns and flows reduces during bull markets as other market participants raise their involvement reducing the influence of FIIs. Research by Morgan Stanley shows that the correlation between foreign inflows and market returns is high during bear and weakens with strengthening equity prices due to increased participation by other players.

Sivakumar S (2003) has analysed the net flows of foreign institutional investment over the years, it also briefly analyses the nature of FII flows based on research, explores some determinants of FII flows and examines if the overall experience has been stabilising or destabilising for the Indian capital market.

Agarwal, Chakrabarti et al (2003) have found in their research that the equity return has a significant and positive impact on the FII. But given the huge volume of investments, foreign investors could play a role of market makers and book their profits, i.e., they can buy financial assets when the prices are declining thereby jacking-up the asset prices and sell when the asset prices are increasing. Hence, there is a possibility of bi-directional relationship between FII and the equity returns.

Sandhya Ananthanarayanan (2004) held that as part of its initiative to liberalize its financial markets, India opened her doors to foreign institutional investors in September, 1992. This event represents a landmark event since it resulted in effectively globalizing its financial services industry. We study the impact of trading of Foreign Institutional Investors on the major stock indices of India. Our major findings are as follows. First, we find that unexpected flows have a greater impact than expected flows on stock indices. Second, we find strong evidence consistent with the base broadening hypothesis. Third, we do not detect any evidence regarding momentum or contrarian strategies being employed by foreign institutional

investors. Fourth, our findings support the price pressure hypothesis. Finally, we do not find any substantiation to the claim that foreigners’ destabilize the market.

In a paper titled, Dynamic Interaction among Mutual Fund Flows, Stock Market Return and Volatility by M.Thenmozhi and Manish Kumar, This study has examined the dynamic interaction between mutual fund flows and security returns and between mutual fund flows and volatility. The results based on the contemporaneous relationship using daily data suggest that a positive relationship exist between stock market returns and mutual fund flows measured as stock purchases and sales. This positive concurrent relationship continues to exist even after controlling for volume. The analysis of causal relationship between mutual fund flows and market returns show that mutual fund out flows (sales) are significantly affected by return in the equity market, however, the latter is not significantly influenced by variation in these flows which suggests negative feedback trading behaviour in the Indian market. The results show that a strong positive relationship exists between stock market volatility and mutual fund flows measured as stock purchases and sales. This positive concurrent relationship continues to exist even after controlling for volume. The analysis on the direction of relationship between volatility and mutual fund flows using the VAR approach suggests that market volatility is positively related to lag flow, and that shock in flow has a positive impact on market volatility. The results provide evidence that the relationship is stable even after including these exogenous variables such as volume and market fundamental variables such exchange rates, dividend and short term interest rates in the model. Increase in the aggregate inflows and outflows are associated with more volatile market.

(Davidson and Dutia (1989), Delong et al. (1990), Hendricks et al. (1993), Warther (1995), and Zheng (1999)). The cash flows into mutual funds have generally been strongly correlated with market returns and this relationship reflects the momentum trading or feedback trading hypothesis

(Harris et al. 1986; Shleifer, 1986).The hypothesis suggests that a shock to security returns leads to a change in mutual inflows, which in turn leads to a further change in security returns. It is often stated that mutual fund flows cause security returns to rise and fall and one possible reason attributed for this is the “price pressure hypothesis”

(Lee et al., (1991) and Warther, (1995)) Price pressure theory suggests that increased inflows into equity mutual funds stimulate a greater demand by individuals to hold stock, and this causes share prices to increase while the “information revelation” hypothesis suggests that if mutual fund investors possess information or if they trade in the same direction as another group of investors who possess information, then their trades will reveal or be associated with new information. Under this scenario, if mutual fund investors are well informed their trades will be a signal to buy stocks and the market in this case will not be responding to fund flows because of price pressure, but rather react efficiently to new information.

However, if mutual fund investors are unsophisticated and have a poor track record (noise traders), then the signal would be to sell stocks. Though, mutual fund flows and stock returns have a high positive correlation as cited in literature, it does not necessarily mean that the former causes the latter and vice versa.

Potter (1996) in his study used Granger causality tests to examine the lead–lag relationship between returns and fund flows for several categories of equity funds. The results show the evidence that security returns are useful to predict flows into aggressive growth funds but not into income funds.

(Warther (1995), Remelona et al.(1997)) Some studies have failed to find evidence that mutual fund flows are affected by lagged security prices and security prices in one period are affected by mutual fund flows in previous periods.

