1

AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI)

IN INDIA

DISSERTATION

Submitted

In partial fulfillment of the requirements for the award of Degree of

MASTER OF PHILOSOPHY IN MANAGEMENT STUDIES

By

RAVIKIRAN P
(Reg. No. 111446006)

Under the Supervision and Guidance of

Dr. K.V.PV RAMANAKUMAR, M. Sc, MBA, Ph.D.,

DEAN
Faculty of Management Studies
SCSVMV University
Kanchipuram-631561, Tamilnadu, India

FACULTY OF MANAGEMENT STUDIES

SRI CHANDRASEKHARENDRA SARASWATHIVISWA MAHA VIDYALAYA

(University Established Under Section 3 of the UGC Act, 1956)
(Accredited with “B” by NAAC)
ENATHUR, KANCHIPURAM – 631 561

JUNE -2015
 2

CERTIFICATE OF ORIGINALITY

This is to certify that the Project entitled “ AN EMPIRICAL STUDY OF DETERMINANTS OF

FOREIGN DIRECT INVESTMENT (FDI) IN INDIA” is a bonafide work done and submitted by
RAVIKIRAN P (Reg. No. 111446006) in partial fulfillment of the requirements for the award of degree
of Master of Philosophy in Management studies in Sri Chandrasekharendra Saraswathi Viswa
Mahavidyalaya University, Enathur, Kanchipuram, and Tamilnadu during period 2014-2015.

Place: Kanchipuram Guide: Dr. K.V.P RAMANAKUMAR

Date:

Internal Guide

Prof. RAMA RATNAM

Submitted to the Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University for the
examination held on _________

Internal Examiner External Examiner

 3

DECLARATION

I RAVIKIRAN P (Reg. No. 111446006) declare that the project report entitled “ AN EMPIRICAL
STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA “carried
out under the supervision of guide Dr. K.P.V. RAMANAKUMAR(DEAN OF FACULTY
MANAGEMENT)M.Sc, MBA, PhD, Department of Management Studies, SCSVMV University,
Kanchipuram is the result of the original work done by me and to the best of my knowledge. A similar
work has not been submitted earlier to any university or any other institution.

(RAVIKIRAN P)

Place:

Date:
 4

ACKNOWLEDGEMENT

With the blessings of Almighty and Acharya gurus of Kanchi Kamakoti Peetam, I successfully
completed this project.

It is my pleasure to acknowledge and express my gratitude to all those who helped me throughout
in the successful completion of this project.

I am grateful to Prof. Dr. K.P.V Ramanakumar, M.Sc, M.B.A, PhD, Dean (Faculty of
Management Studies) of SCSVMV University for extending his encouragement and valuable
support in completing this project.

(RAVIKIRAN P)
 5

CONTENTS

CHAPTER PARTICULARS PAGE

NUMBER NUMBER
Certificate Ii
Declaration Iii
Acknowledgement Iv
List of Tables vi - viii
ABSTRACT
I Introduction and design of the study
1.1 Introduction to Research 1
1.2 Statement of the problem 2
1.3 Objective of the study 2
1.4 Hypothesis 3
1.5 Scope of the study 3
1.6 Research methodology 4–6
1.7 Limitations of the study 6
II Review of literature 8 – 13
III Framework of analysis 14 – 19
IV Data Analysis & Interpretation 33 – 84
V Summary of the Findings, Suggestions and 85 – 88
Conclusion
5.1 Findings 85 – 86
5.2 Suggestions 87
5.3 Conclusion 88
Annexure
Bibliography x – xiii

LIST OF TABLES

TABLE NO PARTICULARS PAGE NO

1 DISCRIPTIVE STATISTICS OF FDI AND ITS
DETERMINANTS
2 DISCRIPTIVE STATISTICS OF FDI RETURN AND ITS
DETERMINANTS
3 CORRELATION BETWEEN FDI AND ITS DETERMINANTS
4 CORRELATION BETWEEN TOTAL FDI AND EQUITY FDI
 6

