fii

FII’s Influence On Sensex Over The Period 2000-2010

CHAPTER-I

INTRODUCTION

Institute Of Management In Kerala


1.1 INTRODUCTION OF THE STUDY

“ FII’s influence on the Sensex over the period 2000-2010 ”- is a study of the

influence of FOREIGN INSTITUTIONAL INVESTERS whose activities play a vital

role in the ups and downs of the share market. The study is conducted on the Indian

stock exchange market ( BSE SENSEX) .

There are conflicting theories on the issue of whether FII flows affect or are affected

by domestic stock market returns. So, the present empirical study has been undertaken

to throw some light on the direction of causality between FII flows and Indian stock

market returns using data on both the variables from over the period 2000- 2010.

International portfolio flows, as are commonly known as Foreign Institutional

Investment (FII) flows, refer to capital flows made by individual and institutional

investors across national borders with a view to creating an internationally diversified

portfolio. Unlike Foreign Direct Investment (FDI) flows which refer to that category

of international investment aimed at obtaining a lasting interest by a resident entity in

one economy in an enterprise resident in another economy by way of exercising

significant control over its management, FII flows are not directed at acquiring

management control over foreign companies. FII flows were almost non-existent until

1980s.

With more and more emerging market economies (EMEs), deregulating their

financial markets by eliminating foreign exchange controls, reducing taxes imposed

on foreign investors, relaxing the restrictions on the purchase / sale of securities by

foreign investors in domestic markets etc. they are increasing in number.

Foreign Institutional Investment (FII) flows, i.e., capital flows across national borders,

to emerging market economies (EMEs) have risen sharply over the past one and half

decade due to globalization and India is no exception in this regard. However, there is

a lot of apprehension regarding the volatile nature of such flows thereby raising

questions about the need to encourage FII flows in a narrow and shallow stock market

like that of India.



1.2 Objectives of the Study

To know the Indian stock exchange market- BSE, NSE

To study the performance of Sensex over the period 2000-10

To know about FII

To study the effect of FII’s investment in BSE Sensex

To study the relationship between FII activity and Sensex

To find the trend in FII’s investment

1.3 Scope of the Study

To get in touch with the industrial and organizational environment.

To familiarize with the trends in the stock market(BSE) over the years

To familiarize with the importance of FII in Indian stock market

1.4 Methodology of the Study

The methodology of the study is through collecting the primary and secondary

data.

Primary data refers to the data collected by the investigator directly through

primary sources. It includes;

Direct observation.

Interview (personal).

Secondary data refers to the data collected from;

Books

Journals

Websites



Company manuals etc.

1.5 Limitation of the study

Time

Analysis is conducted only on the basis of some factors therefore cent percent

accuracy is not possible.

Lack of reliability of Secondary data

1.6 Chapterisation

Chapter 1 : Deals with Introduction. It includes objectives of the Study, Scope of

the study, Methodology, Limitations and Chapterisation.

Chapter 2 : Industry Profile - “Stock Market”.

Chapter 3 : Company Profile - “HEDGE EQUITIES”.

Chapter 4 : Theoretical Framework –Indian stock market & Foreign Institutional

investors

Chapter 5 : Analysis and Interpretation

Analysis of the performance of BSE over the years

Analysis of the FII inflow to Indian stock exchange

Analysis of the Sensex gain due to FII’s investment

Analysis of Sensex return due to the increase in number of FII

registration

Analysis of the correlation between Sensex returns and FII ‘snet

investment

Analysis of the trend in FII ‘s investment

Chapter 6 : Findings, Conclusion and Suggestions.



CHAPTER- II

INDUSTRY PROFILE



2.1 BROKERAGE INDUSTRY

The Indian retail brokerage industry consists of companies that primarily act

as agents for the buying and selling of securities (e.g. stocks, shares, and similar

financial instruments) on a commission or transaction fee basis. It has two main

interdependent segments: Primary market and the Secondary market. Now this market

is extended to fields like currency, commodity, mutual fund, insurance etc...

The Indian equity brokerage industry thrived on the back of equity markets'

sustained bull run during 2003-07. Although high competitive pressure meant

continuous compression of brokerage commissions and low electronic penetration

kept operating costs high, industry revenue was growing. Furthermore, the industry

attracted domestic and foreign investment interest at high valuations of upto 45x P/E

multiples. During this time, many of the key players started expanding their portfolio

of services to include wealth management and advisory services, sale of insurance and

mutual fund products, consumer financing and so on.

However, post-2008, the economic downturn - muted trading turnover,

relentless competitive pressure and decreasing margins, continued high operating

costs and high margining requirements - has put the industry under pressure.

Profitability is muted and the major players are under pressure to build scale.

Expansion of scale and investments into technological systems has the potential to

lead the top brokerage firms into paths of higher growth, but the current economic

climate is clearly against heavy investments.

The basic function of a brokerage firm is to execute buy and sell orders for

clients. Traditionally these firms have offered the investigation of the quality and the

possibilities of investing in a variety of investment products. It is still accustomed for

brokerage firms to offer information about possible investments free of charge. This

activity of bringing free of charge stock investment reports is one of the main tools

that are utilized by brokerage houses to compete against other firms and to investors it

continues to be an important service



The History of Stock Brokerage Firms

Stock brokerage firms have been an established feature in the financial industry

for nearly one thousand years. Dealing in debt securities, brokers employ a variety of

systems to aid investors with the purchase and sales of stocks and bonds in a variety

of markets. The firms have changed over the years, growing to massive organizations

that can affect the entire financial sector positively or negatively with their

performance. Changing with the times, the early twenty-first century saw a rise of

online trading that enabled the average investor to take part in the stock market for the

first time.

1. History

During the 11th century, the French began regulating and trading agricultural

debts on behalf of the banking community, creating the first brokerage system. In the

1300s, houses began to be set up in major cities like Flanders and Amsterdam in

which commodity traders would hold meetings. Soon, Venetian brokers began to

trade in government securities, expanding the importance of the firms.

In 1602, the Dutch East India Company became the first publicly traded company in

which shareholders could own a portion of the business. The stocks improved the size

of companies and became the standard bearer for the modern financial system.

2. Significance

The earliest brokerage firms were established in London coffee houses,

enabling individuals to purchase stocks from a variety of organizations. They formally

founded the London Stock Exchange in 1801 and created regulations and

memberships. The system was copied by brokerage firms across the world, most

notably on Chestnut Street in Philadelphia. Soon, the US exchange was moved to

New York City and various firms like Morgan Stanley and Merrill Lynch were

created to assist in the brokering of stocks and securities. The firms limited

themselves to researching and trading stocks for investment groups and individuals.



3. Considerations

During the 1900s, stock brokerage firms began to move in a direction of market

makers. They adopted the policy of quoting both the buying and selling price of a

security. This allows a firm to make a profit from establishing the immediate sale and

purchase price to an investor. The conflict with brokerage firms setting prices creates

the concern that insider trading can result from the sharing of information. Regulators

have enforced a system called Chinese Walls to prevent communication between

different departments within the brokerage company. This has resulted in increased

profits and greater interconnection within the financial industry.

4. Effects

The creation of high valued brokerage firms like Goldman Sachs and Bear

Sterns created a system of consolidation. Working with hundreds of billions of

dollars, the larger firms began to merge and take over smaller firms in the last half of

the 20th century. Firms like Smith Barney were acquired by Citigroup and other

investment banks, creating massive financial institutions that valued, held, sold,

insured and invested in securities. This conglomeration of the financial sector created

an environment of volatility that caused a chain reaction when other firms like Bear

Sterns and Lehman Brothers filed for bankruptcy. Trillions of dollars of assets were

tied together in different companies and resulted in a large economic collapse in late

2008.

5. Features

A large share of the brokerage firms have moved to an online format. Smaller

brokers such as E*Trade, TD Ameritrade and Charles Schwab have taken control of

most individual investors accounts. The added convenience and personal attention

paid to the small investor has resulted in a large influx of activity. In addition, the fact

that the online resources offer up-to-the-minute pricing and immediate trades makes

their format appealing to the modern user. Discounted commissions have lessened the



price of trades, giving access to a wider swath of people and adding liquidity to the

market. The role of the stock brokerage firm is ever-changing and proves to be a boon

for the future of the financial industry.

Full service v/s Discount brokerage houses

Full service brokerage firms continue to offer informative stock reports and a

level of service much higher than other brokerage houses. Discount brokerage houses

only dedicate themselves to execute orders for clients. Full service brokers are sellers

looking for purchasing and selling for clients and offering more customer service than

is available from discount brokers. It is many times possible that a client will not even

know who is taking care of the buy or sell order that they placed.

