Professional Documents
Culture Documents
7.1
Introduction
An important element of globalization trend has now been that exchanges
are crossing national boundaries to extend their service, which has led to cross
border integration; exchanges have begun to offer cross border trading to facilitate
overseas investment options for investment. This has not only increased the
appeal of the exchange for investment, but has also attracted more volume. It is
also seen that international financial markets have changed drastically over the
past several decades. The major driving forces are: liberalization and
deregulation, ground breaking technological and financial innovations and a
growing dedicated investors base. The Indian stock exchanges hold a place of
prominence not only in Asia but also at the global stage. The Bombay Stock
Exchange (BSE) is one of the oldest stock exchange across the world, while the
NSE is among the best, in term of sophistication and advancement of technology.
In this chapter, an attempt has been made to study:
Descriptive statistics for daily market return for various stock market.
At this backdrop, the objectives of the present chapter are enumerated as:
191
To study whether Indian stock market (BSE's) prices and returns are
correlated to the stock market returns and prices of other selected
economy
For the comparative analysis of the BSE and other stock exchanges some
stock exchanges have been selected from developed market i.e. NASDAQ (USA),
NIKKEI (Japan) and from emerging markets HKSE (China) and NIFTY (India). To
study the correlation of India's stock prices (Returns) with other selected
countries stock prices (Returns), Karl Pearson's correlation coefficient method
has been used. Besides, for the comparative analysis of BSE and other stock
exchanges, the period chosen for the study is from 1991 to 2009.
7.2
the world. Indian companies have been permitted to raise resources from abroad
through issue of American Depository Receipts (ADRs), Global Depository
Receipts (GDRs), Foreign Currency Convertible Bonds (FCCBs) and European
Convertible Bonds (ECBs). Further, foreign companies are allowed to tap the
domestic stock markets.
Indian companies are permitted to list their securities on foreign stock
exchanges by sponsoring ADR/GDR issues against block shareholding. NRIs and
OCBs (Overseas Corporate Bodies) are allowed to invest in Indian companies.
FIIs have been permitted to invest in all types of securities, including government
securities. The investments by FIIs enjoy full capital account convertibility. They
can invest in a company under portfolio investment route up to 24% of the paid up
capital of the company. This can be increased up to the sectoral cap/statutory
ceiling, as applicable to the Indian companies concerned, by passing a resolution
through Board of Directors followed by a special resolution to that effect by its
general body. The Indian Stock Exchanges have been permitted to setup trading
terminals abroad. The trading platform of Indian exchanges is now accessed
through the internet from anywhere in the world.1
RBI permitted two-way fungibility for ADRs/GDRs, which meant that the
investors (foreign institutional or domestic) who hold ADRs/ GDRs can cancel
1
192
them with the depository and sell the underlying shares in the market. The
company can then issue fresh ADRs to the extent of the shares cancelled.
Indices
Sr.
Parameters
No.
BSE
Hong Kong
Stock
Exchange
Country
India
India
USA
Japan
Hong Kong
(China)
Name of
Indices
SENSEX
BSE-100
BSE-200
BSE-500
NIFTY
NASDAQ
NIKKEI
HKSE
Number of
Companies
Included
SENSEX-30
BSE-100
BSE-200
BSE-500
50
100
225
33
Method of
Calculation
of Indices
Free Float
Market
Weighted Weighted
Capitalization Average Average
Method
Price
Weighted
Average
Weighted
Capitalization
Method
Settlement
Cycle
T+3
T+2
T+2
T+2
T+3
193
S.
N.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Country
Australia
France
Germany
Hong Kong
Japan
Singapore
UK
USA
China
India *
Russia
Brazil
Indonesia
Korea
Malaysia
Taiwan
Mexico
Total
Market
Capitalizat % of Turnover
ion (US $ World (US $ Mn)
Mn)
675619
2.48
1013937
1492327
5.47
3257667
1107957
4.06
3093750
468595
1.72
621649
3220485
11.8
5886404
180021
0.66
270909
1851954
6.79
6484292
11737646 43.01 36467431
2793613
10.24 5470529
455478
1.67
1049748
1321833
4.84
562230
589384
2.16
727793
98761
0.36
110678
494631
1.81
1465999
187066
0.69
85214
380923
1.4
944023
232581
0.85
108202
27288874
100
67620455
No. of
% of
Listed
World Compan
ies
1.5
1924
4.82
966
4.58
638
0.92
1017
8.71
3299
0.4
455
9.59
2415
53.93
5603
8.09
1604
1.55
4921
0.83
314
1.08
432
0.16
4921
2.17
1798
0.13
977
1.4
1260
0.16
125
100
32669
% of
World
5.89
2.96
1.95
3.11
10.1
1.39
7.39
17.15
4.91
15.06
0.96
1.32
15.06
5.5
2.99
3.86
0.38
100
Table no. 7.1 gives the snapshot of market capitalization, turnover and
number of listed companies and their percentage to the total of stock market in the
world. It can be observed that as on 2009, USA is the 1st in the world ranking of
market capitalization and turnover, while India is 5th in the world ranking of market
capitalization and turnover.