5 REGRESSION BETWEEN TOTAL FDI AND EQUITY FDI

6 CORRELATION BETWEEN NET FDI AND BSE
7 REGRESSION BETWEEN FDI AND BSE
8 CRISIS DISCRIPTIVE STATISTICS
9 T-TEST FOR FDI
10 T-TEST FOR FII
11 T-TEST FOR SENSEX
12 UNIT ROOT TEST FOR FDI RETURN
13 UNIT ROOT TEST FOR FII RETURN
14 UNIT ROOT TEST FOR BSE RETURN
15 UNIT ROOT TEST FOR NSE RETURN
16 UNIT ROOT TEST FOR FOREX RATE RETURN
17 UNIT ROOT TEST FOR FOREX RESERVES RETURN
18 PAIR WISE GRANGER CASUALITYTEST
19 AUTO CORRELATION OF FDI RETURN
20 AUTO CORRELATION OF FII RETURN
21 AUTO CORRELATION OF BSE RETURN
22 AUTO CORRELATION OF NSE RETURN
23 AUTO CORRELATION OF FOREX RATE RETURN
24 AUTO CORRELATION OF FOREX RESERVES RETURN

ABSTRACT

Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA).
This step was taken to add some source of capital formation in India as other developing economies
were already in this practice. As a result inflow of Foreign Capital has become striking measure of
economic development in both developed and developing countries Now the developing countries are
witnessing changes in the composition of capital flows in their economies because of the expansion and
integration of the world equity market. FDI and FII thus have become instruments of international
economic integration and stimulation. The Indian stock markets are also experiencing this change. FDI
& FII are becoming important source of finance in developing countries including India. It is widely
assumed that FDI & FII along with some other external factors such as global economic cues, Exchange
rate and Internal factors such as demand and supply, market capitalization, EPS generally drive and
dictates the Indian stock market. The current paper makes an attempt to study the relationship and impact
of FDI & FII on Indian stock market using statistical measures correlation and regression analysis.
Sensex and CNX Nifty were considered as the representative of stock market as they are the most
popular Indian stock market indices. Based on 10 years data starting from 2004 to 2014, it was found
 7

that the flow of FDI has no significant impact on stock market but FII in India determines the trend of
Indian stock market. KEYWORDS: Foreign Direct Investments (FDI), Stock Market, Determinants,
Foreign Institutional Investments, Sensex, CNX Nifty.

CHAPTER - I
 8

INTRODUCTION & DESIGNE OF THE STUDY

I. Introduction

Foreign investment plays a significant role in development of any economy as like India. Many
countries provide many incentives for attracting the foreign direct investment (FDI). Need of FDI
depends on saving & investment rate in any country foreign direct investment act as a Bridge to fulfill
gap between investment and saving. In the process of economic development foreign capital helps to
cover the domestic saving constraint and provide access to the superior technology that promote
efficiency and productivity of the existing production capacity and generate new production opportunity.
Portfolio investment does not seek management control, but it motivated by profit. Portfolio investment
occurs when individual investors invest mostly through stock holders in stock of foreign companies in
foreign land in search of profit opportunities.

India is suffering from the scarcity of financial resources and low level of capital formation
because it has to majorly depend upon the external sources of Finance. Also the domestic resources are
entirely inadequate to carry out development programs. In India foreign capital comes from private
individuals and institutional investors on commercial terms in the form of Euro-issues comprising,
external commercial borrowings, portfolio investments by non-resident of India’s. overseas corporate
bodies and investments by foreign financial institutions.

Foreign exchange reserves have played a pivotal role in India to supplement the low level of
foreign investment. The flows of foreign exchange reserves came in India in the form of SDR (special
drawing rate) and gold, foreign currency assets. Both FDI and FII is related to investment in a foreign
 9

country. FDI is an investment that a country. FDI is an investment that a parent company makes in a
foreign country. On the country, FII is an investment made by an investor in the markets of a foreign
nation. In FII, the companies only need to get registered in the stock exchange to make investments. But
FDI is quite different from it as they invest in a foreign nation.
The foreign institutional investors are also known as hot money as the investors have the liberty
to sell it and take it back. But in FDI, that is not possible. In simple words, FII can enter the stock market
easily and also withdraw from it easily. But FDI cannot enter and exit that easily. This difference is what
makes nation to chose FDI’s more than FII’s. FDI is more preferred to the FII as they are considered to
be the most beneficial kind of foreign investment for the whole economy.