MARKET SIZE AND CHARACTERISTICS:

The Indian retail brokerage market is showing phenomenal growth. The total

trading volume of brokerage companies has increased from US$1239.1 billion in

2004 to US$1492.1 billion in 2005, and is expected to reach US$6535.7 billion by

2015. Some of the main characteristics of the brokerage industry include growth in e-

broking; growing derivatives market, decline in brokerage fees etc.

Today, as per NSDL statistics, we have only 2.4 million investors with demat

accounts in the country. Considering various investor combinations that are holding

accounts, we can presume the country has roughly 5-7.5 lakh active investors now.

This figure is unbelievably small compared to the potential number of investors,

which is anything between 200 million and 250 million. When we take into

consideration the way transaction risk and cost in the Indian capital market is coming

down, there will be a massive surge in the number of investors and also in volumes.

The only way to manage this kind of potential growth is to adopt state-of-the-art

trading techniques.

The growth of Internet-based trading as a mass trading technique in the

country is unstoppable, going by the indicators available and the signals for the future.



When it ultimately gathers momentum, the biggest beneficiary will be the investor,

who will be able to trade with greater speed and transparency, and at lower costs...

Major players in Indian share broking industry are follows

ICICI Securities Ltd. (www.icicidirect.com)

Kotak Securities Ltd. (www.kotaksecurities.com)

Indiabulls Financial Services Limited (www.indiabulls.com)

IL&FS investmart Limited (www.investsmartindia.com)

SSKI Ltd. (www.sharekhan.com)

Motilal Oswal Securities (www.motilaloswal.com)

Fortis Securities (Religare) (www.fortissecurities.com)

Karvy securities (www.karvy.com)

Geojit BNP paribas (www.geojitbnpparibas.com)

HDFC Securities (www.hdfcsec.com)

Hedge equities (www.hedgeequities.com)

Jrg securities

India infoline (www.indiainfoline.com)


http://www.hedgeequities.com/

http://www.hdfcsec.com/

http://www.geojitbnpparibas.com/

http://www.karvy.com/

http://www.fortissecurities.com/

http://www.motilaloswal.com/

http://www.sharekhan.com/

http://www.investsmartindia.com/

http://www.indiabulls.com/

http://www.kotaksecurities.com/

http://www.icicidirect.com/


CHAPTER - III

COMPANY PROFILE



3.1 COMPANY PROFILE

Team Hedge is a balanced mix of more than 15 years experience cutting

across various industries with a strong background in the financial markets. The

board comprises of six power houses in their respective fields - FedEx Securities,

Baby Marine Exports, Thakker Developers, Smart financial, SM Hegde (CFO,

Videocon Industries) and Padmashree Mohan Lal

FedEx Securities

Managed by a team of ex-bankers, FedEx is a SEBI registered category 1

merchant banker. The company concentrates on non fund based activities like

structuring, tie up of project financing, financial restructuring, investment banking,

corporate and advisory services. The core management team consists of bankers

with rich experience of decades and exposure to volatile situations in commercial

and investment banking. With offices at Nariman Point and Vile Parle East,

Mumbai, state of the art infrastructure and qualified manpower to conduct the

business, FedEx Securities envisages a phenomenal growth in this sector for its

clients.

Baby Marine Exports

Baby Marine Group, started its operations in 1977 from Kozhikode and

through innovation and hard work has grown into three units and related industries

spanning both the west and east coast of Indian. Baby Marine Exports, B.M

products, and Baby Marine (Eastern) Exports are efficiently aided by pre processing

units, ice factories, and a fleet of insulated and refrigerated trucks for sea food

transportation. Due to constant upgrading of machinery, state-of-the-art

infrastructural facilities, better links with raw material suppliers, and an established

network of purchasers have obviously made Baby Marine Group a leading Exporter

of processed marine Products to various international markets.



Smart financial

Smart Financial entered the financial market only in 1992 but over this brief

span has covered a niche for itself by becoming leading financial service provider.

The company offers guidance to investors as to equities, commodities, mutual

funds, portfolio management services and insurance. It offers complete range of

financial solutions that encompasses every sphere of life.

Thakker Group

Starting off as a land developer and builder in 1962, Thakkers group

diversified into commercial production of agricultural and horticultural products,

housing real estate marketing, plantations.etc. They have provided shelter to more

than 40000 families by offering residential plots and premises. A Thakker

developer is the flagship company of the group. It was established as private

limited in 1987 and later went on to become the only public limited company in

North Maharashtra engaged in housing, commercial construction and land

development.

S.M.Hegde

Mr. S.M Hegde, a chartered accountant by profession is the Chief Finance

Officer of the Indian Multinational Videocon International and has been at the

helm of affairs for the last 20 years.

Padmashree Bharat Mohanlal

Mohanlal, the south Indian movie superstar has become a legend, a brand,

and cultural ambassador owing to various factors. Versatility and a natural flair for

donning complex characters have won him numerous accolades not to speak of

some unforgettable films contributed by him. A multifaceted personality, he has

some business ventures also which include Vismaya Max Film Post Production

Studio, College for Dubbing Artists at the Kinfra film and Video Park,

Thiruvanathapuram. He is also the director of Uni Royal Marine Exports; a

Kozhikode based major Seafood Export Company.

Intellectual and knowledge arbitrage is the mantra of modern day business.

The same holds true for the financial markets. With the breadth and depth of



knowledge of modern day business that the Board of Hedge brings to the table, you

can be rest assured that some of the best minds in the business are taking care of

your investments.

MISSION

To create an ethical and sustainable financial services platform for our

customers and partner them to build business, to provide employees with meaningful

work, self-development and progression, and to achieve a consistent and competitive

growth in profit and earnings for our shareholders and staff.

VISION

Ever since its inception, Hedge Equities has been a household name among

the masses owing our success to timely Professional financial assistance to our

clients. This aptly articulates our vision of ‘Evolving into a financial supermarket

which will be a one stop shop for all financial solutions’.

SOCIAL CORPORATE RESPONSIBILITY

Being a Responsible Corporate Citizen, Hedge Equities has initiated a Non

Profit movement “Hedge Yuva” which focuses on educating the masses about

Stock Market. The movement has also formulated various scholarship programs for

young and dynamic youth.

3.2 SERVICES OFFERED

Online trading

Hedge Equities has a large network of branches with online terminals of NSE

and BSE in the Capital market and Derivative segments. The clients are assured of

prompt order execution through dedicated phones and expert dealers at our offices.

Internet Trading


http://www.hedgeyuva.com/


Hedge Equities offers Internet trading through this site. You can trade through

the Internet from the comforts of your office or home, anywhere in the world. The

dedicated IT systems ensure service up time and speed, making Internet broking

through Hedge Equities hassle-free. Using the 'easiest' facility provided by NDSL, our

clients can transfer the shares sold by them online without delivery instruction slips.

Additionally, digitally signed contract notes can be sent to clients through E-mail.

Depository services

Hedge Equities is a member of the National Securities Depository Limited

(NSDL), offer depository services with minimum Annual Maintenance Charges and

transaction charges. Account holders can view their holding position through the

Internet. We also offer the “easiest” facility provided by NDSL (electronic access to

securities information and execution of secured transaction) through which clients can

give delivery instructions via the Internet.

Derivative trading.

Hedge offer trading in the futures and options segment of the National Stock

Exchange (NSE). Through the present derivative trading an investor can take a short-

term view on the market for up to a three months’ perspective by paying a small

margin on the futures segment and a small premium in the options segment. In the

case of options, if the trade goes in the opposite direction the maximum loss will be

limited to the premium paid.

Knowledge Centre

Knowledge Centre activities are intended to provide systematic and structured

services mainly to new investors and also to young aspirant aiming for a career in

financial markets. The centre has three functional areas: the publication Division, the

Training centre, and wealth management advisory service which provides complete

investment solutions to investors through knowledge based personalized service.

Equity Research



Hedge Equities constantly strive to deliver insightful research to enable pro-

active investment decisions. The Research Department is broadly divided into two

divisions – Fundamental Analysis Group (FAG) and Technical Analysis Group

(TAG). Our fundamental analysts are continuously scanning the entire economy for

discovering what they call the “hidden gems” in stock market terminology and present

it to our clients for profitable investments. A good Fundamental Analysis team has the

capability to identify emerging businesses before such businesses become the talk of

the street and we are proud to say we have one such Fundamental Analysis team.

