A Project on INDIAN CAPITAL MARKET & FIIS

AT J&K BANK CORPORATE HEADQUARTERS (SRINAGAR)

IN THE FULFILLMENT OF THE REQUIREMENT FOR THE MASTERS DEGREE IN FINANCE AND CONTROL

GUIDED AND SUPERVISED BY:

Syed Gazanfar (Executive Investment Department)

Submitted By:
MOHAMMAD ADIL LANGOO MFC III Semester Roll No: 314

Submitted To:
Department of Business & Financial Studies University of Kashmir

Central Treasury Department Corporate Headquarters Dalgate, Srinagar _________________________________________________________________

This is to certify that Mr. MOHAMMAD ADIL LANGOO, S/O Gh. Mohammad langoo, roll number 314 of MFC 3rd Semester, Department of business & Financial studies, university of kashmir, J&K has completed his project on the topic INDIAN CAPITAL MARKET & FIIS under the supervision of undersigned. During his summer training he proved to be an effective and sincere student and we wish him all the best in his future endeavor.

MR. SYED GAZANFAR (EXECUTIVE) INVESTMENT DEPARTENT

ACKNOWLEDGEMENT

All thanks to Almighty Allah by whose grace I accomplish my project work project

My sincerely thanks to J&K Bank, an esteemed organization for acknowledging me to do the project work recognizing my academic performance.

My

sincere

thanks

are

to

Mr.

syed

gazanfar

(executive

investment

department) J&K Bank under whose knowledgeable guidance and patronization I started my project work.

My sincere thanks to the university of Kashmir and departmentment of business & financial studies in particular for providing guidance, suggestions and better placement in the developed corporate world.

Finally I thank my parents, and other family members who always stood by my side and gave me a moral and financial support, to, take the advantage of this golden opportunity in the present competitive and advanced corporate world.

ABOUT J&K BANK

__________________________________________________________
J&K Bank functions as a universal bank in Jammu & Kashmir and as a specialized bank in the rest of the country. It is also the only private sector bank designated as RBIs agent taxes for CBDT. for banking business, and carries out the banking business of the Central Government, besides collecting central

J&K Bank follows a two-legged business model whereby it seeks to increase lending in its home state which results in higher margins despite modest volumes, and at the same time, seeks to capture niche lending opportunities on a pan-India basis to build volumes and improve margins.

J&K Bank operates on the principle of 'socially empowering banking' and seeks to deliver innovative financial solutions for household, small and medium enterprises.

The Bank, incorporated in 1938, and is listed on the NSE and the BSE. It has a track record of uninterrupted profits and dividends for four decades. The J&K Bank is rated P1+, indicating the highest degree of safety by Standard & Poor and CRISIL.

CORPORATE GOVERNANCE
J&K Bank has been committed to all the basic tenets of good Corporate Governance well before the Securities and Exchange Board of India and the Stock Exchanges pursuant to Clause 49 of the Listing Agreement mandated these. Now, it is our Endeavour to go beyond the letter of the Corporate Governance codes and apply it innovatively in a more meaningful manner thereby making it relevant to the organization that is operating in a specific environment, which is different from the generic Anglo-Saxon one. In line with the vision, J&K Bank wants to use Corporate Governance innovatively in a transitional economy like Jammu and Kashmir. The Bank wants to use Corporate Governance as an instrument of economic and social transformation. In due course, we would set our self targets of social and economic reporting as a part of annual disclosures. This will help us

conceptualize and contextualize the form and content of Corporate Governance in a developing state. Given the fact that J&K Bank is and is seen as a great success of public-private partnership, our Bank as a business is expected to play a role in social transformation of the economy. This lends urgency to implementation of good governance practices which go beyond the Corporate Governance code. Operating in an environment that is emerging from a situation of civil strife, the issue of Corporate Governance assumes a different and greater relevance. We, as the prime corporation of Jammu and Kashmir, have a vested interest in making the state a safe place for business. J&K Bank has a key role to play in providing public and private services, financial infrastructure and employment. As such, the efficiency and accountability of the corporation is a matter of both private and public interest, and governance, therefore, comes at the top of the agenda. The fact that the bank is state owned but professionally managed, having a large size of international investors, governance is critical. For us Corporate Governance is concerned with the systems of laws, regulations, and practices, which will promote enterprise, ensure accountability and trigger performance. The J&K Bank, for one, stands for being more accountable, practice self-policing and make financial transactions transparent and constitutional. Of our directors to make J&K Bank an engine of social transformation. As an eminent corporate jurist (Chancellor William T. Allen) from US says, A corporate director has civic responsibility. The people, who accept this responsibility, do it conscientiously and well deserve our respect as they are serving a nation. But those who as directors are passive and view their role as mere advisers, are pliable and pleasant but do not insist on a real monitors role, do small service to anyone and deserve little respect. Our directors belong to the former category.

VISION of Jk Bank

To catalyze economic transformation and capitalize on growth.

Our vision is to engender and catalyze economic transformation of Jammu and Kashmir and capitalize from the growth induced financial prosperity thus engineered. The Bank aspires to make Jammu and Kashmir the most prosperous Bank. state in the country, by helping create a new financial architecture for the J&K economy, at the center of which will be the J&K

MISSION Statement

Our mission is two-fold: To provide the people of J&K international quality financial service and solutions and to be a super-specialist bank in the rest of the country. The two together will make us the most profitable Bank in the country.

Jammu Kashmir Bank History

Jammu and Kashmir Bank Limited was incorporated on 1st October, 1938 and commenced its business from 4th July, 1939 at in Kashmir (India). The Bank was first in the country as a State owned bank. According to the extended Central laws of the state, Jammu & Kashmir Bank was defined as a govt. Company as per the provision of Indian companies act 1956. In the year 1971, the Bank received the status of scheduled bank. It was declared as "A" Class Bank by RBI in 1976. Today the bank has more than 500 branches across the country and has recently become a billion Dollar Company.

Profile

1. Incorporated in 1938 as a limited company. 2. Governed by the Companies Act and Banking Regulation Act of India. 3. Regulated by the Reserve Bank of India and SEBI.

4. Listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) 5. 53 per cent owned by the Government of J&K. 6. Rated "P1+" by Standard and Poor- CRISIL connoting highest degree of safety. 7. Four decades of uninterrupted profitability and dividends.