FOREGINE DIRECT INVESTMENT (FDI):

FDI is a controlling ownership in a business enterprise in one country by an entity based in

another country.

Foreign direct investment is distinguished from portfolio foreign investment, a passive

investment in the securities of another country such as public stocks and bonds, by the element of
"control". According to the Financial Times, "Standard definitions of control use the internationally
agreed 10 percent threshold of voting shares, but this is a grey area as often a smaller block of shares
will give control in widely held companies. Moreover, control of technology, management, even crucial
inputs can confer de facto control."

The origin of the investment does not impact the definition as an FDI, i.e., the investment may be
made either "inorganically" by buying a company in the target country or "organically" by expanding
operations of an existing business in that country.

SENSEX (BSE):

An abbreviation of the Bombay Exchange Sensitive Index (Sensex) - the benchmark index of the
Bombay Stock Exchange (BSE). It is composed of 30 of the largest and most actively-traded stocks on
the BSE. Initially compiled in 1986, the Sensex is the oldest stock index in India. The index is calculated
based on a free-float capitalization method when weighting the effect of a company on the index. This is
a variation of the market cap method, but instead of using a company's outstanding shares it uses its
float, or shares that are readily available for trading. The free-float method, therefore, does not include
restricted stocks, such as those held by company insiders that can't be readily sold.

NATIONAL STOCK EXCHANGE(NSE):

 10

The National Stock Exchange of India Limited (NSE) is the leading stock exchange of India, located
in Mumbai. NSE was established in 1992 as the first demutualized electronic exchange in the country.
NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic
trading system which offered easy trading facility to the investors spread across the length and breadth of
the country.

NSE has a market capitalization of more than US$1.65 trillion, making it the world’s 12th-largest stock
exchange as of 23 January 2015. NSE's flagship index, the CNX Nifty, the 50 stock index, is used
extensively by investors in India and around the world as a barometer of the Indian capital markets.

NSE was set up by a group of leading Indian financial institutions at the behest of the government of
India to bring transparency to the Indian capital market. Based on the recommendations laid out by the
government committee, NSE has been established with a diversified shareholding comprising domestic
and global investors. The key domestic investors include Life Insurance Corporation of India, State Bank
of India, IFCI Limited IDFC Limited and Stock Holding Corporation of India Limited. And the key
global investors are Gagil FDI Limited, GS Strategic Investments Limited, SAIF II SE Investments
Mauritius Limited, Aranda Investments (Mauritius) Pte Limited and PI Opportunities Fund.

FOREGINE INSTITUTIONAL INVESTORS(FII):

FII are organizations which pool large sums of money and invest those sums in securities, real property
and other investment assets. They can also include operating companies which decide to invest their
profits to some degree in these types of assets.

Typical investors include banks, insurance companies, retirement or pension funds, hedge funds,
investment advisors and mutual funds. Their role in the economy is to act as highly specialized investors
on behalf of others. For instance, an ordinary person will have a pension from his employer. The
employer gives that person's pension contributions to a fund. The fund will buy shares in a company, or
some other financial product. Funds are useful because they will hold a broad portfolio of investments in
many companies. This spreads risk, so if one company fails, it will be only a small part of the whole
fund's investment.

An institutional investor can have some influence in the management of corporations because it will be
entitled to exercise the voting rights in a company. Thus, it can actively engage in corporate governance.
Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a
large part in which companies stay solvent, and which go under. Influencing the conduct of listed
companies, and providing them with capital are all part of the job of investment management.

EXCHANGE RATE:
 11

In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, FX rate or Agio)
between two currencies is the rate at which one currency will be exchanged for another. It is also
regarded as the value of one country’s currency in terms of another currency. For example, an inter bank
exchange rate of 119 Japanese yen (JPY, ¥) to the United States dollar (US$) means that ¥119 will be
exchanged for each US$1 or that US$1 will be exchanged for each ¥119. In this case it is said that the
price of a dollar in terms of yen is ¥119, or equivalently that the price of a yen in terms of dollars is
$1/119.

Exchange rates are determined in the foreign exchange market, which is open to a wide range of
different types of buyers and sellers where currency trading is continuous: 24 hours a day except
weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday. The spot exchange rate
refers to the current exchange rate. The forward exchange rate refers to an exchange rate that is quoted
and traded today but for delivery and payment on a specific future date.