Timing the market has always been the most difficult task for all analysts and our

Technical Analysis Group has emerged to predict the market movements well in

advance using complex Analytical methods including Elliot Wave Theory. We are

equipped with cutting-edge technologies for technical charting which assist our

technical analysts to predict both upside and downside movements efficiently for the

benefit of our clients.

Portfolio Management Services

Hedge Equities is a SEBI-approved portfolio manager offering discretionary

and non-discretionary schemes to its clients. Hedge Equities’ portfolio management

team keeps track of the markets on a daily basis and is exposed to a lot of information

and analytic tools which an investor would not normally have access to. Other

technicalities pertaining to shares like dividends, rights, bonus, buy-back, Mergers

and Acquisitions are also taken care of by us. Maximize your returns by opting for our

PMS scheme.

Commodity Trading

You can trade in commodity futures like gold, silver, crude oil, rubber etc. and

take advantage of the extended trading hours (10 am to 11 pm) in commodities

trading.



Mutual Funds, Bonds etc.

We also offer Mutual Funds and Bonds. You can select from a wide range of

Mutual Funds and Bonds available in the markets today.

Currency Trading

Currency derivatives can be described as contracts between the sellers and

buyers, whose values are to be derived from the underlying assets, the currency

amounts. These are basically risk management tools in force and money markets used

for hedging risks and act as insurance against unforeseen and unpredictable currency

and interest rate movements. Any individual or corporate expecting to receive or pay

certain amounts in foreign currencies at future date can use these products to opt for a

fixed rate - at which the currencies can be exchanged now itself. Currency derivative

serve the purpose of financial risk management encompassing various market risks.

An upfront premium is payable for buying a derivative.

Currency Futures will bring in more transparency and efficiency in price

discovery, eliminate counterparty credit risk, provide access to all types of market

participants, offer standardized products and provide transparent trading platform.

.COMPETITORS

Geojit BNP Paribas

JRG Securities

Religare

Muthoot Securities

Sharewealth

Motilal Oswal

Anandrathi



3.3 FUNCTIONAL DEPARTMENTS

CLIENT RELATION DEPARTMENT

The client relation department assists the client or customer top open an

account in HEDGE EQUITIES (P) LTD securities. This department is also known as

the front office. A client has to open two types of accounts to trade and own securities

in the NSE & BSE. They are:

FINANCE DEPARTMENT

Thus a department, to organize financial activities may be created under the

direct control of the board of directors. Finance manager will decide the major

financial policy methods. Lower levels can delegate the other routine activities.

MARKETING DEPARTMENT

The major functions of marketing department are:

a) Business associate development: the company takes up the marketing

activities of the various branches. It ensures an efficient marketing arena at its

various branches. The company encourages better relations in its branches and

promotes for the development of various marketing strategies.

b) Brand promotion: An important function of marketing department is to

promote the name of the company. HEDGE EQUITIES (P) LTD does it

through the different promotional activities. The name of HEDGE EQUITIES

(P) LTD as a stock broking firm is made known to the outside world.

c) Investment promotion: The main clients of HEDGE EQUITIES (P) LTD

were its investors. Hence the marketing department tries to capture as many

investors as possible to encourage them to invest.

d) Delivery Promotion: Intraday trading is not always profitable and might

involve a lot of risk hence HEDGE EQUITIES (P) LTD promotes for delivery

were the shares are kept to be sold for a later date after analyzing the

profitability factors.



SYSTEMS DEPARTMENT

The systems department is playing a vital role in the day to day operations of

the company. It is through the systems department that the clients can avail the

facilities of Internet trading. Optic fibre cables and high bandwidth connections from

the HEDGE EQUITIES (P) LTD office to the ISP, a dedicated server and back-up

ISDN connections were maintained directly by the systems department. For the

purpose of trading they have made use of two software namely ODIN (Open Dealers

Integrated Network).

HUMAN RESOURCES DEPARTMENT

Human resource is often considered as the back bone of an organization even

in this age of advanced automation & mechanization. Since virtual organizations are

not very much popular in our part of the world, it is very important to any

organization to have a HR department. The presence of an excellent HR department

increases the efficiency of an organization considerably. Human resource

management is defined as asset of practices, policies and programmes designed to

maximize both personal and organizational goals.

a) Training & induction

The selected employees will undergo three days continuous induction. During

this period, he will undergo training with all the department of HEDGE EQUITIES

(P) LTD Securities (India) Pvt. Ltd. There will also be classroom induction also

within three months.

b) Wages and Salary Administration

The wages and salaries of the employees were fixed and granted by the HR

department with consent of the finance department

c) Performance Appraisal

It was human resources department which gives the promotions to all

employees, making transfers and taking disciplinary actions if needed



d) Grievance Handling

The grievances of the employees were received only through proper channels

i.e., through the particular department heads. The HR department will make solutions

to the complaints as per the rules and regulations of the company.

TRADING DEPARTMENT

The department deals with the trading related activities of the company. The

trading refers to the buying & selling of shares. This department is the most important

part of the organization. There are two types of trading. They are:

a) Online trading:

These are the trading terminal of the organization. The each computer of the

department is termed as the trading terminal. The each terminal is assigned with

NCFM certified dealers, who is in charge of each portal will do the trade according to

the client request. The terminal is managed by either NEAT (National Exchange for

automated Trading) software or ODIN (Open Dealers Integrated Network) software.

The client can also place his through written request or through the telephone, in this

the order will be placed by the dealer.

b) Internet trading:

The internet trading is a facility provides by the company in order to trade the

securities from his convenient place like his office, home etc. the order will be placed

by the client itself, and he can make changes before the trade is done for changing the

price, cancellation of the order.

DELIVERY & DEPOSITORY DEPARTMENT

Delivery refers to the shares that bought on a particular day are not sold on

that day itself and holding of the shares for an appreciation in the value of the security

and to trade it on a future date. Deliver Instruction Slip: it is a slip the client should

fill and gave to the dealer regarding the purchase of the share.

There are two procedures to move the share namely,



a) Power of attorney

This is which the Clint signs at the time of opening a trading account and

depository participant account. If the client has given the power of attorney, HEDGE

EQUITIES (P) LTD will have the power to transact the clients stocks without pay-in

slips.

b) Easiest

It is secured internet enabled service which means’ Electronic Access to

Securities information and Execution of Secured Transaction’. This is facility wherein

the clients can give delivery instructions via internet. Easiest is a facility provided by

CDSL.

The activities related with the depository department.

Depository function

Dematerialization

Pledging

EQUITY RESEARCH DEPARTMENT

The function of the department is to study the details regarding the share or

security and to make predictions regarding the future performance of the company

The types of approaches done in the department

a) Fundamental analysis

b) Technical analysis



CHAPTER- IV

THEORETICAL FRAMEWORK



4.1 STOCK EXCHANGE:

Stock Exchange is an organized marketplace where securities are traded.

These securities are by the government, semi-government Bodies, Public sector

undertakings and companies for borrowing funds and raising resources. Securities are

defined as monetary claims and include stock, shares, debentures, bonds etc. If these

securities are marketable as in the case of Government stock, they are transferable by

endorsement and are like movable property. Under the securities Contract Regulation

Act of 1956, securities trading are regulated by the Central Government and such

trading can take place only in Stock Exchange recognized by the Government under

this Act. At present there are 23 recognized stock Exchanges in India.

Indian Stock Markets are one of the oldest in Asia. Its history dates back to

nearly 200 years ago.

BOMBAY STOCK EXCHANGE:

Bombay Stock Exchange is the oldest stock exchange in Asian with a rich

heritage, now spanning three centuries in its 133 years of existence. What is now

popularly known as BSE was established as “The Native Share & Stock Brokers’

Association” in 1875. BSE is the first stock exchange in the country which obtained

permanent recognition (in 1956) from the government of India under the Securities

Countracts (Regulation) Act 1956. BSE’s pivotal and pre-eminent role in the

development of the Indian capital market is widely recognized. It migrated from the

open outcry system to an online screen- based order driven trading system in 1955.

Earlier an Association Of Persons (AOP), BSE is now a corporatized and

demutualised entity incorporated under the provisions of the companies Act, 1956,

pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by

the Securities and Exchange Board of India (SEBI). With demutualization, BSE has

two of world’s best exchanges, Deutsche Borse and Singapore Exchange, as its

strategic partners. Over the past 133 years, BSE has facilitated the growth of the

Indian corporate sector by providing it with an efficient access to resources. There is

perhaps no major corporate in India which has not sourced BSE’s services in raising

resources from the capital market.



