FPI & DII flows in Indian capital market and its impact on S&P BSE sectoral indices during and the post sub-prime crisis period

Abstract

Institutional investors are the major contributors for the growth of an economy. Foreign Portfolio Investments (FPIs) trigger the market performance by encouraging investments and they also channelize the investments from all classes o f investors which lead to growth o f financial market. Along with the FPI flows, Domestic Institutional Investors (DIIs) activity also affects the net investment flows into the economy. Domestic institutional investors' investment decisions are influenced by various domestic economic as well as political factors. Overseas investors have invested 3.89 trillion rupees in stocks and 754.5 billion rupees in bonds since they were allowed into the country in 1993. Subprime crisis that erupted in the year 2007-08 was a major economic setback to the financial markets across the globe. lit this paper, the impact o f FPI and DII activity on the S&P BSE Sectoral Indices for the period from 1st April 2007 to 31st March 2015 being the subprime crisis period and aftermath is studied. The findings of the study reveal that, when FPIs are in buying spree, DIIs offload their investments and exit from the stocks and vice-versa. FPI (Net) flows in combination with DII (Net) Flows have a significant influence on S&P BSE Metal, Oil and Gas and Power Index. DII (Net) Flows is having a significant negative influence on S&P BSE FMCG and Consumer Durables Index whereas, positive influence on S&P BSE Realty Index.