Unique Characteristics: One of a kind

1. Private sector Bank despite government holding 53 per cent of equity.

2. Plan and non -plan funds, taxes and non-tax revenues routed through the bank.

3. Salaries of Government officials disbursed by the Bank.

4. Only private sector bank designated as agent of RBI for banking.

5. Carries out banking business of the Central Government.

6. Collects taxes pertaining to Central Board of Direct Taxes in J & K.

Board of Directors

Mushtaq Ahmad Sudhanshu Panday Hari Narayan Iyer Muhammad Ibrahim Shahdaad Vikrant kuthalia Prof. Nisar Ali

--

Chairman & CEO

A.M.Mattoo Rakesh kumar Gupta Nithal Garware

Functions of the Board

J&K Banks Board plays a pivotal role in ensuring good governance. Its style of functioning is democratic. The members of the board have always had complete freedom to express their opinion and decisions are taken on the basis of a consensus arrived at after detailed discussion. The members are also free to bring up any matter for discussion at the board meetings with the permission of the Chairman. The day-to-day management of the Company is conducted by the Chairman and C.E.O. subject to the supervision and control of the Board of the Directors. The functions performed by the Board of the Bank for efficient and effective utilization of resources at their disposal to achieve the goals, visualized, interalia, include Setting Corporate Missions, Laying down Corporate Philosophy, Formulation of Strategic and other Business Plans, Laying down of Control Measures and Compliance with Laws and Regulations.

INTRODUCTION
FOREIGN INSTITUTIONAL INVESTORS

FII is defined as an institution organized outside of India for the purpose of making investments into the Indian securities market under the regulations prescribed by SEBI. FII include Overseas pension funds, mutual funds, investment trust, asset management company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts, charitable societies, a trustee or power of attorney holder incorporated or established outside India proposing to make proprietary investments or investments on behalf of a broad-based fund. FIIs can invest their own funds as well as invest on behalf of their overseas clients registered as such with SEBI. These client accounts that the FII manages are known as sub-accounts. A domestic portfolio manager can also register itself as an FII to manage the. funds of sub-accounts Foreign institutional investor means an entity established or incorporated outside India which proposes to make investment in India. Positive tidings about the Indian economy combined with a fast-growing market have made India an attractive destination for foreign institutional investors. FII is defined as an institution organized outside of India for the purpose of making investments into the Indian securities market under the regulations prescribed by SEBI.
Entry Options for FII

A foreign company planning to set up business operations in India has the following options:

Incorporated Entity By incorporating a company under the Companies Act, 1956 through Joint Ventures; or Wholly Owned Subsidiaries Foreign equity in such Indian companies can be up to 100% depending on the requirements

of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy.

Important terms to know about FIIs:

1. Sub-account :

Sub-account includes those foreign corporations, foreign individuals, and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII.

2. Designated Bank:

Designated Bank means any bank in India which has been authorized by the Reserve Bank of India to act as a banker to FII.

3. Domestic Custodian:

Domestic Custodian means any entity registered with SEBI to carry on the activity of providing custodial services in respect of securities.

4. Broad Based Fund:

Broad Based Fund means a fund established or incorporated outside India, which has at least twenty investors with no single individual investor holding more than 10% shares or units of the fund. Provided that if the fund has institutional investor(s) it shall not be necessary for the fund to have twenty investors.

If the fund has an institutional investor holding more than 10% of shares or units in the fund, then the institutional investor must itself be broad based fund.

FOREIGN INSTITUTIONAL INVESTORS REGISTRATION

Following entities / funds are eligible to get registered as FII: Pension Funds Mutual Funds Investment Trust Insurance or reinsurance companies Investment Trusts Banks Endowments University Funds Foundations Charitable Trusts or Charitable Societies

Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs: Asset Management Companies Institutional Portfolio Managers Trustees Power of Attorney Holders.

The eligibility criteria for applicant seeking FII registration

As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors are required to fulfill the following conditions to qualify for grant of registration: Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity.

The applicant should be regulated by an appropriate foreign regulatory authority in the same capacity/category where registration is sought from SEBI. Registration with authorities, which are responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor.

The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India.

 Applicant must be legally permitted to invest in securities outside the country or its incorporation / establishment.

The applicant must be a "fit and proper" person.

The applicant has to appoint a local custodian and enter into an agreement with the custodian. Besides it also has to appoint a designated bank to route its transactions.

Payment of registration fee of US $ 5,000.00 "Form A" as prescribed in SEBI (FII) Regulations, 1995 is to be filled before applying for FII registration.

Supporting documents required are:

Application in Form A duly signed by the authorized signatory of the applicant.

Certified copy of the relevant clauses or articles of the Memorandum and Articles of Association or the agreement authorizing the applicant to invest on behalf of its clients

Audited financial statements and annual reports for the last one year , provided that the period covered shall not be less than twelve months.

A declaration by the applicant with registration number and other particulars in support of its registration or regulation by a Securities Commission or Self Regulatory Organisation

or any other appropriate regulatory authority with whom the applicant is registered in its home country.

A declaration by the applicant that it has entered into a custodian agreement with a domestic custodian together with particulars of the domestic custodian.

A signed declaration statement that appears at the end of the Form.

Declaration regarding fit & proper entity.

The fee for registration as FII is US $ 5,000. The mode of payment is Demand Draft in favor of "Securities and Exchange Board of India" payable at New York. SEBI generally takes 7 working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, seven days shall be counted from the days when all necessary information sought, reaches SEBI. In cases where the applicant is bank and subsidiary of a bank, SEBI seeks comments from the Reserve Bank of India (RBI). In such cases, 7 working days would be counted from the day no objection is received from RBI. The FII registration is valid for 5 years. After expiry of 5 years, the registration needs to be renewed. Same as initial registration, Along with "Form A" and all the relevant documents, the applicants are required to fill in additional form (Annexure 1) while applying for renewal. US $ 5,000 needs to be paid for renewal of FII registration. The application for renewal should be submitted three months before expiry of the FII registration. 100 % debt FIIs are debt dedicated FIIs which invest in debt securities only. The procedure for registration of FII/sub-account, under 100% debt route is similar to

that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub-account under 100% debt route.

The FII registration application should be sent to: Securities and Exchange Board of India Division of FII & Custodian Mittal Court "B" Wing, First Floor 224, Nariman Point Mumbai 400 021 India. SUB-ACCOUNT REGISTRATION a) Institution or funds or portfolios established outside India, whether incorporated or not.

b) Proprietary fund of FII.

c) Foreign Corporates.

d) Foreign Individuals.

The FII should apply on the behalf of the Sub-account. Both the FII and the Sub-account are required to sign the Sub-account application form. "Annexure B" to "Form A" (FII application form) needs to be filled when applying for subaccount registration. No document is needed to be sent with annexure B. The fee for subaccount registration is US$ 1,000. The fee is to be submitted at the time of submitting

the application. The mode of payment is Demand Draft in the name of "Securities and Exchange Board of India" payable at New York. SEBI generally takes three working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, three days shall be counted from the days when all necessary information sought, reaches SEBI. The validity of sub-account registration is co-terminus with the FII registration under which it is registered. The process of renewal of subaccount is same as initial registration. Renewal fee in this case is US $ 1,000. OCBs / NRIs are not permitted to get registered as FII/sub-account.