Some recent studies (Fortune (1998), Christos et al. (2005), Natalie and Parwada (2007) show that feedback exists, i.e., security returns do affect future fund flows, and some fund flows do affect future security returns. However, it has also been found that fundamentals of firm influences fund flows than the stock returns (Cha and Lee (2001)) and stock volatility influences flow of funds (Goetzmann and Massa (2003)).

Edwards and Zhang (1998) employed Granger causality test and instrumental variable analysis to examine the relationship between aggregate monthly mutual fund flows and stock and bond monthly returns. The result shows that with one exception, flows into stock and bond funds do not affect either stock or bond returns. However, the magnitude of flows into both stock and bond funds are significantly affected by stock and bond returns.

CHAPTER 3- RESEARCH DESIGN AND METHOD OF STUDY

Problem Statement:

The stock market is influenced by many factors. Both institutional and individual investors have a critical

role to play in the stock market. The volatility in the market is the result of buying and selling pressure on

the stocks. The excessive buying pressure results in the bull market and the excessive selling pressure result

in bear market. Under this circumstance it may be useful to study the impact of institutional investors on the

market. This study basically aimed at studying the influence of FII and individual investors on one of the

premier stock exchange of India, NSE India.

Objective:

To study the impact of Institutional Investors with special reference to FII Cash flows and individual

investments, on the stock market volatility. This can be further explained as higher the variability of the FII

cash flows, higher will be the volatility of the Index.

Scope of the Study:

The scope of the study is limited only to NSE Nifty. The study includes testing the impact of Institutional

Investors only on NSE Nifty. The scope of the study is limited only to institution investors being FII’s and

individual investments. The other institutional investors have not been considered in the study as they do not

participate actively in the stock market because of various restrictions imposed on their operations

Survey Area: Bangalore

Sampling Unit: Individual investors across Bangalore

Research Design:

A Research Design lays down the foundation for conducting the project. It provides a framework for

carrying on the research project and specifies the details procedures necessary for obtaining the information

needed to structure and/or solve marketing research problems.

The research methodology is based on quantitative research which is a systematic empirical investigation of

social phenomena via statistical, mathematical or computational techniques.

Type of research: Analytical study and Correlation-Regression Analysis

Research Instruments:

Correlation

Regression Analysis

Durbin-Watson study

Hypothesis:

Hypothesis 1-

Null Hypothesis (H) o : “There is no significant impact of FII Cash flows on the NIFTY volatility”

Alternate Hypothesis (H1): “There is a significant impact of FII Cash flows on the NIFTY volatility”

Hypothesis 2-

Null Hypothesis (Ho) : “There is no significant impact of individual investments on the NIFTY volatility”

Alternate Hypothesis (H1) : “There is a significant impact of individual investments on the NIFTY volatility”

Plan of Analysis:

For the study purpose, only NIFTY that is the National Stock Exchange (NSE) benchmark Index is

considered. This is because the larger chunk of FII activity in India happens on the NSE. NSE is the

dominant exchange in India with close to 75% of cash market turnover and well over 90% of derivatives

turnover in India happening on the NSE. The daily index volatility and volatility in daily FII cash flows were

studied. We have also studied the combined effects of individual investments and daily FII volatility on the

Nifty volatility.

The data considered for the study is daily data for four years i.e. from January 2008 to December 2011. This

period also captures some of the great peaks and falls of the Indian market. Moreover this period captures

the significant development in the financial markets in India like introduction of rolling settlements,

derivatives etc.

Statistical models used:

Standard Deviation as a measure of risk

Correlation and regression analysis

Durbin-Watson Statistical Model

Variables for study:

For the analysis purpose primarily two variables were chosen.

They are Daily FII Cash flows and Daily Nifty values. Of these two variables, FII Cash flows is the

independent variable and Index (Nifty) is the dependent variable. For the analysis purpose only net cash

flows were considered i.e. total purchase – total sales during the intra-day period.

FII Cash flow is the independent variable. However Index is affected by various factors including liquidity

and hence is the dependent variable. We have also studied the combined effect of another independent

variable namely volatility of daily investment flows combined with daily FII volatility on Nifty volatility.