Listing in stock exchange refers to the admission of securities of the
company for dealing in recognized stock exchange. The security may be any
public limited company or state government, quasi government and other financial
institutions/corporations, municipalities etc. It is seen from the table no. 7.1 that
India has a second place (next to USA) about number of companies listed and of
15.06% of total world's listing. Thus, after USA, India has the highest number of
companies listed on stock exchanges. At domestic level about 72% companies
194
are listed with Bombay Stock Exchange only.2 As compared to Asian stock
market, India's share in market capitalization is only 1.67%, which is lesser than
China (10.25%). About turnover also, China's share in total world is 8.09% while
India accounted only 1.55%.3
It is also seen that as on 2009, Singapore stock market accounted only
0.66% of world's market capitalization and only 0.4% of world's total turnover,
which is lowest in the world stock market scenario.
7.4
BSE
100
0.001
BSE
200
0.001
BSE
500
0.001
0.000
NASDAQ
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.001
0.001
0.001
0.002
0.001
0.001
-9.762
0.001
0.018
0.018
0.018
0.018
0.018
0.016
0.016
0.017
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
5.376
6.297
6.065
-0.057
-0.105
-0.153
Range
0.297
0.282
0.253
0.294
Minimum
-0.137
-0.127
-0.121
-0.131
Maximum
Sum
Count
Largest(1)
0.160
2.861
4541
0.160
0.155
2.902
4541
0.155
0.132
-0.825
4671
0.132
0.163
1.482
3729
0.163
Smallest(1)
-0.137
-0.127
5.791
0.049
0.234
0.102
0.133
1.808
4789
0.133
0.102
5.008
-0.041
5.392
0.484
0.271
0.124
0.146
1.612
2594
0.146
0.124
8.622
Skewness
7.005
0.134
0.290
0.134
0.156
2.811
4540
0.156
0.134
-0.121
-0.131
Confidence
Level
(95.0%)
0.001
0.001
0.001
0.001
0.000
0.001
Particulars SENSEX
Mean
Standard
Error
Median
Standard
Deviation
Sample
Variance
Kurtosis
HKSE
-0.004
0.320
-0.147
0.172
1.976
4493
0.172
-0.147
0.001
0.000
NIKKEI
NIFTY
0.000
0.000
Mukherjee Debjban (2007): Comparative Analysis of Indian Stock Market with International
Market, Great Lakes Herald, April , Vol. 1, by Great Lakes Institute of Management, Chennai, pp.
40-67.
195
Table no. 7.2 depicts the descriptive statistics for daily market returns of
BSE, NSE, NASDAQ, NIKKEI and HKSE for the period 1991 to 2009. The daily
data had about 4000 observations of different stock exchanges (except NSE) and
closing prices of respective indices are used to represent the market.
The mean of daily market returns of all exchange is observed to be
between 0.00037% to 0.00063% of all stock exchanges.
The median of daily market returns of all markets observed to be near to
zero and it remains between 0.0010% to 0.0090%.
Volatility is measured by standard deviation and its square. All the indices
shows similar volatility in the range of 0.0002% to 0.0003%. The minimum
volatility among the indices is observe in NIKKEI and whereas maximum is
observed in BSE-SENSEX.
Kurtosis measures the peak endness of the distribution. The Kurtosis of all
the indices are away from three therefore the weekly return are away from their
respective means.
A minimum return was lowest in NASDAQ i.e.-0.10%. The maximum return
was highest in HKSE i.e. 0.16% during the study period 1991 to 2009.