In the retail currency exchange market, a different buying rate and selling rate will be quoted by money
dealers. Most trades are to or from the local currency. The buying rate is the rate at which money dealers
will buy foreign currency, and the selling rate is the rate at which they will sell the currency. The quoted
rates will incorporate an allowance for a dealer's margin (or profit) in trading, or else the margin may be
recovered in the form of a commission or in some other way. Different rates may also be quoted for cash
(usually notes only), a documentary form (such as traveler's cheques) or electronically (such as a credit
card purchase). The higher rate on documentary transactions has been justified to compensate for the
additional time and cost of clearing the document, while the cash is available for resale immediately.
Some dealers on the other hand prefer documentary transactions because of the security concerns with
cash.

FOREGIN-EXCHANGE RESERVES:

Foreign-exchange reserves (also called forex reserves or FX reserves) are assets held by a central
bank or other monetary authority, usually in various reserve currencies, mostly the United States dollar,
and to a lesser extent the euro, the pound sterling, and the Japanese yen, and used to back its liabilities—
e.g., the local currency issued, and the various bank reserves deposited with the central bank by the
government or by financial institutions. In a strict sense, foreign-exchange reserves should only include
foreign banknotes, foreign bank deposits, foreign treasury bills, and short and long-term foreign
government securities. However, the term in popular usage commonly also adds gold reserves, special
drawing rights (SDRs), and International Monetary Fund (IMF) reserve positions. This broader figure is
more readily available, but it is more accurately termed official international reserves or international
reserves.

Foreign-exchange reserves are called reserve assets in the balance of payments and are located in the
capital account. Hence, they are usually an important part of the international investment position of a
country. The reserves are labeled as reserve assets under assets by functional category. In terms of
financial assets classifications, the reserve assets can be classified as Gold bullion, Unallocated gold
accounts, Special drawing rights, currency, Reserve position in the IMF, inter bank position, other
transferable deposits, other deposits, debt securities, loans, equity (listed and unlisted), investment fund
shares and financial derivatives, such as forward contracts and options. There is no counterpart for
reserve assets in liabilities of the International Investment Position. Usually, when the monetary
authority of a country has some kind of liability, this will be included in other categories, such as Other
Investments. In the Central Bank’s Balance Sheet, foreign exchange reserves are assets, along with
domestic credit.
 12

FACT SHEET ON FOREIGN DIRECT INVESTMENT (FDI)

From APRIL, 2000 to NOVEMBER, 2014
(up dated up to November, 2014)
I. CUMULATIVE FDI FLOWS INTO INDIA (2000-2014):
TOTAL FDI INFLOWS (from April, 2000 to November,
A. 2014):
1. US$
CUMULATIVE AMOUNT OF FDI INFLOWS
- 350,963
(Equity inflows + ‘Re-invested earnings’+‘Other)capit
Million

CUMULATIVE AMOUNT OF FDI EQUITY

2. INFLOWS Rs. US$
(excluding, amount remitted-+NRIthroughSchemes) RB 1,157,944 236,465
crore Million

FDI INFLOWS DURING FINANCIAL YEAR 2014-15 (from April, 2014 to

B. November, 2014):
1. TOTAL FDI INFLOWS INTO INDIA US$
27,401
(Equity inflows + ‘Re-investedearnings’ + -
million
(as per RBI’s Monthly09.01.2015).bulletin d

US$
2. FDI EQUITY INFLOWS Rs. 114,047 18,884
crore million
 13

C. FDI EQUITY INFLOWS (MONTH-WISE) DURING THE FINANCIAL YEAR 2014-15:

Amount of FDI Equity
Financial Year 2014-15 inflows

( April-March ) (In Rs. Crore) (In US$ mn)

1. April, 2014 10,290 1,705

2. May, 2014 21,373 3,604

3. June, 2014 11,508 1,927

4. July, 2014 21,022 3,500

5. August, 2014 7,783 1,278

6. September, 2014 16,297 2,678

7. October, 2014 16,288 2,655

8. November, 2014 9,486 1,537

2014-15 ( from April, 2014 to November,

2014) # 114,047 18,884

2013-14 (from April, 2013 to November,

2013) # 92,994 15,458

%age growth over last year ( + ) 23 % ( + ) 22 %

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D. FDI EQUITY INFLOWS (MONTH-WISE) DURING THE CALENDAR YEAR 2014:

