Impact of International Financial Flows on Indian Stock Markets – An Empirical Study

Abstract

FDI and FII have become instruments of international economic integration and stimulation. Fast growing economies like Singapore, China, Korea etc have registered incredible growth at onset of FDI. Though US captures most of the FDI inflows, developing countries still account for significant growth of FDI and rise in FII. FDI not only gives access to foreign capital but also provides domestic countries with cutting edge technology, desired skill sets, tools of innovation and other complementary skills. The policies drafted to stimulate the flow of foreign capital in to India provided much needed impetus for India to emerge as an attractive destination for foreign investors. External factors such as global economic cues, FDI & FII, Exchange rate and Internal factors such as demand and supply, market cap, EPS generally drive and dictates the Indian stock market. The current paper makes an attempt to study the relationship and impact of FDI & FII on Indian stock market using statistical measures correlation coefficient and multi regression for 12 years data starting from 2001 to 2012. Sensex and Nifty were considered as the representative of stock market as they are the most popular Indian stock market indices.