Today, BSE is the world’s number 1 exchange in terms of the number of listed

companies and the world’s 5th in transaction numbers. The market capitalization as on

December 31, 2007 stood at USD 1.79 trillion. An inventor can choose from more

than 4700 listed companies, which for easy reference, are classified into A, B, S, T

and Z groups.The BSE Index, SENSEX, is Indian’s first stock market index that

enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stocks

representing 12 malor sectors. The SENSEX is constructed on a ‘free-float’

methodology, and is sensitive to market sentiments and market realities. Apart from

the SENSEX, BSE offers 21 indices, including 12 sectoral indicates. BSE has entered

into an index cooperation agreement with Deutsche Borse. This agreement has made

SENSEEX and other BSE indices available to investors in Europe and America.

Moreover, Barclays Global Investors (BGI), the global leader in ETF’S through its

Trader which tracks the SENSEX. The ETF enables investors in Hong Kong to take

an exposure to the Indian equity market. BSE provides an efficient and transparent

market for trading in equity, debt instruments and derivatives. It has a nationwide

reach with a pressure in more than 450 cities and towns of India. BSE has always

been at par with the international standards. The systems and processes are designed

to safeguard market integrity and enhance transparency in operations.BSE is the first

exchange in India and the second is the world to obtain an ISO 9001:2000

certification. It is also the first exchange in India and the second in the world to

receive Information Security Management System Standard BS 7799-2-2002

certification for its BSE On-line Trading System (BOLT).BSE continues to innovate.

In recent times, it has become the first national level stock exchange to launch its

website in Gujarati and Hindi to reach out to a large number of investors. It has

successfully launched a reporting platform for corporate bonds in India christened the

ICDM or Indian Corporate Dept Market and a unique ticker screen aptly named ‘BSE

Broadcast’ which enables information dissemination to the common man on the

street. In 2006, BSE launched the Directors Database and ICERS (India Corporate

Electronic Reporting System) to facilitate information flow and increase transparency

in Indian capital market. While the Directors database provides a single-point access

to information in the boards of directors of listed companies, the ICERS facilities the



corporate in sharing with BSE their corporate announcements. BSE also has a wide

range of services to empower investors and facilitate smooth transactions:

Investors Services: The Department of Investor Services redresses grievances of

investors. BSE was the first exchange in the country to provide an amount of Rs.1

million towards the investor protection fund; it is an amount higher than that of any

exchange in the country. BSE launched a nationwide investor awareness programme-

‘safe investing in the Stock Market’ under which 264vprogrammes were held in more

than 200 cities. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT)

facilitates on-line screen based trading in securities. BOLT is currently operating in

25,000 Trader Workstations located across over 450 cities in India.

BSEWEBX.com: In February 2001, BSE introduced the world’s first centralized

exchange-based Internet trading system, BSEWEBX.com. This initiative enables

investors anywhere in the world to trade on the BSE platform.

Surveillance: BSE’s On-line Surveillance System (BOSS) monitors on a real-time

basis the price movements, volume positions and members’ positions an real-time

measurement of default risk, market reconstruction and generation of cross market

alerts.

BSE Trading Institution: BTI imparts capital market trading and certification, in

collaboration with reputed management institutes and universities. It offers over 40

courses on various aspects of the capital market and financial sector. More than

20,000 people have attended the BTI programmes.



Companies in the Sensex

List of BSE Sensex companies provides the full list of companies that have been part

of the BSE Sensex since its inception in 1986 (base lined to 1979).

Code Name SectorAdj.

Factor

Weight in

Index(%)

500410 ACC Housing Related 0.55 0.77

500103 BHEL Capital Goods 0.35 3.26

532454 Bharti Airtel Telecom 0.35 3

532868 DLF Universal Limited Housing related 0.25 1.02

500300 Grasim Industries Diversified 0.75 1.5

500010 HDFC Finance 0.90 5.21

500180 HDFC Bank Finance 0.85 5.03

500182 Hero Honda Motors Ltd. Transport Equipments 0.50 1.43

500440 Hindalco Industries Ltd.Metal,Metal Products &

Mining0.7 1.75

500696Hindustan Lever

LimitedFMCG 0.50 2.08

532174 ICICI Bank Finance 1.00 7.86

500209 Infosys Information Technology 0.85 10.26

500875 ITC Limited FMCG 0.70 4.99

532532 Jaiprakash Associates Housing Related 0.55 1.25

500510 Larsen & Toubro Capital Goods 0.90 6.85

500520Mahindra & Mahindra

LimitedTransport Equipments 0.75 1.71

532500 Maruti Suzuki Transport Equipments 0.50 1.71

532541 NIIT Technologies Information Technology 0.15 2.03

532555 NTPC Power 0.15 2.03

500304 NIIT Information Technology 0.15 2.03



500312 ONGC Oil & Gas 0.20 3.87

532712Reliance

CommunicationsTelecom 0.35 0.92

500325 Reliance Industries Oil & Gas 0.50 12.94

500390 Reliance Infrastructure Power 0.65 1.19

500112 State Bank of India Finance 0.45 4.57

500900 Sterlite IndustriesMetal, Metal Products,

and Mining0.45 2.39

524715Sun Pharmaceutical

IndustriesHealthcare 0.40 1.03

532540Tata Consultancy

ServicesInformation Technology 0.25 3.61

500570 Tata Motors Transport Equipments 0.55 1.66

500400 Tata Power Power 0.70 1.63

500470 Tata SteelMetal, Metal Products &

Mining0.70 2.88

507685 Wipro Information Technology 0.20 1.61

TABLE NO 4.1

DLF replaced Dr. Reddy's Lab on November 19, 2007.

Jaiprakash Associates Ltd replaced Bajaj Auto Ltd on March 14, 2008.

Sterlite Industries replaced Ambuja Cements on July 28, 2008.

Tata Power Company replaced Cipla Ltd. on July 28, 2008.

Sun Pharmaceutical Industries replaced Satyam Computer Services on January

8, 2009

Hero Honda Motors Ltd. replaced Ranbaxy on June 29, 2009

Cipla to replace Sun Pharma from May 3, 2010

Grasim replaced JSPL in 2010



13SECTORS OF BSE

HC (health care)

REALITY

AUTO

METAL

IT

CG (capital goods)

ONG (oil and gas)

POWER

PSU

CD (consumer durables)

BANK

TECH

FMCG

NAME OF BSE 30 COMPANIES

ACC, BHARTI AIRTEL, BHEL, DLF, GRASIM, HDFC, HDFC BANK,

HINDALCO, HUL, ICICI BANK, INFOSYS, ITC, JAIPRAKASH

ASSOCIATES, L&T, MAHINDRA & MAHINDRA, MARUTI SUZUKI, ONGC,

NTPC, RANABAXY LAB, RELIENCE, RELIENCE COMM, RELIENCE

INFRASTRUCTURE, SATYAM, SBI, STERLITE INDUSTRY, TATA MOTORS,

TATA POWER, TATA STEEL. TCS, WIPRO.

AS ON- FEB 15,2011

NATIONAL STOCK EXCHANGE (NSE):



With the liberalization of the Indian economy, it was found inevitable to lift

the Indian stock market trading system on par with the international standards. On the

basis of the recommendations of high-powered Pherwani Committee, Industrial

Development Bank of India, Industrial Credit and Investment Corporation of India,

Industrial Finance Corporation of India, all Insurance Corporations, selected

commercial banks and others incorporated the National Stock Exchange in 1992.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

There are two kinds of players in NSE:

(a) Trading members and

(b) Participants.

Trading at NSE takes place through a fully automated screen-based trading

mechanism, which adopts the principle of an order-driven market. Trading members

can stay at their offices and execute the trading, since they are linked through a

communication network. The prices at which the buyer and seller are willing to

transact will appear on the screen. When the prices match the transaction will be

completed and a confirmation slip will be printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as

follows:

NSE brings an integrated stock market trading network across the nation.

Investors can trade at the same price from anywhere in the country since inter-

market operations are streamlined coupled with the countrywide access to the

securities.

Delays in communication, late payments and the malpractice's prevailing in

the traditional trading mechanism can be done away with greater operational

efficiency and informational transparency in the stock market operations, with

the support of total computerized network.