196
Table No. 7.3 : Year wise Average Return for Various Stock Markets
(Percentage)
Year
BSESENSEX
BSE
100
BSE200
BSE500
NASDAQ
HKSE
NIKKEI
NIFTY
1991
0.316
0.277
0.283
0.180
0.141
-0.019
1992
0.167
0.142
0.158
0.057
0.100
-0.124
1993
0.115
0.163
0.121
0.054
0.309
0.012
1994
0.069
0.036
-0.013
-0.150
0.050
1995
-0.101
-0.149
0.133
0.084
0.003
-0.112
1996
-0.003
-0.011
0.081
0.116
-0.010
-0.004
1997
0.069
0.060
0.077
-0.093
-0.097
0.075
1998
-0.074
-0.050
0.132
-0.026
-0.040
-0.080
1999
0.199
0.256
0.245
0.212
0.128
0.203
2000
-0.093
-0.122
-0.127
-0.198
-0.047
-0.128
-0.063
2001
-0.079
-0.100
-0.105
-0.095
-0.126
-0.158
-0.071
2002
0.014
0.049
0.116
0.017
0.062
0.063
0.265
0.102
0.107
0.027
0.057
0.063
-0.150
-0.090
-0.084
0.013
2003
0.216
0.243
0.263
0.276
0.161
0.134
0.089
0.213
2004
0.048
0.060
0.057
0.063
0.033
0.057
0.030
0.040
2005
0.141
0.129
0.116
0.124
0.005
0.020
0.138
0.123
2006
0.153
0.137
0.133
0.131
0.036
0.131
0.027
0.134
2007
0.155
0.190
0.196
0.037
0.138
-0.048
0.175
2008
-0.302
-0.338
-0.354
-0.205
-0.292
-0.224
-0.297
2009
0.244
0.188
0.327
0.253
0.261
0.265
0.144
0.178
0.072
0.232
Table No. 7.3 reveals the year wise average daily return for various indices
selected for study. It can be seen that for each indices separately the percentage
daily average return of BSE Sensex was in the range of 0.003% to 0.31%, BSE100 ranges from-0.01% to 0.27%, BSE-200 ranges between -0.011% to 0.28%
and BSE-500 indices ranging from 0.10% to 0.26%, while NASDAQ recorded
from 0.01% to 0.18%, HKSE recorded percentage average returns between
197
BSESENSEX
BSE 100
BSE 200
BSE 500
HKSE
NASDAQ
NIKKEI
NIFTY
BSE500
1*
0.998*
0.997*
0.997*
0.879*
0.438*
-0.278*
0.999*
1*
0.999*
0.998*
0.878*
0.446*
-0.291*
0.999*
1*
1.000*
0.864*
0.426*
-0.292*
0.998*
1*
0.894*
0.096*
0.253*
0.997*
1*
0.716*
0.896*
0.896*
1*
-0.136*
0.303*
1*
-0.136*
1*
Table no. 7.4 depicts the correlation matrix of BSE indices with other stock
exchanges. It is found that, there exists a positive correlation among all indices of
BSE and NASDAQ and HKSE during study the period of 1991 to 2009. NIKKEI is
negatively correlated with BSE-Sensex, BSE-100 and BSE-200, but there exists a
positive correlation between NIKKEI and BSE-500 during the same period. Nifty is
positively correlated with all indices selected for study except NIKKEI.
It is concluded that, there is a significant correlation between all the indices
selected for study & BSE. Therefore, present study accepts the hypothesis that
198
prices & returns of Bombay stock exchange are significantly correlated to the
prices &returns of other selected stock exchanges.