Amount of FDI Equity

Calendar Year 2014 inflows

(Jan.-Dec.) (In Rs. Crore) (In US$ mn)

1. January, 2014 13,589 2,189

2. February, 2014 12,557 2,017

3. March, 2014 21,558 3,533

4. April, 2014 10,290 1,705

5. May, 2014 21,373 3,604

6. June, 2014 11,508 1,927

7. July, 2014 21,022 3,500

8. August, 2014 7,783 1,278

9. September, 2014 16,297 2,678

10. October, 2014 16,288 2,655

11. November, 2014 9,486 1,537

Year 2014 (up to November, 2014) # 161,751 26,623

Year 2013 (up to November, 2013) # 122,664 20,936

%age growth over last year ( + ) 32 % ( + ) 27 %

Note: (i) Country & Sector specific analysis is available from the year 2000 onwards, as
Company-wise details are provided by RBI from April, 2000 onwards only.
# Figures are provisional, subject to reconciliation with RBI, Mumbai.
 15

E. SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (Financial years):

Amount Rupees in crores (US$
in million)
Ranks Country 2012-13 2013-14 2014-15 Cumulative %age to total
( April - (April – (April- Inflows Inflows
March) March) November, (April- (in terms
2014) November ‘1 of US $)
51,654 29,360 31,336 401,821
1. MAURITIUS 35 %
(83,730)
(9,497) (4,859) (5,205)

12,594 35,625 22,698 148,504

2. SINGAPORE 12 %
(29,193)
(2,308) (5,985) (3,747)

5,797 20,426 5,971 106,856

3. U.K. 9%
(21,761)
(1,080) (3,215) (998)

12,243 10,550 7,789 88,433

4. JAPAN 7%
(2,237) (1,718) (1,289) (17,557)

NETHERLAN 10,054 13,920 14,690 70,988

5. DS 6%
(1,856) (2,270) (2,429) (13,665)

3,033 4,807 8,248 63,978

6. U.S.A. 6%
(557) (806) (1,358) (13,286)

2,658 3,401 2,837 38,567

7. CYPRUS 3%
(490) (557) (470) (7,916)

4,684 6,093 3,725 35,331

8. GERMANY 3%
(860) (1,038) (615) (7,134)

3,487 1,842 3,229 21,935

9 FRANCE 2%
(646) (305) (530) (4,409)
 16

SWITZERLAN 987 2,084 1,116 14,264

10. D 1%
(180) (341) (184) (2,892)

TOTAL FDI
INFLOWS FROM 121,907 147,518 114,047 1,158,477
ALL COUNTRIES * (18,884) (236,586) -
(22,423) (24,299)

*Includes inflows under NRI Schemes of RBI.

Note: (i) Cumulative country-wise FDI equity inflows (from April, 2000 to November, 2014)
are at –Annex-‘A’.
(ii) %age worked out in US$ terms & FDI inflows received throu existing shares only.

F. SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS:

Amount in Rs. crores (US$ in
million)
Rank % age to
s Sector 2012-13 2013-14 2014-15 Cumulative total
(April- (April- Inflows Inflows
( April - (In terms
March) November, (April- of
March)
2014) November ‘1 US$)

1. SERVICES SECTOR ** 26,306 13,294 11,189 196,759

18 %
(41,307)
(4,833) (2,225) (1,847)

CONSTRUCTION
2. DEVELOPMENT: 7,248 7,508 4,240 112,797
TOWNSHIPS, HOUSING,
BUILT-UP (1,332) (1,226) (703) (24,009) 10 %
INFRASTRUCTURE
TELECOMMUNICATION
3. S 1,654 7,987 14,726 81,446
7%
(radio paging, cellular
mobile, basic (304) (1,307) (2,472) (16,635)
telephone services)
COMPUTER SOFTWARE
4. & 2,656 6,896 5,241 64,911
6%
HARDWARE
(486) (1,126) (862) (13,679)