List of Top 50 Companies of NSE

(National Stock Exchange )

RELIANCE INDUSTRIES LTD, OIL AND NATURAL GAS CORPORATION

LTD, BHARTI AIRTEL LIMITED, NTPC LTD, RELIANCE COMMUNICATIONS

LTD., ICICI BANK LTD,

INFOSYS TECHNOLOGIES LTD, TATA CONSULTANCY SERVICES LTD,

BHEL, STATE BANK OF INDIA,

STEEL AUTHORITY OF INDIA, LARSEN & TOUBRO LTD., HERO HONDA

MOTORS LTD, ZEE ENTERTAINMENT LTD, INDIAN PETROCHEMICALS

CORPORATION LTD., CIPLA LTD, BHARAT PETROLEUM CORPORATION

LTD.,VIDESH SANCHAR NIGAM LTD, DR. REDDY'S LABORATORIES,

MAHANAGAR TELEPHONE NIGAM LTD, GLAXOSMITHKLINE PHARMA

LTD.,ABB LTD. POWER GRID CORPORATION OF INDIA, RELIANCE

ENERGY LTD, SIEMENS LTD, ACC LIMITED, AMBUJA CEMENTS LTD,

HCL TECHNOLOGIES LTD, HINDALCO INDUSTRIES LTD,

NATIONAL ALUMINIUM CO LTD, SUN PHARMACEUTICALS IND.,

MAHINDRA & MAHINDRA LTD, TATA POWER CO LTD, PUNJAB

NATIONAL BANK, RANBAXY LABS LTD, ITC LTD, RELIANCE

PETROLEUM LTD., HDFC LTD, WIPRO LTD, STERLITE INDUSTRIES LTD.,

HDFC BANK LTD, TATA STEEL LIMITED, HINDUSTAN UNILEVER LTD.,

SUZLON ENERGY LIMITED, GAIL (INDIA) LTD, GRASIM INDUSTRIES LTD,

TATA MOTORS LIMITED, MARUTI UDYOG LIMITED

AS ON- FEB 15,2011



Rank Economy Stock Exchange MarketCapitalization

(USD Billions)

Trade Value(USD

Billions)

1 United States New York Stock Exchange 13041 1439

2 United States NASDAQ 3649 954

3 Japan Tokyo Stock Exchange 3542 311

4 United Kingdom London Stock Exchange 3354 229

5 Hong Kong Hong Kong Stock Exchange 2696 179

6 Europe Euronext 2695 165

7 China Shanghai Stock Exchange 2681 686

8 Canada Toronto Stock Exchange 2002 134

9 India Bombay Stock Exchange 1540 231

10 India National Stock Exchange of

India

1503 791

11 Brazil BM&F Bovespa 1447 704

12 Germany Deutsche Börse 1320 123

13 Australia Australian Securities

Exchange

1309 101

14 China Shenzhen Stock Exchange 1284 548

15 Switzerland SIX Swiss Exchange 1122 674

16 Spain BME Spanish Exchanges 1077 149

Americas 21244 2617

Asia - Pacific 18287 2262

Europe - Africa - Middle

East

13975 954

Total 51752 5833

INTERNATIONAL STOCK EXCHANGES (TABLE NO 4.2)

4.2 INTRODUCTION TO FII



International portfolio flows, as are commonly known as Foreign Institutional

Investment (FII) flows, refer to capital flows made by individual and institutional

investors across national borders with a view to creating an internationally diversified

portfolio.

‘FII’ include “Overseas pension funds, mutual funds, investment trust, asset

management company, nominee company, bank, institutional portfolio manager,

university funds, endowments, foundations, charitable trusts, charitable societies, a

trustee or power of attorney holder incorporated or established outside India

proposing to make proprietary investments or investments on behalf of a broad-based

fund.

Foreign institutional investor means an entity established or incorporated

outside India which proposes to make investment in India. Positive tidings about the

Indian economy combined with a fast-growing market have made India an attractive

destination for foreign institutional investors.

Unlike Foreign Direct Investment (FDI) flows which refer to that category of

international investment aimed at obtaining a lasting interest by a resident entity in

one economy in an enterprise resident in another economy by way of exercising

significant control over its management, FII flows are not directed at acquiring

management control over foreign companies. FII flows were almost non-existent until

1980s. Global capital flows were primarily characterized by syndicated bank loans in

1970s followed by FDI flows in 1980s.

But a strong trend towards globalization leading to widespread liberalization

and implementation of financial market reforms in many countries of the world had

actually set the pace for FII flows during 1990s.

According to Bekaert and Harvey (2000), FII investment as a proportion of a

developing country's GDP increases substantially with liberalization as such



integration of domestic financial markets with the global markets permits free flow of

capital from 'capital-rich' to 'capital-scarce' countries in pursuit of higher rate of return

and increased productivity and efficiency of capital at global level.

Diversifying internationally i.e., holding a well-diversified portfolio of

securities from around the world in proportion to market capitalizations, irrespective

of the investor's country of residence, has long been advocated as the means to reduce

overall portfolio risk and maximize risk-adjusted returns by the classical capital asset

pricing model (CAPM). But a persistent 'home bias' (i.e., the tendency to hold a

greater proportion of stocks from the home country vis-a-vis the foreign country) was

noticed in the portfolios of investors in capital-rich industrialized countries in early

1990s.

With more and more emerging market economies (EMEs) 1 deregulating their

financial markets by eliminating foreign exchange controls, reducing taxes imposed

on foreign investors, relaxing the restrictions on the purchase / sale of securities by

foreign investors in domestic markets etc., such 'home bias' has decreased over the

years. Today, EMEs, by virtue of their lower correlations in stock market returns with

the developed markets, offer greater scope to investors in developed countries to

reduce their overall portfolio risk and effectively enhance the portfolio performance

and hence have become the most preferred destinations for FII flows.

Several research studies on FII flows to EMEs over the world have highlighted

that financial market infrastructure such as the market size, market liquidity, trading

costs, extent of information dissemination etc., legal mechanisms relating to property

rights etc., harmonization of corporate governance, accounting, listing and other rules

with those followed in developed markets, and strengthening of securities markets'

enforcement are important determinants of foreign portfolio investments into

emerging markets. Of late, the Securities and Exchange Board of India (SEBI) and

Reserve Bank of India (RBI) have initiated a string of measures like allowing

overseas pension funds, mutual funds, investment trusts, asset management

companies, banks, institutional portfolio managers, university funds, endowments,



foundations or charitable trusts etc. but banning non-resident Indians (NRIs) and

overseas corporate bodies (OCBs) from trading as foreign portfolio investors, raising

the caps for FII from 24% to 49% of a non-bank company's issued capital subject to

sectoral caps / statutory ceiling as applicable, enhancing the individual investment

limit from 5% to 10% of issued capital, permitting foreign investors to trade in

Government securities and derivatives, easing the norms for FII registration, reducing

procedural delays, lowering fees, mandating stricter disclosure norms, improved

regulatory standards etc. with a view to improving the scope, coverage and quality of

FII flows into India. As a result, India, also supported by her strong economic

fundamentals, has become one of the attractive destinations for FII flows in the

emerging market space today. The expansionary effect of various reform measures on

FII flows over the years can be gauged from the fact that net (i.e., gross purchases

minus gross sales) FII flows into India have risen sharply from Rs. 5126 crore in

1993-1994 2 to Rs. 46,215 crore in 2004-2005, with the number of foreign

institutional investors being registered with SEBI increasing from 3 in 1993-1994 to

685 in 2004-2005 (Source : SEBI website). This increasing dominance of foreign

investors in Indian market has necessitated research on the implications of FII flows

for the Indian stock market time and again.

Although FII flows help supplement the domestic savings and augment

domestic investments without increasing the foreign debt of the recipient countries,

correct current account deficits in the external balance of payments' position, reduce

the required rate of return for equity, and enhance stock prices of the host countries,

yet there are worries about the vulnerability of recipient countries' capital markets to

such flows. FII flows, often referred to as 'hot money' (i.e., short-term and overly

speculative), are extremely volatile in character compared to other forms of capital

flows.

Foreign portfolio investors are regarded as 'fairweather friends' who come in

when there is money to be made and leave at the first sign of impending trouble in the

host country thereby destabilizing the domestic economy of the recipient country.



Often, they have been blamed for exacerbating small economic problems in the host

nation by making large and concerted withdrawals at the slightest hint of economic

weakness. It is also alleged that as they make frequent marginal adjustments to their

portfolios on the basis of a change in their perceptions of a country's solvency rather

than variations in underlying asset value, they tend to spread crisis even to countries

with strong fundamentals thereby causing 'contagion' in international financial

markets (FitzGerald,1999).

TRENDS OF FOREIGN INSTITUTIONAL INVESTMENTS IN INDIA.

