Impact of Foreign Portfolio Investments (FPIs) on Indian stock market

Abstract

Foreign Portfolio Investments (FPIs) has been playing a significant role in developing the financial market of the country. Indian stock markets were opened to foreign investors in September 1992 and were allowed to invest in the primary and secondary market. The major portion of FPIs has been into equities. India is now the most favourite destination for FPI investors due to the increasing growth of economy. Foreign Portfolio Investment inflows were in large volume during the year 2015. In this paper, we identify the determinants, trends and pattern of Foreign Portfolio Investments in India and examine the relationship between the determinants and FPI flows in India. Further we explore the causal relationship between Foreign Portfolio Investment inflows and Stock market returns. For this purpose, the data is collected from 1st January 2001 to 31st December 2016. The study also examines the effect of Foreign Portfolio Investment on Stock market Volatility using GARCH Model of conditional volatility.