Volatility of National Stock Exchange Affected by Foreign Institutional Investors : An Empirical Analysis

Foreign institutional investors (FIIs) have become the instruments of international economic integration, stimulation and major catalysts of development. Promoting foreign investment to supplement the domestic capital, human skills and technology for accelerating the domestic economic growth has been the target objective of the Government of India since the inception of liberalization, privatization and globalization (LPG) in 1991. Being a short-term and profit driven investment, FIIs are more volatile in nature and thus bring instability to the country’s stock markets. In this context this paper attempts to examine the impact of FIIs on Indian stock market proxied by National Stock Exchange (NSE). The researcher employed the econometric techniques of correlation and regression for 18 financial years spanning from 2000 to 2017. It was found that FIIs have always shown a positive trend towards India except few years. The analysis of the current study provides the evidence of moderate positive correlation between net FIIs investments & NSE Nifty. The Regression analysis depicts that FIIs inflows and outflows have significant impact on the NSE Nifty index of Indian stock market.