International Journal of Financial Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Foreign Investments in the Indian Stock Market: An Empirical Analysis


Affiliations
1 CET School of Management, College of Engineering, Trivandrum, Kerala, India., India
2 College of Engineering, Trivandrum, Kerala, India, India
     

   Subscribe/Renew Journal


Foreign Direct Investments (FDI) and Foreign Institutional Investors (FII) provide capital for the growing Indian economy, to develop her infrastructure, such as sea ports, railways, roadways, airports, telecommunication, and other services. The present pace of industrialisation in India has also accelerated the need for foreign capital in the Indian context. The Indian stock market is continually responding to the changes in the foreign investment policies from time to time. This research analyses the impact of foreign capital investment inflow on the Indian stock market, with special reference to BSE Sensex and CNX Nifty. Statistical techniques such as correlation and multi-regression are used. The regression method used is Ordinary Least Squares (OLS) method or Auto-Regressive Distributed Lag (ARDL) Cointegration method, depending on whether the data is stationary, at level or not, with further analysis on long-run and short-run relationship among the variables studied. The research finds that there exists a weak negative correlation between FDI and Sensex, whereas a strong positive correlation exists between FDI and Nifty, as well as between FII and Sensex and FII and Nifty. Further, the variable FII shows a significant relationship with Sensex, whereas the relationship between FDI and Sensex is insignificant. FII also showed a significant positive relationship with Nifty, but the relationship between FDI and Nifty is insignificant. In summary, FII only showed a positive relation to stock movements, whereas with FDI, it was insignificant. Based on the empirical fi ndings, FDI shows only long-run relationship towards the Indian Stock markets. It is recommended that the government must attract more FDI for economic growth, through industrial growth, infrastructural developments, technological upgradations, competitive advantages, and more. On the other hand, FII are directly connected to the stock market movements and also help in the growth and development of the country, in short-run as well as the long-run. This indicates that the government must adopt appropriate measures to attract more foreign institutional investors, in order to strengthen the economic development. This research contributes to the decision-making by the government regarding the promotion of FII or FDI in short-run or long-run, for accelerating growth in the economy. This finding is highly relevant in the contemporary context, as this relationship is derived for India based on recent data.

Keywords

India, Time Series, FDI, FII, ARDL, OLS, CNX Nifty, BSE Sensex View PDF
Subscription Login to verify subscription
User
Notifications
Font Size

  • Borensztein, E., De Geogorie, J., & Lee, J.-W. (1998).How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135.

  • Das, A. R. (2019). A comparative study - Impact of FDI and FII in Indian stock market. International Journal of Research, 8(3), 1858-1867.

  • Ekta, M. C., & Pankaj, T. (2014). Impact of FDI on Stock Market in India, evaluated the correlation between BSE Sensex and FDI and Nifty and FDI.International Journal for Management Science and Technology (IJMST), 2(9).

  • Gunaydin, I., & Tatoglu, E. (2005, Summer). Does foreign direct investment promote economic growth? Evidence from Turkey. Multinational Business Review, 13(2), 89.

  • Honey, G. (2017). Impact of FDI on Indian stock market: With special reference to BSE-SENSEX and NSECNX NIFTY. Advances in Economics and Business Management (AEBM), Krishi Sanskrit Publications, 4(1), 13-17.

  • Karan, W., Rimpi, W., & Monika, J. (2012). Impact of foreign institutional investment on stock market.International Journal of Computing and Corporate Research, 2(5).

  • Lee, C. C., & Chang, C. P. (2009). FDI, financial development, and economic growth: International evidence.Journal of Applied Economics, 12(2), 249-271.

  • Levine, R., & Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. The American Economic Review, 82(4), 942-963.

  • Mello, D. Jr., & Luiz, R. (1997). Foreign direct investment in developing countries and growth: A selective survey. Journal of Development Studies, 34(1), 1-24.

  • Mohanasundaram, T., Karthikeyan, P., & Shanthi, D. (2016). Foreign institutional investment and stock market returns in India: An empirical investigation.Asian Journal of Research in Social Sciences and Humanities, 6(3), 128-144.

  • Mouhamed, S., Hooi, L. H., & Ruskhsana, K. (2012).The impact of foreign direct investment on stock market development: Evidence from Pakistan.Ekonomskaistrazivanja – Economic Research, 26(1), 17-32.

