Executive Summery

A stock market or equity market is a public entity (a loose network of economic transaction, not
a physical facility or discrete entity) for the trading of company stock (shares)and derivatives at
an agreed price, these are securities listed on a stock exchange as well as those only traded
privately.
Foreign Institutional investors (FIIs) are entities established or incorporated outside India and
make proposals for investments in India. These investment proposals by the FIIs are made on
behalf of sub accounts, which may include foreign corporates, individuals, funds. Institutional
investors include hedge funds, insurance companies, pension funds and mutual funds. FIIs can
invest in the stocks and debentures of the Indian companies. In order to act as a banker to the
FIIs, the RBI has designated banks that are authorised to deal with them. An investor or
investment fund that is from or registered in a country outside of the one in which it is currently
investing.
Adoption of LPG paved the way for opening up Indian economy to privte and foreign players.
Permission granted to FII to invest in India ensured the flow of capital into the country impacting
the economy positively in general and stock market in particular. This research project studies
the relationship between FIIs investment and stock indices. For this purpose, Indias two major
indices Sensex and S&P CNX Nifty are selected. These two indices, in a way, represent Indias
stock markets. This project addresses the crucial issue whether FII drive Indian stock market.
The sample data consists of 24 observations for FII, Sensex and S&P CNX Nifty starting from
January 2008 to February 2014. Average index of all the indices and monthly net investments
made by FII is taken into consideration in the study. FII was taken as independent variable. Stock
indices were taken as dependent variable. The data was taken from various financial sites.
Simplifying procedures and relaxing entry barriers for business activities and providing investor
friendly laws and tax system for foreign investors. Allowing foreign investment in more areas. In
different industries indices the FIIs should be encouraged through different patterns like futures,
options, etc.