Portfolio investments in India include investments in American Depository Receipts

(ADRs)/ Global Depository Receipts (GDRs), Foreign Institutional Investments and

investments in offshore funds. Before 1992, only Non-Resident Indians (NRIs) and

Overseas Corporate Bodies were allowed to undertake portfolio investments in India.

Thereafter, the Indian stock markets were opened up for direct participation by FIIs.

They were allowed to invest in all the securities traded on the primary and the

secondary market including the equity and other securities/instruments of companies

listed/to be listed on stock exchanges in India

• In 2004, FII investments crossed $9 billion, the highest in the history of Indian

capital markets.

• The total net investment for the year up to December 29 stood at US$9,072 million

while foreign investors pumped in about US$2,113 million in December.

• Korea and Taiwan have always been the biggest recipients of FII money. It was only

in 2004 that India managed to receive the second highest FII inflow at over $8.5bn.

• In 2005 FIIs invested more in Indian equities than in Korean or Taiwanese equities.



• On 9th March 2009, India's exceptional growth story and its booming economy have

made the country a favourite destination with foreign institutional investors (FIIs). It

has continued to attract investment despite the Satyam non-governance issue and the

global economic contagion impact on Indian markets.

• They are also the most successful portfolio investors in India with 102 per cent

Appreciation since September 30, 2003.

• As per SEBI, number of registered FIIs stood at 1626 and number of registered sub-

accounts stood at 4972 as on March 17, 2009

Prohibitions on Investments:

Foreign Institutional Investors are not permitted to invest in equity issued by an Asset

Reconstruction Company. They are also not allowed to invest in any company which

is engaged or proposes to engage in the following activities:

Business of chit fund

Nidhi Company

Agricultural or plantation activities

Real estate business or construction of farm houses (real estate business does

not include development of townships, construction of residential/commercial

premises, roads or bridges).

Trading in Transferable Development Rights (TDRs).

FUTURE PROSPECTS OF FOREIGN INSTITUTIONAL INVESTMENTS:

Sustaining the growth momentum and achieving an annual average growth of

9-10 % in the next five years.



Simplifying procedures and relaxing entry barriers for business activities and

Providing investor friendly laws and tax system.

Checking the growth of population; India is the second highest populated

country in the world after China. However in terms of density India exceeds

China, as India's land area is almost half of China's total land. Due to a high

population growth, GNI per capita remains very poor. It was only $ 2880 in

2003 (World Bank figures).

Boosting agricultural growth through diversification and development of agro

processing.

Expanding industry fast, by at least 10% per year to integrate not only the

surplus labour in agriculture but also the unprecedented number of women and

teenagers joining the labour force every year.

Developing world-class infrastructure for sustaining growth in all the sectors

Allowing foreign investment in more areas.

Effecting fiscal consolidation and eliminating the revenue deficit through

revenue enhancement and expenditure management.

Market Outcome in the previous years

Foreign Portfolio investments in India come in the form of investments in American

Depository Receipts (ADRs)/ Global Depository Receipts (GDRs), Foreign

Institutional Investments and investments in Offshore funds.

However, FIIs constitute a major proportion of such portfolio. The share of FIIs in

total portfolio flows was as high as 95.97% in 2003-04 and 93.25% in 2004-05. It

declined to 46% in 2006-07. This decline in FII investment in 2006-07 can be

attributed to global developments like meltdown in global commodities markets and

equity market during the three month period between May 2006 to July 2006, fall in

Asian Equity markets, tightening of capital controls in Thailand and its spill over

effects.



The share of FII investment in total portfolio investment for 2007-08 is provisionally

estimated to be 69.15%. The large FII inflows (net) in 2007-08 at USD 16 billion as

against USD 6.7 billion in 2006-07 reflects increased participation of FIIs in the

primary market as corporates raised large resources through 85 initial public offerings

(IPOs) and 7 follow-on public offers (FPOs) aggregating to Rs 545,110 million. (US $

13,638 million).

Looking at monthly trend in FII investments during 2007-08 it can be seen that net

FII investment has been positive during most of the months. The months of August

2007, November 2007, January, 2008 and March, 2008 saw net outflows of FII

investment, with the largest pull out of US $ 2727 mn in January, 2008.

During 2008-09, till June 2008, FIIs have been net sellers to the tune of US $ 4,189

million. This can be attributed to the generally weak sentiments of investors following

the global credit crisis which has engulfed the developed countries and is seen to be

affecting the developing countries as well.



CHAPTER- V

ANALYSIS AND INTERPRETATION

TYPES OF STUDY AND ANALYSIS CONDUCTED



1. THE PERFORMANCE OF SENSEX

By Sensex return

From 2000-2010

In 2010 ( monthly basis)

2. INFLUENCE OF FII ON SENSEX

By Sensex return V/S FII’s net inflow

From 2000-2010

In 2010 (monthly basis)

Number of FII’s registered and the Sensex returns

3. FII’S INFLOW V/S SENSEX RETURNS

Coefficient of Correlation method

Regression method

4 TRENDS IN THE FII’S INVESTMENT

Trend analysis



5.1 SENSEX PERFORMANCE OVER THE YEARS

Indices :SENSEX

Period : ( Year 1991 to Year 2011 )

Year Open High Low Close

1991 1,027.38 1,955.29 947.14 1,908.85

1992 1,957.33 4,546.58 1,945.48 2,615.37

1993 2,617.78 3,459.07 1,980.06 3,346.06

1994 3,436.87 4,643.31 3,405.88 3,926.90

1995 3,910.16 3,943.66 2,891.45 3,110.49

1996 3,114.08 4,131.22 2,713.12 3,085.20

1997 3,096.65 4,605.41 3,096.65 3,658.98

1998 3,658.34 4,322.00 2,741.22 3,055.41

1999 3,064.95 5,150.99 3,042.25 5,005.82

2000 5,209.54 6,150.69 3,491.55 3,972.12

2001 3,990.65 4,462.11 2,594.87 3,262.33

2002 3,262.01 3,758.27 2,828.48 3,377.28

2003 3,383.85 5,920.76 2,904.44 5,838.96

2004 5,872.48 6,617.15 4,227.50 6,602.69

2005 6,626.49 9,442.98 6,069.33 9,397.93

2006 9,422.49 14,035.30 8,799.01 13,786.91

2007 13,827.77 20,498.11 12,316.10 20,286.99

2008 20,325.27 21,206.77 7,697.39 9,647.31

2009 9,720.55 17,530.94 8,047.17 17,464.81

2010 17,473.45 21,108.64 15,651.99 20,509.09

2011 20,621.61 20,664.80 17,295.62 18,300.90

Source: www.bseindia.com/archieves

TABLE NO: 5.1



SENSEX PERFORMANCE 1991-2010

0

5000

10000

15000

20000

25000

YearClose

CHART NO 5. 1



INTERPRETATION

The Bombay stock exchange (BSE SENSEX) which is one of the most important

secondary market in India ,has seen many ups and downs from its years of its starting

in 1991. The market opened at 1027.38 point and closed at 1908.85 with a high value

of 1955.29 and with a low value of 947.14 in the same year.

Since then, the values in the Sensex has increased and decreased. From the table, it

can be found that the Sensex crossed the four digit number in 2006 , and at 13786.91

from the previous year value of 9397.93 (2005)

The changes in the value of Sensex depends upon many factors, like ..

National and global issues

Legal and political issues

GDP growth rate of the nation

Activities of the foreign investments

Etc….