POST-REGISTRATION PROCESSES

If a registered FII/sub-account undergoes name change, then the FII need to promptly inform SEBI about the change. It should also mention the reasons for the name change and give an undertaking that there has been no change in beneficiary ownership. In case of name change of FII, the request should be accompanied with documents from home regulator and registrar of the company evidencing approval of name change, and the original FII registration certificate issued by SEBI should be sent back for necessary amendment.

Procedure for transferring a sub-account from one FII to another:

The FII to whom the Sub-account is proposed to be transferred has to send a request along with a declaration that it is authorized to invest on behalf of the Sub-account. The transferor custodian, FII for should also change submit in a No-objection domestic certificate. custodian. The FII should send a request, along with no-objection certificate from existing domestic

The FII would be required to send a request for cancellation of its registration or registration of its Sub-account/s clearly mentioning the name and registration number of the entity. The FII should ensure that it / Sub-account has nil cash / securities holdings.

Procedure for change of local custodian:

In case of change of the local custodian of the FII / sub-account, the change should be intimated to SEBI by the FII. On receipt of no objection from the existing custodian and acceptance from the proposed custodian, the change of custodian would be approved - by SEBI.

Procedure for registration as FII/sub account under 100% debt route:

The procedure for registration of FII/sub account under 100% debt route is similar to that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub account under 100% debt route. However, Government of India allocates the overall investment limit for 100% debt funds annually. The grant of investment limit for individual 100% debt funds is within this overall limit. The funds have to seek further investment limit in case the limit allotted to them is exhausted and they wish to invest further. A Foreign Institutional Investor having an account with one custodian can open accounts with different custodians for its different sub-accounts. However, one sub-account cannot be custodial with more than one custodian.

Procedure if an existing sub-account wants to get registered as a Foreign Institutional Investor:

In case if a registered sub-account wishes to get itself registered as a Foreign Institutional Investor, then it will have to apply in Form A to SEBI for the same and has to satisfy all the eligibility criteria norms mentioned in SEBI (Foreign Institutional Investor) Regulations, 1995. It should also submit a letter from the old FII indicating its 'No-objection' to such registration.

Procedure

for

renewal

of

FII/Sub-Account

registration:

They have to apply before 3 months of the expiry of registration in Form A. Circular No FITTC/CUST/09/2000 dated September 21, 2000 may be referred.

If the FII does not renew its/sub-accounts registration:

The registration of the FII / Sub-account would get expired at due date and it would not be allowed to trade in Indian securities markets. If it is not interested in renewal but has certain regard. residual assets, it can apply for disinvestment in terms of Circular No. FITTC/CUST/12/2001 dated June 04, 2001 and abides by the guidelines specified in this

Scope of Investments under the Portfolio Investment Scheme.

FIIs, under the Portfolio Investment Scheme, are permitted to make both primary and secondary investments in the India capital markets. Unlike an investor which relies solely on FDI regulations, a foreign investor which registers as a FII would be allowed to buy and sell securities over Indian stock exchanges. In addition, FIIs are entitled to effect

transactions in a broader category of securities than an investor relying on FDI regulations alone. FIIs are permitted to purchase equity securities (both listed and unlisted), units of schemes floated by the Unit Trust of India and other domestic municipal funds, warrants, debentures, bonds, governmental securities and derivative instruments which are traded on a recognized stock exchange. There is no limit on the amount that FIIs may invest in the Indian market, and no lock-up periods apply to investments made by FIIs.

Exchange Controls FIIs are required to open up one or more bank accounts with certain designated banks and must also appoint a domestic custodian for custody of investment made by the FII. Through the designated accounts, FIIs are authorized to freely transfer funds from foreign currency accounts to Rupee accounts and vice versa; make Rupee denominated investments in Indian companies; freely transfer after-tax proceeds from Rupee accounts to foreign currency accounts, and repatriate capital, capital gain, dividends interest income and other gains, subject to deduction for applicable withholding taxes. So long as FIIs execute purchases and sales on a recognized Indian stock exchange, they are not required to obtain transaction specific approval from the Reserve Bank. FIIs are also entitled to effect transactions using their own proprietary funds, or the funds of their sub accounts.

Investment Restrictions.

Certain limitations apply to investments by FIIs into India. First, FIIs and their subaccounts investment in an Indian company can not exceed ten percent (10%) of the total issued share capital of the Indian company (five percent if the subaccount is a foreign

corporation or individual). In addition, the aggregate investment of all FIIs in an Indian company may not exceed twenty four percent (24%) of its total issued share capital, without the express approval of its board of directors and shareholders. Even with board of director and shareholder approval, the same sectoral limits which apply to foreign direct investment would continue to apply. FIIs may register with SEBI as a debt fund or an equity fund. FIIs which are registered as equity funds, are required to invest at least seventy percent (70%) of their funds in equity and equity-related securities. A FII registered as a debt fund, on the other hand, must invest one hundred percent (100%) of its funds in debt instruments. Foreign corporations and individuals are not eligible subaccounts of a FII that is registered as a debt fund. FIIs are not permitted to engage in short selling, other than in respect of derivative securities traded over a recognized exchange, and must effect transactions through a registered stock broker. Sector investment prohibitions and caps which apply to foreign direct investment also apply to investments by FIIs, and FII investments must also comply with the pricing requirements applicable to foreign direct investment. In addition, FIIs are not permitted to invest in print media.

Trend of FIIs with the help of economic figures

In 2004, FII investments crossed $9 billion, the highest in the history of Indian capital markets. The total net investment for the year up to December 29 stood at US$9,072 million while foreign investors pumped in about US$2,113 million in December. Korea and Taiwan have always been the biggest recipients of FII money. It was only in 2004 that India managed to receive the second highest FII inflow at over $8.5bn. In 2005 FIIs invested more in Indian equities than in Korean or Taiwanese equities.

 On 9th March 2009, India's exceptional growth story and its booming economy have made the country a favorite destination with foreign institutional investors (FIIs). It has continued to attract investment despite the Satyam non-governance issue and the global economic contagion impact on Indian markets. According to Mr. Gautama Chand, CEO of Instanex, said FIIs are the largest institutional investors in India with holdings valued at over US$ 751.14 billion as on December 31, 2008. They are also the most successful portfolio investors in India with 102 per cent appreciation since September 30, 2003. As per SEBI, number of registered FIIs stood at 1726 and number of registered subaccounts stood at 5472 as on March 17, 2012.
Daily Trends in FII Investments on 18-APR-2012
Gross Purchases(Rs Crore) 2406.90 0.60 2407.50 184.00 0.00 184.00 2591.50 Gross Sales(Rs Crore) 1965.90 50.20 2016.10 534.80 0.00 534.80 2550.90 Conversion (1 USD TO INR)*

Reporting Date

Debt/Equity

Investment Route Stock Exchange

Net Investment Net Investment (Rs Crore) US($) million 441.00 (49.60) 391.40 (350.80) 0.00 (350.80) 40.60 85.42 (9.62) 75.8 (67.96) 0 (67.95) 7.85

Equity

Primary market & others Sub-total Stock Exchange

18-APR-2012

Rs.51.6265

Debt

Primary market & others Sub-total Total

Future Prospects of Foreign Institutional Investments

Sustaining the growth momentum and achieving an annual average growth of 9-10 % in the next five years.

