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Relationship between Indian capital market, crude oil, Gold market & mutual fund & FII flow
Submitted by: ABHISHEK SINGH PARIHAR AVINASH KUMAR SINGH CHANDRABHUSHAN SINHA
affected by lagged security prices and security prices in one period are affected by mutual fund flows in previous periods.
Analysis of the relationship between FII, Indian capital Market, Mutual funds, Crude Oil prices and Gold prices
Mutual Funds
Gold Market
The Indian Equity Market is somewhat enhanced by the inflow of foreign institutional investors that, while capitalizing Indian businesses may at the same time be destabilizing to the economy because of the sometimes abrupt inflow and outflow of (mainly) dollars, not to mention the decline in value of the US dollar as a factor in money stability. It would be better if India had substantial investor base of its own.
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Suppose because of the increase in the FII, Indian stock market goes up. It will automatically increase the returns on mutual funds there by there is a positive co relationship between FII Indian stock exchange and Mutual funds
The Major reason why FII invest in India is fallen value of dollars. As Indian rupee is appreciated and value of dollar starts declining As weak dollar against rupee helps imports when Industry is going for expansion more Capex Investments. It makes cost of equipments and machinery imported cheaper. Not good for I.T exports.
As the dollar weakens, the gold prices increase. This s because gold is denominated in US Dollars but widely used in global markets and by central banks of foreign countries. Gold has a long history of being used as a currency around the world and is still considered to be a safe heaven for investments whenever there are signs of economic downturn.
Dollar is weak at the moment. A weak Dollar pushes the crude oil prices up because Oil has a Dollar value in the international markets, and a weak Dollar means that more value is attached to other stronger currencies. In other words, a stronger Euro is able to buy more Oil for the same amount of Euros when the Dollar is weakening. This is one important factor that drives up the Oil price.
When dollar is strong, investors tend to trade in dollar in U.S and FII reduces and Capital market in India falls. However, when dollar starts to weaken during times of economic uncertainty, more and more investors shift their investments to gold for safety. This is a kind of wealth protection measure to hedge against currency devaluation, inflation and deflation.