FOREIGN INSTITUTIONAL INVESTMENT: A STUDY OF CO RELATIONSHIP WITH MUTUAL FUNDS INVESTMENT AND SENSEX

Abstract

India has experienced fiscal and balance of payment crisis in 1990-91. In response, it embarked on the path of liberalization in 1992. During this era, for the first time our then Finance Minister Manmohan Singh permitted Foreign Institutional Investors to invest in all the listed securities of Indian capital market in 14^th September 1992 to reduce country dependence on debt-creating capital flows, correct the accurate balance of payment crisis and develop the capital markets. FIIs are considered to be an important part of a stock market movement. FIIs are termed as hot money which increases the inflow within the country and contributed towards the Volatility of BSE Sensex. Inflow of the foreign capital brings foreign currency ($) into the country which contributes towards the development of the economy but large portion of capital in stock market comes through domestic route, in which MF plays significant role. The objective of this paper is to find out the Correlation between FIIs Net Investment and Sensex and FIIs Net Investment and MFs Net Investment.  This is in consideration to find out whether FIIs are more correlated with Sensex or MFs. The sample period of the study spans from FY 2000-01 to 2012-13. Karl Pearson’s Coefficient of Correlation is used for the purpose of find out correlation. The study concluded that FIIs Net Investment has positive correlation with Sensex as well as with MFs Net Investment but it is more positively correlated with Sensex than MFs Net Investment.