Simplifying procedures and relaxing entry barriers for business activities and Providing investor friendly laws and tax system.

Checking the growth of population; India is the second highest populated country in the world after China. However in terms of density India exceeds China, as India's land area is almost half of China's total land. Due to a high population growth, GNI per capita remains very poor. It was only $ 2880 in 2003 (World Bank figures).

Boosting agricultural growth through diversification and development of agro processing.

Expanding industry fast, by at least 10% per year to integrate not only the surplus labour in agriculture but also the unprecedented number of women and teenagers joining the labour force every year.

Developing world-class infrastructure for sustaining growth in all the sectors of the economy

Allowing foreign investment in more areas.

Effecting fiscal consolidation and eliminating the revenue deficit through revenue enhancement and expenditure management.

Global corporations are responsible for global warming, the depletion of natural resources, and the production of harmful chemicals and the destruction of organic agriculture.

The government should reduce its budget deficit through proper pricing mechanisms and better direction of subsidies. It should develop infrastructure with what Finance Minister P Chidambaram International Research Journal of Finance and Economics - Issue 5 (2011) 171 of India called ruthless efficiency and reduce bureaucracy by streamlining government procedures to make them more transparent and effective.

Empowering the population through universal education and health care, India must maximize the benefits of its youthful demographics and turn itself into the knowledge hub of the world through the application of information and communications technology (ICT) in all aspects of Indian life although, the government is committed to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor and boost economic performance. Government had reduced its controls on foreign trade and investment in some areas and has indicated more liberalization in civil aviation, telecom and insurance sector in the future.

INTRODUCTION TO INDIAN STOCK MARKET

OVERVIEW OF INDIAN STOCK MARKET

The working of stock exchanges in India started in 1875. BSE is the oldest stock market in India. The history of Indian stock trading starts with 318 persons taking membership in Native Share and Stock Brokers Association, which we now know by the name Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent recognition from the Government of India. National Stock Exchange comes second to BSE in terms of popularity. BSE and NSE represent themselves as synonyms of Indian stock market. The history of Indian stock market is almost the same as the history of BSE. The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is compiled based on the performance of the stocks of 30 financially sound benchmark companies. In 1990 the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000 figures in 1992. The reason for such huge surge in the stock market was the liberal financial policies announced by the then financial minister Dr. Man Mohan Singh. The up-beat mood of the market was suddenly lost with Harshad Mehta scam. It came to

public knowledge that Mr. Mehta, also known as the big-bull of Indian stock market diverted huge funds from banks through fraudulent means. He played with 270 million shares of about 90 companies. Millions of small-scale investors became victims to the fraud as the Sensex fell flat shedding 570 points. To prevent such frauds, the Government formed The Securities and Exchange Board of India, through an Act in 1992. SEBI is the statutory body that controls and regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio managers investment advisors etc. SEBI oblige several rigid measures to protect the interest of investors. Now with the inception of online trading and daily settlements the chances for a fraud is nil, says top officials of SEBI. Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark was crossed in June and the 8000 mark on September 8 in 2005. Many foreign institutional investors (FII) are investing in Indian stock markets on a very large scale. The liberal economic policies pursued by successive Governments attracted foreign institutional investors to a large scale. As of now (March 2012) sensex is trading around 17000 mark. The unpredictable behavior of the market gave it a tag a volatile market. The factors that affected the market in the past were good monsoon, Bharatiya Janatha Partys rise to power etc. The result of a cricket match between India and Pakistan also affected the movements in Indian stock market. The National Democratic Alliance led by BJP, during 2004 public elections unsuccessfully tried to ride on the market sentiments to power. NDA was voted out of power and the sensex recorded the biggest fall in a day amidst fears that the Congress-Communist coalition would stall economic reforms. Later prime minister Man Mohan Singhs assurance of reforms with a human face cast off the fears and market reacted sharply to touch the highest ever mark of 8500. India, after United States hosts the largest number of listed companies. Global investors now ardently seek India as their preferred location for investment. Once viewed with skepticism, stock market now appeals to middle class Indians also. Many Indians working in foreign countries now divert their savings to stocks. This recent phenomenon is the result of opening up of online trading and diminished interest rates from banks. The stockbrokers

based in India are opening offices in different countries mainly to cater the needs of Non Resident Indians. The time factor also works for the NRIs. They can buy or sell stock online after returning from their work places. The recent incidents that led to growing interest among Indian middle class are the initial public offers announced by Tata Consultancy Services, Maruti Udyog Limited, ONGC and big names like that. Good monsoons always raise the market sentiments. A good monsoon means improved agricultural produce and more spending capacity among rural folk. The bullish run of the stock market can be associated with a steady growth of around 6% in GDP, the growth of Indian companies to MNCs, large potential of growth in the fields of telecommunication, mass media, education, tourism and IT sectors backed by economic reforms ensure that Indian stock market continues its bull run.

History of the Indian Stock Market - The Origin

Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock. Let us take an example for a better understanding of how market forces determine stock prices. ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an upward movement in its stock price. More and more people would want to buy this stock (i.e. high demand) and very few people will want to sell this stock at current market price (i.e. less supply). Therefore, buyers will have to bid a higher price for this stock to match the ask price from the seller which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers (i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market, its price will fall down.

In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now investors dont have to gather at the Exchanges, and can trade freely from their home or office over the phone or through history. 18th Century East India Company was the dominant institution and by end of the century, busuness in its loan securities gained full momentum 1830's Business on corporate stocks and shares in Bank and Cotton presses started in Bombay. Trading list by the end of 1839 got broader 1840's Recognition from banks and merchants to about half a dozen brokers 1850's Rapid development of commercial enterprise saw brokerage business attracting more people into the business 1860's The number of brokers increased to 60 1860-61 The American Civil War broke out which caused a stoppage of cotton supply from United States of America; marking the beginning of the "Share Mania" in India 1862-63 The number of brokers increased to about 200 to 250 1865 A disastrous slump began at the end of the American Civil War (as an example, Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87). Post Independence Scenario The depression witnessed after the Independence led to closure of a lot of exchanges in the country. Lahore Stock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act were: Internet. One of the oldest stock markets in Asia, the Indian Stock Markets has a 200 years old

1. Bombay 2. Calcutta 3. Madras 4. Ahmadabad 5. Delhi 6. Hyderabad 7. Bangalore 8. Bombay 9. Calcutta 10. Madras 11. Ahmadabad 12. Delhi 13. Hyderabad 14. Bangalore 15. Indore