We have also studied another set of variables, which are Individual investments and NIFTY flows. Where,

Individual investment and NIFTY flows are the dependent variables and Income, Age, Brokers

recommendations, NIFTY stock prices and economic conditions are the independent variables

CHAPTER IV- ANALYSIS AND INTERPRETATION

REGRESSION & CORRELATION ANALYSIS BETWEEN NIFTYAND FII

YEAR 2011:

Summary Output

1 2 3 4 5 6 7 8 9 10 11 12

-15000

-10000

-5000

0

5000

10000

NIFTY2011FII2011

Model Summary (b)

Model R R SquareAdjusted R

SquareStd. Error of the Estimate Durbin-Watson

1 .517(a) .267 .194 346.74190 .413

a) Predictors: (Constant), FII11b) Dependent Variable: NIFTY11

ANOVA (b)

ModelSum of

Squares df Mean Square F Sig.1 Regression 437789.74

51 437789.745 3.641 .085(a)

Residual 1202299.478

10 120229.948

Total 1640089.222

11


Coefficients (a)

Model

Unstandardized Coefficients

Standardized Coefficients

t Sig.B Std. Error Beta1 (Constant) 5396.199 107.781 50.066 .000

FII11 .034 .018 .517 1.908 .085

a) Dependent Variable: NIFTY11

Residuals Statistics (a)

Minimum Maximum Mean Std. Deviation NPredicted Value 4998.4502 5670.6816 5319.9292 199.49704 12Std. Predicted Value -1.611 1.758 .000 1.000 12Standard Error of Predicted Value 100.143 209.299 137.290 36.029 12

Adjusted Predicted Value 4983.0181 5577.2109 5307.7298 201.40750 12Residual -

689.75824416.07120 .00000 330.60543 12

Std. Residual -1.989 1.200 .000 .953 12Stud. Residual -2.078 1.345 .016 1.018 12Deleted Residual -

752.52820522.88190 12.19937 377.60896 12

Stud. Deleted Residual -2.615 1.410 -.028 1.129 12Mahal. Distance .001 3.091 .917 1.008 12Cook's Distance .000 .232 .069 .075 12Centered Leverage Value .000 .281 .083 .092 12


Regression Analysis:

The significance level is 0.085 which is higher than the alpha value of 0.05. So we can conclude that at a confidence level of 95 per cent the null hypothesis cannot be rejected, and that FII has no impact on the

NIFTY.

Correlation: The R-square value is 0.267. So there is no strong correlation between NIFTY and FII.

YEAR 2010:

Summary Output

1 2 3 4 5 6 7 8 9 10 11 12

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

NIFTY2010FII2010

Model Summary (b)



1 .500(a) .250 .175 371.07020 .429


ANOVA (b)

ModelSum of


51 459638.085 3.338 .098(a)


10 137693.092

Total 1836569.008

11


Coefficients (a)

Model




FII10 .021 .011 .500 1.827 .098





444.56714766.55945 .00000 353.80155 12


537.52545867.27924 3.98730 409.26577 12

Stud. Deleted Residual -1.375 2.899 .061 1.176 12Mahal. Distance .001 3.175 .917 1.150 12Cook's Distance .000 .317 .077 .095 12Centered Leverage Value .000 .289 .083 .105 12

REGRESSION ANALYSIS:

The significance level is 0.098 which is higher than the alpha value of 0.05. So we can conclude that at a

confidence level of 95, the null hypothesis cannot be rejected, and that FII has no impact on the NIFTY

CORRELATION :

The R-square value is 0.250. So there is no strong correlation between NIFTY and FII.

YEAR 2009:

Summary Output

1 2 3 4 5 6 7 8 9 10 11 12

-10000

-5000

0

5000

10000

15000

20000

NIFTY2009FII2009

Model Summary (b)



1 .434(a) .188 .107 852.18404 .237


ANOVA (b)

ModelSum of


521 1684094.152 2.319 .159(a)


10 726217.644

Total 8946270.592

11


Coefficients (a)

Model




FII09 .063 .041 .434 1.523 .159





1110.26587

880.41705 .00000 812.52560 12

Std. Residual -1.303 1.033 .000 .953 12Stud. Residual -1.405 1.087 -.015 1.029 12Deleted Residual -

1291.34277

1013.27209

-28.33150 950.26955 12

Stud. Deleted Residual -1.488 1.098 -.028 1.046 12Mahal. Distance .003 3.637 .917 1.257 12Cook's Distance .005 .192 .085 .061 12Centered Leverage Value .000 .331 .083 .114 12




confidence level of 95 per cent the null hypothesis cannot be rejected, and that FII has no impact on the

NIFTY.