DRUGS &
5. PHARMACEUTICALS 6,011 7,191 6,903 62,974
5%
(1,154)
(1,123) (1,279) (12,751)
 17

AUTOMOBILE
6. INDUSTRY 8,384 9,027 9,379 57,575
5%
(1,537) (1,517) (1,539) (11,351)

CHEMICALS (OTHER
7. THAN 1,596 4,738 2,830 48,063
4%
FERTILIZERS) (292) (878) (470) (10,137)

8. POWER 2,923 6,519 3,317 45,972

4%
(536) (1,066) (550) (9,450)

9. METALLURGICAL 7,878 3,436 1,323 39,572 4%

INDUSTRIES
(1,466) (568) (219) (8,294)

10 17,777 2,949 3,288 39,496

HOTEL & TOURISM 3%
(3,259) (486) (544) (7,662)

Note: (i)** Services sector includes Financial, Banking, Insurance, Non-Financial /

Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis
(ii) Cumulative Sector- wise FDI equity inflows (from April, 2000 to November, 2014) are
at - Annex-‘B’.
(iii) FDI Sectoral data has been revalidated / reconciled in line with the RBI, which
reflects minor changes in the FDI figures (increase/decrease) as compared to the
earlier published sectoral data.
 18

G. STATEMENT ON RBI’S REGIONAL OFFICES (WITH STATE COVE

INFLOWS1 (from April, 2000 to November, 2014):
Amount Rupees in crores (US$ in
million)
RBI’s-
S. Regional State covered 2012-13 2013-14 2014-15 Cumulative %age to
No. Office2 ( April - ( April - (April- Inflows total
November
March) March) , (April- Inflows
2014) November ‘1 (in terms
of US$)
MAHARAS
1 MUMBAI HTRA, 47,359 20,595 22,080 336,169 30
DADRA & (8,716) (3,420) (3,657) (70,414)
NAGAR
HAVELI,
DAMAN &
DIU
DELHI,
2 NEW DELHI PART OF 17,490 38,190 19,606 226,377 19
UP AND (3,222) (6,242) (3,239) (45,775)
HARYANA
TAMIL
3 CHENNAI NADU, 15,252 12,595 15,812 81,218 7
PONDICHE
RRY (2,807) (2,116) (2,607) (15,803)
KARNATAK
4 BANGALORE A 5,553 11,422 9,132 69,999 6
(1,023) (1,892) (1,498) (14,174)
AHMEDABA
5 D GUJARAT 2,676 5,282 4,110 48,492 4
(493) (860) (678) (10,188)
HYDERABA
6 D ANDHRA 6,290 4,024 6,535 47,449 4
PRADESH (1,159) (678) (1,082) (9,728)
WEST
7 KOLKATA BENGAL, 2,319 2,659 858 14,021 1
SIKKIM, (424) (436) (142) (2,884)
ANDAMAN
&
NICOBAR
ISLANDS
CHANDIGAR CHANDIGA
8 H` RH, 255 562 218 6,345 0.6
PUNJAB, (47) (91) (36) (1,328)
HARYANA,
HIMACHAL
PRADESH
RAJASTHA
9 JAIPUR N 714 233 3,212 6,770 0.5
(132) (38) (537) (1,260)
10. BHOPAL MADHYA 1,208 708 600 6,095 0.5
PRADESH, (220) (119) (100) (1,215)
CHATTISG
ARH
11 KOCHI KERALA, 390 411 516 5,247 0.4
LAKSHAD
WEEP (72) (70) (85) (1,066)
12 PANAJI GOA 47 103 206 3,863 0.3
(9) (17) (34) (822)
13 KANPUR UTTAR 167 150 279 2,043 0.2
 19

PRADESH, (31) (25) (46) (418)

UTTRANCH
AL

BHUBANESH
14 WAR ORISSA 285 288 51 1,957 0.2
(52) (48) (9) (397)
15 GUWAHATI ASSAM, 27 4 9 361 0
ARUNACHA
L (5) (0.6) (1) (80)
PRADESH,
MANIPUR,
MEGHALAY
A,
MIZORAM,
NAGALAND
,
TRIPURA
16 PATNA BIHAR, 41 9 49 248 0
JHARKHAN
D (8) (1) (8) (47)
17 JAMMU JAMMU & 0 1 25 26 0
KASHMIR (0) (0.2) (4) (4)
18 REGION NOT INDICATED3 21,833 50,283 30,750 301,266 25.74
(4,004) (8,245) (5,122) (60,861)
SUB. TOTAL 121,907 147,518 114,047 1,157,944 100.00
(22,424) (24,299) (18,884) (236,465)
19 RBI’S-NRISCHEMES 0 0 0 533 -
(from 2000 to
2002) (121)
GRAND TOTAL 121,907 147,518 114,047 1,158,477 -
(24,299) (18,884) (236,586)
(22,424)
 20