Many more stock exchanges were established during 1980's, namely: Cochin Stock Exchange (1980) Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982) Pune Stock Exchange Limited (1982) Ludhiana Stock Exchange Association Limited (1983) Gauhati Stock Exchange Limited (1984) Kanara Stock Exchange Limited (at Mangalore, 1985) Magadh Stock Exchange Association (at Patna, 1986) Jaipur Stock Exchange Limited (1989) Bhubaneswar Stock Exchange Association Limited (1989) Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989) Vadodara Stock Exchange Limited (at Baroda, 1990)

 Coimbatore Stock Exchange Meerut Stock Exchange

Over The Counter Exchange of India (OTCEI)

Traditionally, trading in Stock Exchanges in India followed a conventional style where people used to gather at the Exchange and bids and offers were made by open outcry. This age-old trading mechanism in the Indian stock markets used to create much functional inefficiency. Lack of liquidity and transparency, long settlement periods and benami transactions are a few examples that adversely affected investors. In order to overcome these inefficiencies, OTCEI was incorporated in 1990 under the Companies Act 1956. OTCEI is the first screen based nationwide stock exchange in India created by Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and Can Bank Financial Services. Advantages of OTCEI Greater liquidity and lesser risk of intermediary charges due to widely spread trading mechanism across India The screen-based scrip less trading ensures transparency and accuracy of prices Faster settlement and transfer process as compared to other exchanges Shorter allotment procedure (in case of a new issue) than other exchanges

National Stock Exchange

In order to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others.

NSE provides exposure to investors in two types of markets, namely:

1. Wholesale debt market 2. Capital market Wholesale Debt Market - Similar to money market operations, debt market operations involve institutional investors and corporate bodies entering into transactions of high value in financial instruments like treasury bills, government securities, etc.

Trading at NSE fully automated screen-based trading mechanism strictly follows the principle of an order-driven market Trading members are linked through a communication network this network allows them to execute trade from their offices the prices at which the buyer and seller are willing to transact will appear screen. When the prices match the transaction will be completed, a confirmation slip will be printed at the office of the trading member. on the

Advantages of trading at NSE Integrated network for trading in stock market of India

 fully automated screen based system that provides higher degree of transparency Investors can transact from any part of the country at uniform prices Greater functional efficiency supported by totally computerized network

OPERATIONAL DEFINITIONS

STOCK MARKET:A STOCK EXCHANGE is a platform where buyers and sellers of securities issued by governments, finance institutions, corporate houses etc., meet and where trading of these corporate securities take place. MUTUAL FUNDS: A Mutual fund is a trust that pools the saving of a number of investors who share a common financial goal. FOREIGN DIRECT MARKET (FDI): This category refers to international investment in which the investor obtains a lasting interest in an enterprise in another country. Most concretely, it may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants or equipment. FOREIGN INSTITUTIONAL INVESTOR (FII):An investor or investment fund that isfrom of or registered in a country outside of the one in which it is currently investing. Foreign institutional investors have made a sizable investment in Indian financial markets. There are currently about 1324 FIIs registered in India. FOREIGN PORTFOLIO INVESTMENT (FPI):-

FPI is a category of investment instruments that are more easily traded, may be less permanent, and do not represent a controlling stake in an enterprise. These include investments via equity instruments (stocks) or debt (bonds) of a foreign enterprise that does not necessarily represent a long-term interest. BULL MARKET: A Bull market is a market that is consistently going up. It is a market where there is optimism of further rise batter, business results and other positive factors. Bull Market can sometimes continue for years, for investors this is the preferred market trend. However no bull market can continue for very long. BEAR MARKET: Bear Market is a market that is showing a persistent downtrend. A 15-20% downward movement of the market generally termed as a bear market. DIVERSIFICATION: diversification is the technique of investing in unrelated business sectors simultaneous so that risk that affects a particular sector does not affect your overall investment. For example your portfolio of share includes sectors like Information Technology, Real estate capital Goods, Autos etc. Exchange rate of a nation's currency- Currency like other commodities rises or falls in "price" with demand. When investors leave, they sell their holdings in a country's currency and as demand falls, the "price" of that currency will also fall ECONOMIES OF SCALE: Produces are often able to enjoy considerable production cost savings by buying inputs in bulk, mass-producing or retailing their end product. These lower costs achieved through expanded production are called Economies of Scale. DEBT/EQUITY RATIOThe debt/equity ratio measures the extent to which a firm's capital is provided by lenders (through debt instruments such as fixed-return bonds) or owners (through variable-return stocks). A greater reliance on financing through debt can mean greater profitability for shareholders, but also greater risk in the event things go sour.

INSTITUTIONAL INVESTOR An organization whose primary purpose is to invest its own assets or those held in trust by it for others. Includes pension funds, investment companies, insurance companies, universities and banks. INTEREST RATESInterest rates have a powerful effect on the volume of a nation's money supply. By raising interest rates, i.e., making the cost of borrowing money more expensive, governments or banks can decrease the money supply. A decrease in the money supply tends to be counter-inflationary, which makes a currency more valuable compared to other currencies. MOST FAVORED NATION TREATMENTThe phrase "most favored nation" refers to the obligation of the country receiving the investment to give that investment the same treatment as it gives to investments from its "most favored" trading partner. BALANCE OF PAYMENT -The Balance of Payments (BOP) is a statistical statement that summarizes, for a specific period (typically a year or quarter), the economic transactions of an economy with the rest of the world. It covers: All the goods, services, factor income and current transfers an economy receives from or provides to the rest of the world Capital transfers and changes in an economy's external financial claims and liabilities PORTFOLIO INVESTMENT covers the acquisition and disposal of equity and debt securities that cannot be classified under direct investment or reserve asset transactions. These securities are tradable in organized financial markets. FDI FLOWS AND STOCKS Through direct investment flows the investors builds up a direct investment stock (position), making part of the investors balance sheet. The FDI stock (position) normally differs from accumulated flows because of revaluation (changes in prices or exchange rates)

and other adjustments like rescheduling or cancellation of loans, debt forgiveness or debtequity swaps with different values. FOREIGN DIRECT INVESTOR A foreign direct investor is an individual, an incorporated or unincorporated public or private enterprise, a government, a group of related individuals, or a group of related incorporated and/or unincorporated enterprises which have a direct investment enterprise that is a subsidiary, associate or branch operating in a country other than the country or countries of residence of the direct investor or investors. HOST ECONOMY is the country that receives FDI or FPI from the foreign investor(s). HOME ECONOMY is the country of origin/residence of the company that invests in the foreign economy/host economy. SUBSIDIARY is an incorporated enterprise in the host country in which the foreign investor owns more than 50 per cent of the shareholders voting power or has the right to appoint or remove a majority of the members of this enterprises administrative, management or supervisory body. EQUITY CAPITAL comprises of equity in branches and ordinary shares in subsidiaries and associates. Reinvested earnings consist of the direct investors share of earnings not distributed as dividends by subsidiaries or associates and earnings of branches not remitted to the direct investor. OTHER CAPITAL

covers inter-company debt (including short-term loans such as trade credits) between direct investors and subsidiaries, branches and associates.