HKSE
NIKKI
NIFTY
SENSEX
Annua
lized
Return
(%)
Annual
ized
Volatili
ty (%)
Annu
alized
Retur
n (%)
Annua
lized
Volatili
ty (%)
Annua
lized
Return
(%)
Annua
lized
Volatil
ity (%)
Annual
ized
Return
(%)
Annua
lized
Volatil
ity (%)
Annuali
zed
Return
(%)
Annu
alized
Volatil
ity (%)
1991
0.47
0.15
0.35
0.18
-0.05
0.21
--
--
0.32
1.91
1992
0.14
0.13
0.25
0.23
-0.31
0.30
--
--
0.17
3.36
1993
0.14
0.12
0.77
0.22
0.06
0.20
--
--
0.12
1.85
1994
-0.04
0.12
-0.37
0.30
0.09
0.18
--
--
0.07
1.44
1995
0.35
0.13
0.21
0.20
0.06
0.23
-0.26
0.19
-0.10
1.26
1996
0.19
0.16
0.29
0.17
-0.13
0.16
-0.01
0.24
0.00
1.52
1997
0.21
0.19
-0.22
0.40
-0.19
0.27
0.18
0.28
0.07
1.64
1998
0.33
0.27
-0.06
0.44
-0.10
0.27
-0.20
0.28
-0.07
1.90
1999
0.63
0.27
0.52
0.26
0.30
0.20
0.51
0.29
0.20
1.82
2000
-0.59
0.49
-0.12
0.31
-0.30
0.23
-0.16
0.32
-0.09
2.20
2001
-0.15
0.42
-0.28
0.28
-0.23
0.29
-0.18
0.26
-0.08
1.71
2002
-0.36
0.35
-0.20
0.19
-0.23
0.25
0.03
0.17
0.01
1.10
2003
0.37
0.22
0.30
0.17
0.26
0.23
0.54
0.20
0.22
1.18
2004
0.07
0.17
0.12
0.16
0.05
0.18
0.10
0.28
0.05
1.61
2005
0.04
0.13
0.04
0.11
0.35
0.14
0.31
0.18
0.14
1.08
2006
0.08
0.14
0.29
0.15
0.03
0.20
0.34
0.26
0.15
1.63
2007
0.07
0.17
0.32
0.25
-0.18
0.19
0.44
0.25
0.16
1.54
2008
-0.47
0.41
-0.65
0.50
-0.52
0.46
-0.73
0.44
-0.30
2.85
2009
0.33
0.28
0.42
0.34
0.23
0.27
Note: Values are calculated from the data
0.56
0.33
0.24
2.19
Year
Table No. 7.5 exhibits annualized returns and volatility of different indices
selected for study. It is seen that, from the return prospective, NASDAQ yielded
negative returns in 1994, 2000, 2001, 2002 and 2008. During 1991 to 2009 its
annual returns were ranging from 0.04% to 0.47%. From the volatility
prospective NASDAQ shows highest annual volatility in 2000 i.e. 0.49% whereas
lowest volatility in 1993 i.e. 0.12%. Thus, the annual returns and volatility of
NASDAQ ranged from 0.03% to 0.46% and 0.11% to 0.49% respectively.
199
HKSE's annual returns recorded negative in 1994, 1997, 1998, 2000, 2001,
2002 and in 2008. It yielded highest annualized returns i.e. 0.42% in 2009 and
lowest annualized returns i.e. 0.11% in 2000. From volatility prospective the
annualized volatility ranging from 0.11% to 0.50% during the study period.
NIKKEI recorded negative returns in 1991, 1992, 1996, 1997, 1998 (except
1999), thereafter from 2000-2002, &in 2007& 2008. It recorded highest returns i.e.
0.26% in 2003 whereas lowest returns i.e. 0.05% in 1991. The annualized
volatility of NIKKEI ranging from 0.15% to 0.46% during the study period.
It is seen that the annualized return of NIFTY was negative in 1995, 1996,
1998 & thereafter in 2008. The annualized average return of NIFTY ranging from
0.01% to 0.56% whereas annualized volatility of NIFTY ranging between 0.19%
to 0.44% during study period.
The Sensex recorded negative returns in 1995, 1998, 2000, 2001 and
2008. The annual average returns of BSE-Sensex ranging from 0.01 % to
0.32
Annualized Returns and Volatility does not remain same in all indices
selected for study. It is also seen that in the year 2001, 2002 and 2008, all
selected indices yielded negative returns.
7.08
Khan A. Q. & Sana Ikram (2010): Testing Semi-Strong Form of EMH in Relation to the Impact of
FII, International Journal of Trade, Economics and Finance, Vol. No. 1, No. 4, December, p. 273.
201
i)
ii)
iii)
iv)
v)
Investment in
Listed/Unlisted
Companies
(Except the rout
of Stock
Exchange)
Institutional
Investment in
Listed
Companies
through Stock
Exchange
American
Depository
Receipts (ADR)
and Global
Depository
Receipts (GDR)
Investment by
NRIs/Persons of
Indian Origin
FIIs
FDI
Private
Equity/
Foreign
Venture
Capital
Investors
(FVCI)
Pasricha J. S., U Singh mesh C. (2001): FIIs and Stock Market Volatility, The Indian Journal of
Commerce, Vol. 54, No. 3, July-Sept, p. 29.
