An Overview of Foreign Institutional Investment in India

Abstract

Most of the under developed countries suffer from low level of income and capital accumulation. Though, despite this shortage of investment, these countries have developed a strong urge for industrialization and economic development. As we know the need for Foreign capital arises due to shortage from domestic side and other reasons. Indian economy has experienced the problem of capital in many instances. While planning to start the steel companies under government control, due to shortage of resources it has taken the aid of foreign countries. Likewise we have received aid from Russia, Britain and Germany for establishing Bhiloy, Rourkela and Durgapur steel plants. The present paper is a modest attempt to study the trends in Foreign Institutional Investment into India. It is observed that the FIIs investment has shown significant improvement in the liquidity of stock prices of both BSE and NSE. However, there is a high degree of positive co-efficient of correlation between FIIs investment and market capitalization, FIIs investment and BSE NSE indices, revealing that the liquidity and volatility was highly influenced by FIIs flows. Further, it is also proved that FIIs investment was a significant factor for high liquidity and volatility in the capital market prices. The present study is a modest attempt to know the status of FIIs in Indian capital market.