Issue studied

For this purpose of studying the impact of Fiis on capital market, I selected Indias two major indices i.e. Sensex and S&P CNX Nifty. These two indices, in a way, represent the picture of Indias stock markets. I also selected the five industry specific indices of BSE i.e. BSE CD, BSE CG, BSE FMCG, BSE HC and BSE IT so as to further observe the effect of FII on particular industry. So this project reveals the impact of FII on the Indian capital market. There may be many other factors on which a stock index may depend i.e. Government economic policies, budgets, bullion of market, the inflation, FDI, and political condition country,

Re./Dollar exchange rate etc. But for my study I have selected only one independent variable i.e. FII. This study uses the concept of correlation and regression to study the relationship between FII and stock index. The FII started investing in Indian capital market from September 1992 when the Indian economy was opened up in the same year.

Their investments include equity only. The sample data of FIIs investments consists of monthly average.

Objective:
The objective of my research is to find the relationship between The FIIs investment and stock index. I have also analyzed the impact of FII on specific industrial sector indices.

Null Hypothesis (Ho):

The various BSE indices and S&P CNX Nifty index does not rise with the increase in FIIs investment.

Alternate Hypothesis (H):

The various BSE indices and S&P CNX Nifty index rises with the increase in FIIs investment.

PROBLEM: - WHAT IS THE IMPACT OF FIIS ON INDIAN CAPITAL MARKET?

HYPOTHESIS: - THE VARIOUS INDICES OF BSE & NSE NIFTY RISE WITH THE INCREASE IN FII INVESTMENT.

WHAT TO OBSERVE:

For the purpose of study, I selected six indices of BSE i.e. Sensex, BSE CD, BSE CG, BSE FMCG, BSE HC and BSE IT and one index of NSE i.e. S&P CNX Nifty. The sample data of FIIs investments consists of the monthly average from January 2008 to September 2011. The data regarding indices of BSE was taken from the site of BSE and BSE yearbook. I got the data on FIIs investment from Reserve Bank of Indias site. The data of NSE Nifty index was obtained from the site of national stock exchange. Other financial sites, newspapers and magazines helped me in collecting the required data

How to record observation?

I have taken the monthly closing index of all the indices. For FIIs I have recorded monthly average of the net investments made by them in the Indian capital market.

Net Investments = Purchases Sales

Model:

A simple linear relationship has been shown between two variables using correlation and regression as the data analysis tools. One variable is dependent and the other is independent. I have taken FII as the independent variable while the stock index has been taken as dependent variable. The impact of FII has been separately analyzed with each of the index. So, correlation and regression has been separately run between FII and seven indices taking one index at a time.

Inference:

If the hypothesis holds good then we can infer that FIIs have significant impact on the Indian capital market. This will help the investors to decide on their investments in stocks and shares. If the hypothesis is rejected, or in other words if the null hypothesis is accepted, then FIIs will have no significant impact on the Indian bourses.

METHODOLOGY

Models:

Regression Analysis:

This analysis tool performs linear regression analysis by using the "least squares" method to fit a line through a set of observations. We can analyze how a single dependent variable is affected by the values of one or more independent variables for example, how an athlete's performance is affected by such factors as age, height, and weight. We can apportion shares in the performance measure to each of these three factors, based on a set of performance data, and then use the results to predict the performance of a new, untested athlete.

Correlation:

This analysis tool and its formulas measure the relationship between two data sets that are scaled to be independent of the unit of measurement. The

population correlation calculation returns the covariance of two data sets divided by the product of their standard deviations. We can use the Correlation tool to determine whether two ranges of data move together that is, whether large values of one set are associated with large values of the other (positive correlation), whether small values of one set are associated with large values of the other (negative correlation), or whether values in both sets are unrelated (correlation near zero).

Data: The sample data consists of 105 observations for FII, Sensex and S&P CNX Nifty starting from January 2008 to September 2011. The sample for other five indices of BSE consists of 33 observations starting from January 2009 to December 2011. I have taken the monthly closing index of all the indices and monthly average of net investments made by FII. The FIIs started investing in Indian capital market from September 1992. The numbers of scrips under following index are:

BSE Sensex 30 NSE Nifty 50

BSE Consumer Durables (CD) 22 BSE Capital Goods (CG) 49 BSE Fast Moving Consumer Goods (FMCG) 44 BSE Health Care (HC) 48 BSE Information Technology (IT) 42

FII was taken as independent variable. Stock indices were taken as Dependent variable. The data was taken from various financial sites.

INDICES INDICE BSE FMCG

Month
Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09

BSE - IT
Low
1,925.38 1,986.06 1,781.73 1,967.22 2,030.93 2,108.50

Open
1,987.03 2,032.15 2,040.49 2,042.36 2,102.95 2,125.93

High
2,036.85 2,066.93 2,050.37 2,129.00 2,239.18 2,306.96

Close
2,032.69 2,043.26 2,036.24 2,095.00 2,096.64 2,262.69

Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11

2,280.05 2,744.00 2,553.57 2,583.53 2,800.19 2,879.71 2,802.17 2,736.34 2,683.55 2,844.17 2,876.58 2,978.08 3,220.40 3,253.58 3,411.01 3,716.91 3,620.89 3,584.84 3,701.64

2,748.26 2,747.55 2,615.05 2,867.94 2,940.25 2,906.14 2,880.10 2,790.30 2,892.50 2,919.79 2,988.59 3,246.26 3,263.80 3,419.91 3,787.10 3,793.93 3,799.69 3,701.55 3,802.64

2,244.82 2,436.09 2,493.71 2,566.72 2,706.70 2,735.36 2,707.33 2,646.32 2,679.78 2,819.98 2,782.28 2,951.53 3,167.90 3,212.07 3,388.13 3,530.16 3,482.93 3,478.23 3,333.52

2,738.15 2,553.52 2,575.82 2,808.97 2,872.10 2,791.55 2,725.38 2,662.05 2,831.12 2,877.76 2,980.55 3,230.23 3,229.86 3,385.07 3,719.54 3,605.10 3,582.71 3,684.12 3,366.20

Month
Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11

Open
2,250.13 2,210.54 2,075.97 2,293.67 2,712.56 3,009.39 3,285.60 3,980.77 4,182.68 4,566.83 4,376.70 4,774.49 5,204.97 4,912.12 5,218.95 5,268.96 5,302.92 5,164.25 5,285.89 5,489.81 5,390.94 5,960.00 6,023.54 6,069.36 6,831.74

High
2,400.35 2,265.85 2,383.06 2,672.37 3,192.65 3,456.86 3,979.25 4,316.46 4,653.75 4,650.33 4,914.17 5,201.42 5,442.90 5,232.73 5,575.59 5,584.60 5,361.83 5,467.87 5,562.57 5,707.35 6,097.80 6,369.82 6,252.32 6,845.09 6,921.41