203
FIIs have also played a catalytic role in nurturing nascent venture capital
culture in India. A new entrepreneurial class has been created in the country who
have created a lot of wealth in the market. These are the sort of industries in
which traditional lending would have been difficult or would have less forthcoming.
These companies have blossomed and prospered on account of equity support
from new class of investors, which include inter-alia FIIs.
In policy circles, FII flows are considered to increase the domestic
investment without increase in foreign debt. FII flows can raise prices, lower cost
of equity and stimulate investment by Indian firms and lead to improvement in
securities market design and corporate governance. Thus, FIIs increase the depth
and breadth of the market; expand securities business and their policy of focusing
on fundamentals of the shares cause efficient pricing of shares. However, FIIs are
known to rush out at the slightest hit trouble in the host country leaving an
economic crisis, like Mexico in 1994 and India in 2008.7
7.9 Trends in FIIs investment in India
Table No. 7.6 : Yearly Trends in FIIs Investment in Capital Market
Gross
Gross
Net
Cumulative
Purchases(Rs.Cr)
Sales(Rs.Cr)
Investment(Rs.Cr) Investment(Rs.Cr)
1992-93
17
4
13
13
1993-94
5593
467
5126(39338)
5139
1994-95
7631
2835
4796(-6.4)
9935
1995-96
9694
2752
69424(44.7)
16877
1996-97
15554
6980
85742(23.5)
25451
1997-98
18695
12737
5958(30.5)
31409
1998-99
16116
17699
-1583(-126.5)
29826
1999-00
56857
46735
10122(739.01)
39948
2000-01
74051
64118
9933(1.84)
49881
2001-02
50071
41308
8763(-11.87)
58644
2002-03
47062
44372
2690(-69.29)
61334
2003-04
144855
90091
54764(1602)
116098
2004-05
216951
171071
45880(0.25)
161978
2005-06
346976
305509
41467(-9.6)
203445
2006-07
520506
489665
30841(-25.6)
234286
2007-08
948016
881839
66177(69.2)
300463
2008-09
614576
660386
-45810(-30.7)
254653
Source : Annual Reports of SEBI ,SEBI :Handbook of Statistics on Securities Market in India, 2009
Note: Figures in bracket shows %change
Year
Table no. 7.6 presents trends in net investment and cumulative investment
by FIIs in Indian stock market. It is observed that, cumulative net FII investment
has gone upto Rs. 254653 crores by the end of financial year 2008-09.
7
Mishra, P. K., Das K. B., Pradhan B. B. (2009): Role of FIIs in Indian Capital Market, The
Research Network, Vol.4, No.2, India.
204
During the initial year 1992-93, FIIs flow started and amounted to Rs. 13
crore because in this period government was framing policy guidelines for FIIs.
However, within a year, the net FII rose to 39338% of previous year, during 199394, because government had opened the door for foreign investment in India.
Thereafter, the FII inflow witnessed a dip of 6.45%. The year 1995-96 witnessed
gliding up the contribution of FII to a massive of Rs. 69424 crores. FII investment
during 1996-97 rose a little i.e. 23.52% of preceding year, this period ripe enough
for FII investment because at that time where international capital market
witnessed the phase of overheating and at the same time, the Indian economy
and its strong fundamentals, stable exchange rate expectations and incentives
climate for foreign investment.
During 1997-98, FII inflow posted of 30.5%, it was due to south east Asian
crisis and period of volatility experienced between November 1997 and February
1998. The net inflow by FIIs have always positive from the year 1992-93, only in
the year 1998-99 an outflow of Rs.1583 crores was witnessed for the first time.
This was primarily because of economic sanctions imposed on Indian by the US,
Japan and other industrialized economy. These economic sanctions were result of
testing of series of nuclear bomb in 1998. Therefore, the FII portfolio investment
quickly recovered and showed positive net investment for all subsequent years.
FII investment posted a year declining of -1.8% in 2000-01, -11.87% in
2001-02 and -69.29% in 2002-03. The major reasons for the decline in their
investment were the dismal performance of
to large net outflow from the equity segment. This was because of fall in Asian
market, tightening of capital control in Thailand. But the cumulative net investment
by FIIs in India was stood at Rs. 234286 crores.