From the table it is found that in the year 2008 the Sensex closed at 9647.31 from the

previous years 20286.99. The reason for the huge fall in market was due to global

recession which not only caught Indian market but also the over all international

markets too

When the recession began to end in the world, the Sensex and other markets could

see increase in value. And at the end of 2010 the Sensex closed at 20509.09



5.2 ANALYSIS OF SENSEX RETURNS V/S FII’s INVESTMENTS

TABLE OF SENSEX RETURN FROM 2000-10

YEAR SENSEX RETURN( %)

2000 3972.12

2001 3262.33 -17.869

2002 3377.28 3.523

2003 5838.96 72.889

2004 6602.69 13.079

2005 9397.93 42.334

2006 13,786.91 46.701

2007 20,286.99 47.146

2008 9,647.31 -46.522

2009 17,464.81 81.032

2010 20,509.09 17.177

TABLE NO 5.2

The BSE SENSEX performance is calculated on a percentage basis from the year

2000 to 2010. Sensex return in percent, is calculated by the % change in the closing

point of the Sensex in previous year to the current year



SENSEX RETURN FROM 2000-10

CHART NO 5.2

1 2 3 4 5 6 7 8 9 10

-60

-40

-20

0

20

40

60

80

100

RETURN %

RETURN %



FII’s INVESTMENT

TABLE OF FII’s NET INFLOW

Source : moneycontrol.com

TABLE NO 5.3


YEAR GROSS

PURCHASE(Cr)

GROSS SALE

(Cr)

NET INFLOW (Cr)

2000 74791.50 68421.60 6370.50

2001 51866.40 38572.80 13294.70

2002 46320.31 42673.54 3627.27

2003 94816.50 64024.10 29953.20

2004 183883.70 145185.50 38688.40

2005 713990.40 636901.72 77106.68

2006 435804.30 404523.22 31281.08

2007 805167.57 734227.52 70940.05

2008 720757.80 773809.50 -53051.70

2009 626004.50 540636.90 85367.60

2010-JAN

11

826352.50 698390.80 134167


FII’s NET INFLOW

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-JAN 11

-100000

-50000

0

50000

100000

150000

NET INFLOW (Cr)

NET INFLOW (Cr)

CHART NO 5.3



FII NET INFLOW VS SENSEX RETURN

YEAR FII NET INFLOW RETURN (%)

2001 13294.70 -17.869

2002 3627.27 3.523

2003 29953.20 72.889

2004 38688.40 13.079

2005 77106.68 42.334

2006 31281.08 46.701

2007 70940.05 47.146

2008 -53051.70 -46.522

2009 85367.60 81.032

2010 134167 17.177

TABLE NO 5.4



SENSEX RETURN (%) V/S FII NET INFLOW

1 2 3 4 5 6 7 8 9 10

-100000

-50000

0

50000

100000

150000

FII NET INFLOWRETURN (%)

CHART NO 5.4

INTERPRETATION

When comparing the Sensex returns and the FII net inflow from the years , it can be

found that the Sensex gain height returns in the year 2009 (81.03%) and the FII net

inflow at that year was 85367 Cr.

And the Sensex loss maximum point (-46.522) when the net inflow was - 53051 Cr in

the year 2008. Recession and many other global and national issues were key factors

for this change.

The negative sign show that in 2008 FII’s were not investing their money. They were

sellers.

*(The Sensex return is not only depend upon FII)*



ANALYSIS OF SENSEX RETURN TO FII’s INVESTMENT 2010

TABLE OF SENSEX RETURN 2010

MONTH SENSEX POINT % GAIN

JAN 16357.96

FEB 16429.55 0.437

MAR 17527.77 6.68

APR 17558.71 0.1765

MAY 16944.63 -3.49

JUN 17700.90 4.463

JULY 17868.29 0.945

AUG 17971.12 0.575

SEP 20069.12 11.670

OCT 20032.34 -0.183

NOV 19521.25 -2.55

DEC 20509.09 5.06

TABLE NO 5.5

The Sensex gain maximum return 11.670% during the month of September 2010.

And loss -3.49% in May by making the Sensex to close at 16944.63



CHART OF SENSEX RETURN 2010

1 2 3 4 5 6 7 8 9 10 11

-6

-4

-2

0

2

4

6

8

10

12

14

% RETURNS

% GAIN

CHART NO 5.5



FII NET INFLOW IN 2010

TABLE OF FII NET INFLOW 2010

MONTH GROSS

PURCHASE Cr

GROSS SALE Cr NET INFLOW

( Cr)

JAN 620070.30 62373.20 5902.40

FEB 40795.70 38682.20 2113.50

MAR 60009.60 41176.00 18833.60

APR 61602.90 51838.40 9764.50

MAY 50614.80 59244.70 -8629.90

JUN 54930.60 44686.00 10244.60

JULY 59332.40 42211.80 17120.60

AUG 61973.40 50788.10 11185.30

SEP 81024.80 51829.00 29195.80

OCT 85490.20 51829.00 29195.80

NOV 89082.60 70562.70 18519.90

DEC 61475.30 59999.20 1416.10

TOTAL 768402.60 634110.70 140497.20

Source : moneycontrol.com

TABLE NO 5.6



CHART OF NET INFLOW 2010

JAN FEB MAR APR MAY JUN JULY AUG SEP OCT NOV DEC

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

30000

35000

NET INLOW

NET INLOW

CHART 5.6



SENSEX GAIN VS FII NET INFLOW 2010

TABLE NO 5.7

MONTH SENSEX GAIN (%) FII NET INFLOW

(Cr)

FEB 0.437 2113.50

MAR 6.68 18833.60

APR 0.1765 9764.50

MAY -3.49 -8629.90

JUN 4.463 10244.60

JULY 0.945 17120.60

AUG 0.575 11185.30

SEP 11.670 29195.80

OCT -0.183 29195.80

NOV -2.55 18519.90

DEC 5.06 1416.10



FEB MAR APR MAY JUN JULY AUG SEP OCT NOV DEC

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

30000

35000

SENSEX GAIN (%)FII NET INFLOW (Cr)

CHART NO 5.7

INTERPRETATION

From the given table, the Sensex gain maximum return 11.670% during the month of

September 2010 when the FII’s inflow was 29195 Cr.. And the Sensex loss -3.49% in

the month of May, where the FII net inflow was -8629.90.

That means the Sensex was changing according to the inflow and out flow of

investment during the months of 2010.

*(The Sensex return is not only depend upon FII)*

5.3 INCRESE IN NUMBER OF FII & SENSEX RETURNS (%)



TABLE NO 5.8

YEAR NO OF FII

REGISTERD

SENSEX

RETURN (%)

2003 517 72.889

2004 637 13.079

2005 823 42.334

2006 993 46.701

2007 1219 47.146

2008 1594 -46.522

2009 1706 81.032

2010 1747 17.177

1 2 3 4 5 6 7 830/Dec

08/Sep

18/May

24/Jan

03/Oct

11/Jun

18/Feb

28/Oct

06/Jul

15/Mar

MonthSENSEX POINT

CHART NO 5.8

INTERPRETATION



Today ,there are 1747 FII registered in the country as against last year number

of 1706 an additional of 41. Year 2009 saw 112 FII getting registered. This means

despite record inflow, the number of registered FII s has declined . In fact this is the

lowest addition in any calendar year from the data analyzed from 2003. This means

that the investment that the Indian market has received is majority through the FII

registered earlier



5.4 Calculation of correlation between FII investment and sensex

movement

Analysis is done for finding the correlation between FII investment and the sensex

fluctuation during the period from 2000-2010. Net yearly FII investment is calculated

by subtracting the gross sell value from the gross purchase value in the particular year

by FII. And the fluctuation in sensex is calculated by subtracting previous years

closing point from the current year.

CALCULATION OF SENSEX FLUCTUATION

YEAR SENSEX FLUCTUATIONS

1999

5005.82

2000 3972.12 -1033.70

2001 3262.33 -709.79

2002 3377.28 114.95

2003 5838.96 2641.68

2004 6602.69 763.73

2005 9397.93 2795.24

2006 13,786.91 4388.98

2007 20,286.99 7000.08

2008 9,647.31 -10639.68

2009 17,464.81 7817.50

2010 20,509.09 3044.28

TABLE NO 5.9



Analysis-

TABLE OF CORRELATION

YEAR NET FII

INFLOW (X)

FLUCTUATIONS

IN BSE (Y)

Dx= X- Σx/11 Dy=Y- ΣY/11

2000 6370.50 -1033.70 2391.0 -2505

2001 13294.70 -709.79 9315.2 -2181.09

2002 3627.27 114.95 -352.23 -1356.35

2003 29953.20 2641.68 25973.7 1170.38

2004 38688.40 763.73 34708.9 -707.57

2005 77106.68 2795.24 73127.18 1323.94

2006 31281.08 4388.98 27301.58 2917.68

2007 70940.05 7000.08 66960.55 5528.78

2008 -53051.70 -10639.68 -57031.2 -12110.98

2009 85367.60 7817.50 81388.1 6346.2

2010 134167 3044.28 130187.5 1572.98

TABLE NO 5.10

ΣX=437744.8Cr

Mean , ΣX/11 =3979.5Cr

ΣY = 16183.67 Cr

Mean Σy/11 =1471.3Cr

STANDERD DEVIATION



S.D = √∑(X -X)2 /n

S.D = √2242521305.5142 / 11

=45151.4736

S.D = √∑(Y-Y)2 /n

S.D = √22668841263.8049 /11

=45369.07

Coefficient of Correlation

Coefficient of Correlation = ∑dxdy

∑dx2 * ∑dy2

r = 1998685763.998/(47355.266)*(150561.752)

r= 0.28

INTERPRETATION

The Coefficient of Correlation analysis between FII’s net inflow and Sensex return

from 2000-2010 gives a correlation of 0.28 which is a low degree positive correlation

that means the Sensex movement is not much related to the FII investment during the

period 2000 to 2010

.