Low
2,022.25 1,987.81 1,990.08 2,256.56 2,678.52 3,009.39 3,111.88 3,796.15 4,150.38 4,264.75 4,259.76 4,727.16 4,836.61 4,758.86 5,198.78 5,243.41 4,897.70 5,092.88 5,202.56 5,321.16 5,387.87 5,937.95 5,868.08 6,069.36 6,294.86

Close
2,236.51 2,096.17 2,285.68 2,663.35 2,997.55 3,287.20 3,962.12 4,172.52 4,570.91 4,425.52 4,757.27 5,186.35 4,977.71 5,173.99 5,237.50 5,357.83 5,174.70 5,319.21 5,474.84 5,375.62 5,947.07 5,992.77 6,094.00 6,824.82 6,371.1

INDICE BSE CD

BSE CG

Month
Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10

Open
1,912.62 1,756.61 1,525.79 1,644.92 1,780.00 2,800.73 2,940.36 3,109.97 3,303.62 3,506.64 3,342.03 3,501.50 3,792.07 3,794.12 4,042.67 4,222.89 4,655.26 4,498.51 4,729.40 5,303.54 5,690.85 6,301.80 6,544.48 6,434.44

High
2,059.58 1,758.72 1,657.90 2,041.81 2,766.98 3,176.94 3,221.56 3,383.23 3,560.07 3,965.73 3,590.74 3,836.30 4,049.49 4,189.09 4,299.76 4,668.63 4,774.12 4,796.03 5,391.50 6,005.60 6,476.95 6,729.81 7,369.77 6,652.59

Low
1,692.99 1,529.74 1,428.75 1,624.30 1,780.00 2,704.67 2,577.21 2,922.81 3,232.88 3,300.26 3,256.09 3,432.38 3,692.85 3,794.12 4,032.83 4,222.89 4,366.30 4,350.71 4,699.19 5,303.54 5,690.85 6,191.07 5,949.59 5,598.35

Close
1,777.84 1,542.67 1,625.45 1,757.58 2,758.07 2,958.43 3,119.09 3,295.34 3,507.38 3,348.21 3,489.43 3,785.39 3,799.29 4,001.78 4,220.71 4,645.34 4,502.17 4,735.80 5,294.49 5,669.30 6,293.35 6,544.48 6,434.44 6,356.97

Jan 11

6,356.97

6,502.78

5,771.55

5,995.67

Month
Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10

Open
6,938.11 6,196.20 5,803.18 6,530.16

High
7,631.63 6,605.46 6,600.10 8,205.15

Low
5,938.15 5,811.73 5,393.91 6,400.19 8,129.38

Close
6,256.61 5,897.92 6,466.03 7,908.75 11,921.39 12,797.27 12,595.94 13,151.15 13,757.19 12,873.48 13,321.16 14,116.69 13,125.06 13,474.86 14,081.74 14,028.78 13,657.42 14,710.04 14,591.67 14,524.53 15,995.46 15,818.85 15,055.04 15,415.08 13,526.03

8,158.28 12,059.73

12,087.42 13,574.63 11,666.05 12,835.23 13,336.44 10,848.31 12,605.23 13,354.02 11,668.65 13,225.66 13,786.34 12,630.43 13,750.98 14,350.88 12,780.65 12,820.01 13,607.80 12,399.59 13,388.00 14,169.70 13,312.34 14,176.35 14,448.35 12,719.23 13,055.41 13,631.12 12,684.81 13,600.63 14,261.93 13,600.63 14,141.36 14,516.07 13,750.32

May 10 13,954.33 13,976.45 12,998.69 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 13,651.06 14,842.72 13,379.68 14,654.26 15,429.63 14,435.70 14,674.21 15,022.61 14,443.90 14,559.87 16,153.47 14,513.43 16,088.62 16,595.40 15,572.34 15,889.74 16,860.58 14,580.60 15,068.03 15,723.02 14,816.50 15,470.11 15,551.53 12,988.55

INDICE - SENSEX
Month
Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11

Open
9,720.55 9,340.37 8,762.88 9,745.77 11,635.24 14,746.51 14,506.43 15,694.78 15,691.27 17,186.20 15,838.63 16,947.46 17,473.45 16,339.32 16,438.45 17,555.04 17,536.86 16,942.82 17,679.34 17,911.31 18,027.12 20,094.10 20,272.49 19,529.99 20,621.61

High

Low

Close
9,424.24 8,891.61 9,708.50 11,403.25 14,625.25 14,493.84 15,670.31 15,666.64 17,126.84 15,896.28 16,926.22 17,464.81 16,357.96 16,429.55 17,527.77 17,558.71 16,944.63 17,700.90 17,868.29 17,971.12 20,069.12 20,032.34 19,521.25 20,509.09 18,327.76

Price/ Earnings
12.21 12.82 12.68 15.23 17.88 19.75 19.10 20.08 21.20 21.66 21.23 21.82 21.99 19.97 21.05 21.28 19.96 20.57 21.20 21.61 22.99 23.89 23.03 22.93 22.00

Price/ Dividend Yield Bookvalue

2.53 2.50 2.47 2.95 3.35 3.64 3.53 3.73 3.95 4.06 3.99 4.10 4.11 3.65 3.85 3.88 3.56 3.34 3.40 3.45 3.66 3.82 3.71 3.73 3.62 1.88 1.89 1.92 1.68 1.47 1.30 1.32 1.24 1.17 1.14 1.15 1.12 1.10 1.18 1.12 1.10 1.15 1.18 1.17 1.15 1.09 1.04 1.06 1.05 1.08

10,469.72 8,631.60 9,724.87 8,619.22 10,127.09 8,047.17 11,492.10 9,546.29 14,930.54 11,621.30 15,600.30 14,016.95 15,732.81 13,219.99 16,002.46 14,684.45 17,142.52 15,356.72 17,493.17 15,805.20 17,290.48 15,330.56 17,530.94 16,577.78 17,790.33 15,982.08 16,669.25 15,651.99 17,793.01 16,438.45 18,047.86 17,276.80 17,536.86 15,960.15 17,919.62 16,318.39 18,237.56 17,395.58 18,475.27 17,819.99 20,267.98 18,027.12 20,854.55 19,768.96 21,108.64 18,954.82 20,552.03 19,074.57 20,664.80 18,038.48

INDICES BSE Healthcare

Month
Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10

Open
2,968.04 2,715.24 2,588.33 2,810.30 3,101.06 3,473.90 3,570.73 3,806.07 3,918.84 4,402.39 4,392.16 4,786.76 5,043.00 4,755.71 4,946.11 5,345.21 5,331.75 5,488.67 5,752.22