CORRELATION:

The R-square value is 0.188. So there is no strong correlation between NIFTY and FII.

YEAR 2008

Summary Output:

1 2 3 4 5 6 7 8 9 10 11 12

-35000

-30000

-25000

-20000

-15000

-10000

-5000

0

5000

10000

NIFTY2008FII2008

Model Summary (b)



1 .118(a) .014 -.085 947.02678 .362


ANOVA (b)

ModelSum of


81 126959.758 .142 .715(a)


10 896859.727

Total 9095557.027

11


Coefficients (a)

Model




FII08 -.013 .035 -.118 -.376 .715





1407.85400

1083.16064

.00000 902.95461 12


1663.83972

2109.48413

97.13718 1196.46469 12

Stud. Deleted Residual -1.784 1.288 .010 1.124 12Mahal. Distance .048 6.632 .917 1.836 12Cook's Distance .002 1.702 .214 .476 12Centered Leverage Value .004 .603 .083 .167 12




confidence level of 95 per cent the null hypothesis cannot be rejected, and that FII has no impact on the

NIFTY

CORRELATION:

The R-square value is -0.085. So there is no strong correlation between NIFTY and FII

Questionnaire Interpretation:

Individual Investments and influence on NIFTY

GENDER * Fluctuation_prices Cross tabulation:

Fluctuation_prices

TotalYes NoGENDER Male 35 37 72

Female 9 21 30Total 44 58 102

Chi-Square Tests

Value dfAsymp. Sig.

(2-sided)Exact Sig. (2-sided)

Exact Sig. (1-sided)

Pearson Chi-Square 2.990(b) 1 .084Continuity Correction(a)

2.280 1 .131

Likelihood Ratio 3.065 1 .080Fisher's Exact Test .124 .064Linear-by-Linear Association 2.961 1 .085

N of Valid Cases 102

The chi-square test proves the null hypothesis right, that there is no significant association between gender

and investment patters due to fluctuation in NIFTY prices. Investment patters of people irrespective of

whether male or female, are not affected by the fluctuation in NIFTY prices

P value is less than 0.85 and here it is greater than 0.05, so do not reject the null hypothesis.

Annual Income * Economic_condition Cross tabulation

Economic_condition

TotalYes NoAnnual Income Below Rs 2,00,000 29 8 37

Between Rs 2,00,000-5,00,000 30 5 35

Between Rs 5,00,000-10,00,000 22 2 24

Above Rs 10,00,000 3 2 5Total 84 17 101

Chi-Square Tests

Value dfAsymp. Sig.

(2-sided)Pearson Chi-Square 3.924(a) 3 .270Likelihood Ratio 3.708 3 .295Linear-by-Linear Association

.195 1 .658

N of Valid Cases101

The chi-square test proves that there is no significant positive relationship between person’s annual income

and economic conditions while investing. People, irrespective of their income levels are concerned about the

prevalent economic conditions at the time of investing.

P value of 0.270 is greater than 0.05. Hence, do not reject the null hypothesis.

CHAPTER V- FINDINGS AND SUGGESTIONS

Findings:

After analysing the questionnaire findings about individual investment pattern and their influence on

NIFTY volatility, it can be inferred that we cannot reject the null hypothesis.ie, there is no significant

influence of individual investments on NIFTY volatility.

The correlation between the independent and dependent variables, Foreign Institutional Investors

(FII) and Index (Nifty), on the daily basis is not significant. It means that daily Movement in the

Index cannot be explained by the movement of FII Inflows

The daily price of nifty is not correlated with the inflows of FII in into the nifty. Therefore if the net

investment is positive, then it is not necessary that nifty is also reacting positively and vice versa in

case of negative inflow

The Regression Analysis gives that the FII flow has a greater impact on the volatility of the nifty

index as compared to the individual investments.

The other institutional investors like financial institutions; banks and Insurance companies do not influence much on the share prices.

The individual investor does not have very important role to play in the stock market, as their influence on the nifty is minimal. The individual investor includes retail investors, speculators, daily traders etc.

Suggestions:

The individual investor has a very important role to play in the market. The individual investor

should not base their decision to buy or sell only on the basis of the FII investments flowing into the

market.

Considering the volatility in the stock market, the development of a vibrant local hedge fund industry

is essential.

The domestic individual investor should actively participate in the stock market so that the stock

market is not controlled only by the FIIs.