REGRESSION ANALYSIS

X (FII) Y (SENSEX FLUCTUATION)

Arithmetic mean 3979.50 Cr 1471.30

Standard deviation 14278.15 45396.07

correlation coefficient = 0.28

Regression equation of Y on X is Y-Y = byx ( X-X )

Regression coefficient byx = r.(S.D OF Y/S.D OF X)

= 0.28 (45396.07/14278.15)

= 0.89

Y -1471.24 = 0.89 (X-39794.98)

Y = 0.89X-9671.354

When X = 1000Cr Y = -9390.354

INTERPRETATION

The regression analysis between FII’s investment and Sensex fluctuation gives an

equation of Y = 0.89X-9671.354. Which gives a negative Sensex fluctuation when a

value of X (FII’s NET INFLOW) is given.



CORRELATION BETWEEN FII & BSE FLUCTUATIONS IN THE YEAR 2010

TABLE TO FIND STANDERD DEVIATION

MONTH NET FII

INFLOW (X)

FLUCTUATIONS

IN BSE (Y)

Dx= X- X Dy=Y- ΣY/11

FEB 2113.5 71.59 -10519.28 -305.78

MAR 18833.6 1098.22 6200.82 720.85

APR 9764.5 30.94 -2868.28 -346.43

MAY -8629.5 -614.08 -21262.68 -991.45

JUNE 10244.6 756.27 -2388.18 378.90

JULY 17120.6 167.39 4487.82 -209.98

AUG 11185.3 102.83 -1447.48 -274.54

SEP 29195.8 2098.00 16563,02 1720.63

OCT 29195.8 -36.78 16563.02 -414.15

NOV 18519.9 -511.09 5887.12 -888.46

DEC 1416.10 987.84 -11216.78 610.47

TABLE 5.11

∑X = 1389606

Mean = ∑X/11 = 12632.78

∑Y = 4151.13

Mean = ∑Y/11 = 377.37



STANDERD DEVIATION

S.D = √(∑X-X)2 /n

= √1346514738/11

= 11063.92

S.D = √(∑Y-Y)2 /n

= √6273099.017/11

= 755.17

COEFFICIENT OF CORRELATION

Coefficient of Correlation r = ∑dxdy

√dx2 * √dy2

r = 79441995.98

(36694.88)* (2504.61)

r = 0.86

INTERPRETATION

It is a high degree positive correlation that means in the year 2010 the sensex

movement is almost directly proportional to the movements of FII’s investments



5.5 TREND ANALYSIS

TABLE OF TREND ANALYSIS

YEAR FII NET INFLOW (Cr) % CHANGE

2000 6370.50 100.00

2001 13294.70 208.69

2002 3627.27 -56.93

2003 29953.20 470.18

2004 38688.40 607.30

2005 77106.68 1210.37

2006 31281.08 491.02

2007 70940.05 1113.57

2008 -53051.70 -832.76

2009 85367.60 1340.04

2010 134167 2106.06

TABLE NO 5.12



Here the base year is 2000, in which FII net inflow was 6370.50 Cr. And it is assigned

as 100 point. The trend analysis is conducted by calculating percentage change in FII

net inflow in each year in relation to the base year

INTERPRETATION

From the analysis it is known that the net inflow of money by FII during the period

from 2001-08 is fluctuating in nature. The growing Indian economy and increasing

GDP growth rate has resulted in a positive trend towards FII investment, and from

the year 2009 it is increasing in nature.



FUTURE TREND ANALYSIS

YEAR NET

INFLOW(Y)

X

X2

XY

2006 31281.08 -2 4 -62562.16

2007 70940.05 -1 1 -70940.05

2008 -53051.70 0 0 0

2009 85367.60 1 1 85367.60

2010 134167.00 2 4 268334.00

TABLE OF TREND ANALYSIS

TABLE NO 5.13

a = ∑y/n = 268704.03/5

= 53704.806

b = (∑XY)/(∑X2) = 220199.39/10

= 22019.939

Future year , Y = a + b X. BY putting the value of X as 3,4,…7



TABLE OF FUTURE TREND ANALYSIS

YEAR

NET INFLOW (FUTURE) IN Cr

2011

119800.62

2012 141820.562

2013 163840.501

2014 185860.44

2015 207880.379

TABLE NO 5.14



TREND ANALYSIS

1 2 3 4 50

50000

100000

150000

200000

250000

YEAR NET INFLOW (FUTURE)

CHART NO 5.9

INTERPRETATION

From the trend analysis (advanced) of FII net inflow to the Indian economy, it is

found that the trend is increasing in nature. That means the FII’s will increase their

inflow of money in future also.



CHAPTER VI

FINDINGS, CONCLUSION & SUGGESTIONS

6.1 FINDINGS



THE PERFORMANCE OF SENSEX

From the study it is found that the performance of Sensex is fluctuating.

The Sensex saw many ups and downs from its opening year 1991

FII’S INFLOW TO INDIAN MARKET

The study on the inflow of FII to the Indian equity market has shown that

the inflow is also fluctuating and it is increasing in recent years.

NUMBER OF REGISTERD FII’s V/S SENSEX RETURN

The study on increasing number of FII registered under by SEBI, shows

that the value of Sensex is not much related to the number of FII

registered in recent years .Today ,there are 1747 FII registered in the

country as against last year number of 1706 an additional of 41. Year

2009 saw 112 FII getting registered. This means despite record inflow, the

number of registered FIIs had declined. This means that the investment

that the Indian market has received is majority through the FII registered

earlier

RELATIONSHIP BETWEEN FII’S INVESTMENT AND SENSEX

RETURN

From the correlation study between sensex movement and FII inflow ,

found that the fluctuations in sensex is not much related to the FII

investment

FINDINGS FROM TREND ANALYSIS

From the trend analysis it is observed that the trend in FII inflow to the

Indian economy is positive in nature.

6.2 CONCLUSION



Foreign Institutional Investors, who invest their money in different

countries in order to get a good portfolio of investment. And India has been in the

list of their portfolio for many years. The increasing GDP growth rate and the

overall development of India in different sectors like industrial and agricultural

field and others are the prime reason for the increasing nature of FII’s inflow.

There is a positive correlation between stock indices and FIIs but FIIs didn’t

have any significant impact on Indian Stock Market. Also the coefficient of

determination is less in all the case. It shows the absence of linear relation

between FII and stock index. This does not mean that there is no relation between

them. One of the reasons for absence of any linear relation can also be due to the

sample data. The data was taken on yearly basis. Also FII is not the only factor

affecting the stock indices. There are other major factors that influence the

bourses in the stock market. And from the FII’s analysis on Sensex return, it can

be concluded that FII do have any significant impact on the Indian Stock Market

but there are other factors like government policies, budgets, bullion market,

inflation, economical and political condition, etc. do also have an impact on the

Indian stock market.



6.3 SUGGESTIONS & RECOMMENDATIONS

After the analysis of the project study, following recommendations can be made:

From the analysis there could not find a good positive relationship between

FII's and sensex return (may be because of the data collected is on the yearly

basis & sensex return is not only dependent upon FII's investment only). They

are need to be encouraged to enter in Indian market. Because their absence

result in huge change in the market

Number of FII's get registered is decreasing in nature . It may be because of

nature of procedure. Simplifying procedures and relaxing entry barriers for

business activities and providing investor friendly laws and tax system for

foreign investors helps them to come and invest in India

Somewhere, a restriction related to the track record of Sub- Accounts is also

to be made on the investors who withdraw money out of the Indian stock

market .

Encourage industries to grow to make FIIs an attractive junction to invest.



BIBLIOGRAPHY

BOOKS

I.M Panday “Financial Management”, Vikas Publishing house Private ltd, New

Delhi, 2009

Kothary CR “Reserch Methodology” New Age International Publishers, New Delhi

2006

Prasanna Chandra, ‘Financial Management’, Tata McGraw – Hill publishing company Ltd, New Delhi. 2001.

Uma Sekaran ,”Reserch Methodology For Business, John Wile And Sons,Inc

WEBSITES

www . bse.india..com

www . nse india. com

www. money control. . com

www.hedgeequities.com

www.sebi.com


http://www.hedgeequities.com/

fii

Documents

reducing taxes

american depository

give delivery

emerging market

relaxing entry

exercising

overseas corporate

internationally