The net investment by FIIs was Rs.66177 crores in 2007-08, which was
more than double from Rs.30841 crores in 2006-07. The cumulative investment
by FIIs was increased to Rs.291465 crores during the same year. The year 200809 saw the highest FII outflow in any financial year since inception. This would be
attributed to the global financial meltdown and the home bias in of FIIs in the
crisis.
Thus, there has been notable surge in FII investment since 1993-94,
signifying the attractiveness of the Indian markets and it is an expression of
confidence on the part of international investment community in the regulatory
framework for the securities market.
The net FII investment during 2007-08 stood at Rs.66177 crores.
In
the
year 2008-09, a net FII investment dipped to Rs.-45810 crores while net
cumulative FII investment dropped and stood at Rs. 244653 crores.
7.9.1 Distribution of FIIs Investment
Table No. 7.7 : Distribution of FIIs Investment in Equity and Debt
Year
1991-92
1992-93
1993-94
1994-95
1995-96
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Total(Rs.Cr)
13.4
5,126.5
4,796.3
6,942.0
8,574.5
5,957.2
-1,584.0
10,122.1
9,933.4
8,762.6
2,689.3
45,764.7
45,881.3
41,466.7
30,840.4
66,179.1
-45,811.0
Source : CMIE Report on Capital Market 2007, ISMR Report 2009, p. 196
206
FII were allowed to invest in the Indian capital market from September
1992; however, investment by them was first made in January 1993. The Indian
gilts market was opened up for FII investment in April 1998. Till December 1998,
investments were related to equity only as investments in debt were made from
January 1999.
It is clear from table no 7.7 that in the year 1997-98 FII's net investment in
equity segment stood at Rs. 5267 crores. It registered an outflow of Rs. -717
crores in 1998-99. Thereafter it rose continuously till 2005-06. It was stood at
Rs.488005.5 crores, which decreased to Rs.25235.7 Crores in 2006-07, it
increase to Rs 534038 crores in 2007-08. However, it declined in 2008-09 to Rs. 47706.3 crores.
The net investment in debt segment do not hold particular pattern. In the
year 1997-98, it was Rs. 691.1 crores. In the year1998-99, 2000-2001 & 2005-06
it recorded outflow of Rs.-867 crores, Rs.-273.3 crores and Rs.-7333.8 crores
respectively. It was stood at Rs 1895.2 crores in 2008-09.
Total net FII investment was Rs.13.4 crores in 1991-92. It increase
significantly and stood at Rs.66179.1 crores in 2007-08. In the year 2008-09 total
investment declined to Rs.-45811.0 crores.
It is observed that the share of equity investment to the total investment of
FII is greater than debt investment. In the year 2008-09, FII investment declined in
equity segment while it remained positive in debt segment of Indian stock market.
207
Year
Net FII
Investment
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
4796
6942
8575
5958
-1585
10122
9933
8763
2689
45764
45880
41467
30841
66179
-45811
Net FII
Investment in
Secondary
Market of BSE
1742
5672
3048.86
2453.57
-117
6067
5885
3467
1088
8686
12286
6480
1380
-6500
-20414
AVERAGE
% to Total Net
Investment
36.322
81.706
35.555
41.181
7.382
59.939
59.247
39.564
40.461
18.980
26.779
15.627
4.475
-9.822
44.561
33.81
Source : Data compiled from SEBI :Handbook of Statistics on Indian Securities Market,
2009 and Various Annual Reports of BSE
208
FII Trade
(Rs. In crore)
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
5514
6838
10556
12859
15705
46043
59941
35185
31980
57078
107534
221440
264480
411436
220568
Total Turnover
of BSE
(Rs. In crores)
67748
49418
124189
207112
310749
685028.21
1000031.54
307292.36
314073.19
502618.41
518715.67
816074.02
956185.41
1578856.09
1100073.63
AVERAGE
% share of FII
in BSE's
Turnover
8.13
13.83
8.49
6.20
5.05
6.72
5.99
11.45
10.18
11.35
20.73
27.13
27.65
26.05
20.05
14.0%
It is clear from Table No. 7.9 that, there is growing influence of FII in BSE's
turnover during study period. The percentage share of FIIs trade in total turnover
in BSE's was recorded highest in the year 2006-07 i.e. 27.65% whereas it was
lowest in the year 1998-99 i.e. 5.05%. During the last five years, the average
share of FIIs trade in total turnover of BSE was around 25.0% whereas the
average share of FIIs trade in total turnover of BSE during entire study period was
about 14.0%.