The individual or retail investor should understand that he has an important role to play in the

market. Proper investor guidance should be provided.

CHAPTER VI- CONCLUSION

Conclusion:

This study analyses the impact primarily of FII Inflows on the volatility of the Index (Nifty). On the basis of

the results from the analysis given above it can be said that the impact of FII cash inflows on the index

volatility is not significant enough to influence the NIFTY prices. The correlation between the FII inflow

and Nifty is negatively. Therefore,

The Null hypothesis of no significant impact of FII’s on NIFTY volatility is accepted

And,

The Null hypothesis of no significant impact of individual investments on NIFTY volatility is accepted.

Bibliography

Ahmad, Khan Masood, Ashraf, Shahid and Ahmed, Shahid, Foreign Institutional Investment Flows and Equity Returns in India (2005). The ICFAI Journal of Applied Finance

Determinants of Stock Trading Volume Evidence from Indian Stock Markets by Alok Kumar Foreign Institutional Investment - A Need of Time by Ajay Dhawle Foreign Investors and Global Linkages of Indian Equity Markets by Sunil Poshakwale, Chandra Thapa SSS Kumar(Role of Institutional investors in Indian Stock markets) Foreign institutional investors impact on stock markets in India by Anand Bansal and J S Pasricha. Dynamic Interaction among Mutual Fund Flows, Stock Market Return and Volatility by

M.Thenmozhi and Manish Kumar JSTOR Economic and Political Weekly, Vol. 32, No. 42 (Oct. 18-24, 1997) JSTOR Economic and Political Weekly, Vol. 40, No. 8 (Feb. 19-25, 2005), pp. 765-772 Relationships Among Foreign Institutional Investments, Stock Returns and Currency Change-Over Rates in

India by Subrata Kumar Mitra Some Further Evidence on Behaviour of Stock Returns in India by Gourishankar Hiremath, Bandi Kamaiah The Impact of FII Regulations in India A Time-Series Intervention Analysis of Equity Flows by Dr. Suyash

Bhatt www.sebi-gov.in www.moneycontrol.com www.indiainfoline.com www.rbi.org.in www.yahoofinance.com

Annexure:

http://www.yahoofinance.com/

http://www.rbi.org.in/

http://www.indiainfoline.com/

http://www.moneycontrol.com/

http://www.sebi-gov.in/

Questionnaire

Dear Sir/Madam,

This is a study intended towards understanding the investment pattern of individual investors in and

around Bangalore. The data collected is purely for academic purposes. I seek only your general views about

the same. I thank you for your co-operation and assure you complete confidentiality of the information you

will so kindly, sincerely and patiently share with me.

1. Gender

Male Female

2. Age

118 18 – 30 years 31- 50 years

51-70 ears 71 or more

3. Do you have any prior trading / investment experience?

Yes No

4. Do you have any investments at present?

Yes No

5. If yes, how much is your investment amount at present?

Below Rs.25000 Between Rs. 25,000 – Rs.100000 Between Rs.100000 – Rs.500000 Above Rs.500000

6. Has your investment amount changed with age?

Yes No

7. How do you think age has influenced your amount of investment?

Least Influenced 1 2 3 4 5 6

Highly Influenced 7

8. Annual Income

Below Rs. 200000 Between Rs.200000 – Rs. 500000 Between Rs. 500000 – Rs. 1000000 Above Rs. 1000000

9. Has your income influenced your investment amount?

Yes No

10. If yes, how do you think it has influenced your investment amount?


Highly Influenced 7

11. Do you consult brokers before investing ?

Yes No

12. If yes, how do you think his recommendations have influenced your investment amount?


Highly Influenced 7

13. Does the image/goodwill of the company have an influence on your investment amount?

Yes No

14. How significantly are influenced by it, if yes?

15.

Have you invested in NIFTY stocks?

Yes No

16. Do the fluctuations in NIFTY prices affect your investment pattern?

Yes No

17. If it influences, how significant is the influence?

18. Do you consider the current economic conditions while investing?

Yes No

19. If it influences, how significant is the influence?

I sincerely thank you for giving up a part of your valuable time and parting with very useful information

which will help us a great deal in my research project.


Highly Influenced 7


Highly Influenced 7


Highly Influenced 7

Sincerely yours,

Ann Tresa Stephen,II year MBA studentChrist University Institute of Management Hosur Road, Bengaluru

ann tressa stephen

Documents

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university place

nifty volatility

award of master

special reference

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degree of master

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