  • Naveed, I. C., Asif, M., & Mehmood, M. S. (2013).Empirical relationship between foreign direct investment and economic growth: An ARDL co-integration approach for China, China. Finance Review International, 3(1), 26-41.

  • Naveen, K. S., Vijay, M., & Aadhesh, V. (2019). Impact of FDI on Indian stock market: With special reference on BSE Sensex. Journal of Emerging Technologies and Innovation Research, 6(6).

  • Pesaran, M. H., Shin, Y., & Smith, R. (2001). Bound testing approaches to the analysis level relationship. Journal of Applied Econometrics, 16, 289-326.

  • Ray, S. (2012). Impact of foreign direct investment on economic growth in India: A co-integration analysis. Advances in Information Technology and Management, 2(1), 187-201.

  • Reza Sultanuzzaman, M., Hongzhong, F., Mahamud, A., Banban, W., & Uddin, S. M. S. (2018). The role of FDI inflows and export on economic growth in Sri Lanka: An ARDL approach. Cogent Economics & Finance, (6).

  • Satyanarayana, S. R. G. V., & Rajasekhar R. V. (2017).Role of foreign direct investment (FDI) on growth of Indian economy. International Journal of Transformations in Business Management, 7(1).

  • Shikha, M. (2013). FDI and FII as drivers of growth for Indian economy: A comparison. International Journal of Innovation Research and Development,2(13).

  • Sumi, P., & Mohit, B. (2015). Impact of foreign investment on the Indian economy: An analytical study. Advances in Economics and Business Management(AEBM), 2(1), 79-82.

  • Tsitouras, A. (2016). What can trigger the resumption of economic growth in a small open economy like Greece: Exports or inward FDI? International Economic Journal, 30(4), 504-526.

  • Xuan, N. T., & Xing, Y. (2008). Foreign direct investment and exports: The experiences of Vietnam. Economics of Transition, 16(2), 183-197.

  • Zhang, K. H. (2014). How does foreign direct investment affect industrial competitiveness? Evidence from China. China Economic Review, 30, 530-539.


Abstract Views: 138

PDF Views: 0




  • Foreign Investments in the Indian Stock Market: An Empirical Analysis

Abstract Views: 138  |  PDF Views: 0

Authors

Sruthy Santhosh
CET School of Management, College of Engineering, Trivandrum, Kerala, India., India
Suresh Subramoniam
College of Engineering, Trivandrum, Kerala, India, India

Abstract


Foreign Direct Investments (FDI) and Foreign Institutional Investors (FII) provide capital for the growing Indian economy, to develop her infrastructure, such as sea ports, railways, roadways, airports, telecommunication, and other services. The present pace of industrialisation in India has also accelerated the need for foreign capital in the Indian context. The Indian stock market is continually responding to the changes in the foreign investment policies from time to time. This research analyses the impact of foreign capital investment inflow on the Indian stock market, with special reference to BSE Sensex and CNX Nifty. Statistical techniques such as correlation and multi-regression are used. The regression method used is Ordinary Least Squares (OLS) method or Auto-Regressive Distributed Lag (ARDL) Cointegration method, depending on whether the data is stationary, at level or not, with further analysis on long-run and short-run relationship among the variables studied. The research finds that there exists a weak negative correlation between FDI and Sensex, whereas a strong positive correlation exists between FDI and Nifty, as well as between FII and Sensex and FII and Nifty. Further, the variable FII shows a significant relationship with Sensex, whereas the relationship between FDI and Sensex is insignificant. FII also showed a significant positive relationship with Nifty, but the relationship between FDI and Nifty is insignificant. In summary, FII only showed a positive relation to stock movements, whereas with FDI, it was insignificant. Based on the empirical fi ndings, FDI shows only long-run relationship towards the Indian Stock markets. It is recommended that the government must attract more FDI for economic growth, through industrial growth, infrastructural developments, technological upgradations, competitive advantages, and more. On the other hand, FII are directly connected to the stock market movements and also help in the growth and development of the country, in short-run as well as the long-run. This indicates that the government must adopt appropriate measures to attract more foreign institutional investors, in order to strengthen the economic development. This research contributes to the decision-making by the government regarding the promotion of FII or FDI in short-run or long-run, for accelerating growth in the economy. This finding is highly relevant in the contemporary context, as this relationship is derived for India based on recent data.

Keywords


India, Time Series, FDI, FII, ARDL, OLS, CNX Nifty, BSE Sensex View PDF

References