It is also concluded that, there is a steady growing influence of FIIs in the
Indian stock market.
209
Year
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
It is found by the study (Table No. 7.10) that BSE Sensex and FII has
followed a close relationship, when net Sensex moved up the FII also increased
and when net Sensex was down, the total FII was went down.
210
7.11
Year
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
BSE-30
Coefficient
Correlation
0.669
0.450
0.045
0.196
0.855
0.404
0.390
0.125
0.028
0.635
0.674
0.101
0.798
0.478
0.574
Indices
BSE-100
BSE-200
Coefficient
Coefficient
Correlation
Correlation
0.634
0.474
0.019
0.194
0.575
0.500
0.281
0.048
0.007
0.527
0.707
0.097
0.792
0.391
0.610
0.673
0.431
0.002
0.260
0.865
0.408
0.231
0.045
0.041
0.480
0.718
0.121
0.802
0.361
0.622
BSE-500
Coefficient
Correlation
NA
NA
NA
NA
NA
0.879
0.250
0.021
0.031
-0.051
0.715
0.120
0.795
0.329
0.636
According to results depicted in Table No. 7.11, during the year 1994 to
2009, it is found that the correlation between the BSE-30 (Sensex) and FII is
positive, and ranging between 0.02 to 0.85. There is high degree of correlation
between the Sensex and FII investment i.e. 0.85 in 1998-99 whereas low degree
of correlation found between Sensex and FII investment in 2002-2003 i.e. 0.02.
It is seen that a positive correlation between monthly returns of BSE-100
and FII investment for the entire period of study from 1994-95 to 2008-09. The
correlation between monthly returns of BSE-100 and FII investment is ranging
between 0.007 to 0.79. The table further examines the relation between the BSE200 and FII that gives the positive degree of correlation, ranging from 0.002 to
0.86. In the year 1996-97, there was low degree of positive correlation (0.002)
whereas high degree of positive correlation (0.86) found in the year 1998-99.
It is observed that there is positive degree of correlation coefficient (r)
between BSE-500 and FII investment during study period, except in the year
2003-04, it recorded negative correlation co-efficient i.e. 0.05. The low and high
degree of positive correlation between BSE-500 and FII investment is of 0.02 and
0.87 respectively.
211
Table no. 7.12 highlights the correlation between monthly turnover of BSE
and FII investment in secondary market of BSE during 1994-95 to 2008-2009. It is
seen that there is negative correlation in the year 1994-95, 2000-2001,2002-03,
2006-07 and 2008-09 i.e. 0.16, -0.11,-0.116, -0.05 and 0.50 respectively,
whereas rest of years, there is a positive degree of correlation between FII and
monthly turnover of BSE.
It is also seen, that there is high degree of correlation between BSE
turnover and FII investment i.e. 0.83 in 2001-2002, whereas low degree of
correlation found in the year 2007-2008 i.e. 0.02. Thus, the correlation between
FII investment and monthly turnover ranging between 0.02 to 0.83 degree.
Indices
Coefficient of Correlation
-0.513*
0.067NS
0.963NS
-0.147NS
212
Conclusion:
The FII investment has always been the subject of debate in term of
desirability. This is because of FII money is known to be hot money that would flee
at the first sign of trouble. At present, total holding of each FII/Sub account under
the portfolio scheme should not exceeded 10% of the total paid up capital and
holding of all FII/Sub accounts put together should not exceed 24% of the paid up
capital. There has been a notable surge in FII investment since 1993-94 signifying
the attractiveness of the Indian stock market and is an expression of confidence
on the part of international investment community in the regularatory framework
for the securities market.
It is seen that during study period, the share of equity investment to the
total investment of FII is greater than Debt investment. It is also seen that average
share of net FII investment in secondary market of BSE is around 33.18% to the
total net FII investment. The percentage average share of FII trade in total
turnover of BSE is 14.0% during the study period.
The correlation analysis shows that there is a significant correlation
between FII investments with BSE Sensex. There is no significant
correlation
between Return and FII investment. It is also found that, there is no significant
correlation between FII investment and monthly turnover of BSE during the study
period.
213