High
3,038.28 2,761.52 2,836.04 3,131.27 3,530.11 3,765.58 3,907.31 3,956.52 4,444.01 4,546.64 4,817.06 5,183.45 5,201.44 4,953.22 5,378.26 5,450.54 5,501.75 5,816.97 5,792.52

Low
2,677.59 2,551.99 2,490.86 2,787.70 3,063.14 3,403.23 3,486.60 3,733.88 3,822.80 4,293.89 4,338.73 4,777.15 4,633.47 4,689.00 4,941.09 5,243.43 5,196.79 5,423.18 5,582.53

Close
2,713.84 2,597.00 2,830.11 3,067.98 3,435.95 3,551.87 3,805.05 3,900.93 4,404.26 4,377.20 4,767.41 5,018.33 4,765.14 4,912.98 5,328.37 5,344.71 5,490.27 5,748.78 5,597.19

Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11

5,617.07 5,556.79 6,011.32 6,462.61 6,594.78 6,755.39

5,689.11 6,040.12 6,574.85 6,806.56 6,796.16 6,871.32

5,455.73 5,555.24 6,011.32 6,245.85 6,419.27 6,092.67

5,543.93 5,995.71 6,433.24 6,582.86 6,734.19 6,236.8

FII Activity for previous years

Year

Gross Purchase (Cr)

Gross Sale (Cr)

Net Investment (Cr)

Cummulative Investment ($Mn)

2011

611,055.60

613,770.80

-2,714.20

-357.83

2010

766,283.20

633,017.10

133,266.80

29,361.83

2009

624,239.70

540,814.70

83,424.20

17,458.14

2008

721,607.00

774,594.30

-52,987.40

-11,974.30

2007

814,877.90

743,392.00

71,486.30

17,655.80

2006

475,624.90

439,084.10

36,540.20

8,107.00

2005

286,021.40

238,840.90

47,181.90

10,706.30

2004

185,672.00

146,706.80

38,965.80

8,669.80

2003

94,412.00

63,953.50

30,459.00

6,627.60

2002

46,479.10

42,849.80

3,629.60

749.50

2001

51,761.20

38,651.00

13,128.20

2,806.40

2000

74,791.50

68,421.60

6,370.08

1,532.60

Date January-2011 December-2010 November-2010 October-2010 September-2010 August-2010 July-2010 June-2010 May-2010 April-2010 March-2010 February-2010 January-2010 December-2009 November-2009 October-2009 September-2009 August-2009 July-2009 June-2009 May-2009 April-2009 March-2009 February-2009 January-2009 December-2008 November-2008 October-2008 September-2008 August-2008 July-2008 June-2008 May-2008 April-2008 March-2008 February-2008 January-2008

Buy Value
57526.07 52683.49 79726.26 77706.1 74920.16 56120.24 52571.21 51878.01 49588.04 55061.05 59692.57 39001.43 56109.18 45029.99 48761.93 63964.86 62872.65 45722.53 58990.29 61767.47 73016.96 38871.53 31646.9 22066.26 28447.81 29362.68 28093.92 48413.6 65932.27 44460.52 62050.69 60693.06 58982.92 59546.97 68472.59 64267.47 97579.5

Sell Value
66429.67 53405.68 74375.39 63318.04 52444.52 48582.94 44030.15 44164.06 61659.16 52393.68 44900.24 40944.9 63325.85 40789.13 47053.86 63964.73 49541.22 49489.56 60354.89 61852.61 59130.87 33311.43 32330.47 24899.69 33620.63 28327.87 33552.88 64067.1 78435.01 49916.64 66654.69 73360.22 65678.51 62083.85 72236.39 68318.59 127027.01

Net Value
-8,903.60 -722.19 5,350.87 14,388.06 22,475.64 7,537.30 8,541.06 7,713.95 -12,071.12 2,667.37 14,792.33 -1,943.47 -7,216.67 4,240.86 1,708.07 0.13 13,331.43 -3,767.03 -1,364.60 -85.14 13,886.09 5,560.10 -683.57 -2,833.43 -5,172.82 1,034.81 -5,458.96 -15,653.50 -12,502.74 -5,456.12 -4,604.00 -12,667.16 -6,695.59 -2,536.88 -3,763.80 -4,051.12 -29,447.51

FINDINGS

The findings for the data sample after applying correlation and regression

Correlation with FII

Nse nifty

Multiple r

R2

Standard Deviation

0.307 -0.017 -0.011 0.003 -0.047 -0.017 0.236

.302 .017 .0111 .0067 .0511 .0995 .2302

.0915 .0003 .0001 .0000 .0026 .0099 .0523

221.1 319578.2 379.6 301 130.6 233.9 1392.3

Bse sensex Bse cd Bse hc Bse fmcg Bse cg Bse it

RESULTS 1. Impact of FII on Nifty: The effect of FII on Nifty is positive. But the co- efficient of correlation is low so the effect is less. The standard error comes out to be 221.1which is high. This does not mean the relation is false but we can say that the error in linear relation is high. 2. Impact of FII on BSE Sensex: The effect of FII on Sensex is negative. So, FII is inversely related to Sensex. But the co-efficient of correlation is very low so the effect is very less. The standard error comes out to be 319578.2which is very high. This means that the deviation from the mean value is high. This does not mean the relation is false but we can say that the error in linear relation is high. The value of multiple-R is also very less. We can say that FII did not have any significant impact on Sensex during the period . 3. Impact of FII on BSE CD: BSE CD is inversely related to FII for the period under study. But the extent of impact is very- very low as co-efficient of correlation is -0.011.

4. Impact of FII on BSE HC: FII has no significant relation with BSE HC, as the value of correlation is 0.003. This does not mean that there is no relation at all between them. It shows the absence of linear relation between the two variables but not a lack of relationship altogether. 5. Impact of FII on BSE FMCG: BSE FMCG is inversely related to FII for the period under study. But the value of R is low so the degree of relation is low. Standard error in this case is 130.6which is less compared to other standard errors between FII and other stock indices.

6. Impact of FII on BSE CG: BSE CG is also negatively correlated with FII. In this case again the degree of relation is less.

7. Impact of FII on BSE IT: BSE IT is positively correlated with FII for the period under study. The value of correlation is 0.236.

CONCLUSION

According to findings and results, It has been concluded that FII did not have any significant impact on the Indian capital market. Therefore, the null hypothesis is accepted. BSE IT and Nifty showed some positive correlation but rest of the index showed negative correlation with FII. Also the degree of relation was less in all the case. It shows the absence of linear relation between FII and stock index. This does not mean that there is no relationship between them. One of the reasons for absence of any linear relation can also be due to the sample data. The data was taken on monthly basis. The data on daily basis can give more positive results (may be). Also FII is not the only factor affecting the stock indices. There are other major factors that influence the Courses in the stock market.

 BIBLIOGRAPHY

www.bseindia.com www.nseindia.com www.rbi.org.in www.equitymaster.com www.etintelligence.com Www. Moneycontrol.com www.economic times.com