II. FINANCIAL YEAR-WISE FDI INFLOWS DATA:

A. AS PER INTERNATIONAL BEST PRACTICES:
(Data on FDI have been revised since 2000-01 with expended International Best
coverage to approach Practices)
(Amount US$
million)
Financial Investme
S. Year FOREIGN DIRECT nt
INVESTMENT (FDI)
(April-
No. March) by F
FDI FLOWS INTO
Re- Other INDIA
Equity Foreign
Institutio
invested capital na
FIPB
Route/ Equity
earnings + l
Investors
RBI’s capital of
+ Fun
unincorp %age d
Automatic ora
ted growth (net)
Route/ bodies #
Total over
Acquisition
FDI previous
Route
Flows year
(in US$
terms)
FINANCIAL YEARS 2000-01 to 2014-15 (up to November,
2014)
1. 2000-01 2,339 61 1,350 279 4,029 - 1,847

2. 2001-02 3,904 191 1,645 390 6,130 (+) 52 % 1,505

3. 2002-03 2,574 190 1,833 438 5,035 (-) 18 % 377
4. 2003-04 2,197 32 1,460 633 4,322 (-) 14 % 10,918
5. 2004-05 3,250 528 1,904 369 6,051 (+) 40 % 8,686
6. 2005-06 5,540 435 2,760 226 8,961 (+) 48 % 9,926
7. 2006-07 15,585 896 5,828 517 22,826 (+) 146 % 3,225
8. 2007-08 24,573 2,291 7,679 300 34,843 (+) 53 % 20,328
9. 2008-09 31,364 702 9,030 777 41,873 (+) 20 % (-) 15,017
10. 2009-10 (P) 25,606 1,540 8,668 1,931 37,745 (-) 10 % 29,048
11. 2010-11 (P) 21,376 874 11,939 658 34,847 (-) 08 % 29,422
12. 2011-12 (P) 34,833 1,022 8,206 2,495 46,556 (+) 34 % 16,812
13. 2012-13 (P) 21,825 1,059 9,880 1,534 34,298 (-) 26% 27,582
14 2013-14 (P) 24,299 975 8,978 1,794 36,046 ( + ) 5% 5,010
2014-15 (Apr - Nov,
15. 2014) 18,884 622 5,730 2,165 27,401 - -
CUMULATIVE
TOTAL
(from April, 2000 to
November, 238,149 11,418 86,890 14,506 350,963 - 149,663
201
 21

4)
RBI’sJanuary, 2015Bulletindt.09.01.2015 (Table No. 34 –FOREIGN
Source: (i) INVESTMENT INFLOWS).
(ii) Inflows under the acquisition of shares in March, 2011, August, 2011 & October, 2011,
include net FDI on account of transfer of participating interest from Reliance
Industries Ltd. to BP Exploration (Alpha).
(iii) RBI had included Swap of Shares of US$ 3.1 billion under equity components during
December 2006.
(iv) Monthly data on components of FDI as per expended coverage are not available.
These data, therefore, are not comparable with FDI data for previous years.
(v) Figures updated by RBI up to November, 2014.
(vi) Data in respect-investedearnings’of‘Re & ‘Other capital’ are estimated as
‘#’ Figures for equity capital-11ofare estimatesunincorporated.(P)Allfiguresareprovisionalbodies
for 2010

B. DIPP’S–FINANCIAL YEAR-WISE FDI EQUITY INFLOWS:

(As per DIPP’s–equityFDIcapitaldatacomponentsbaseonly):
%age growth
S. Nos Financial Year Amount of FDI Inflows over
(April –March) previous year
FINANCIAL YEARS 2000-01 to 2014-15 (up to (in terms of US
November, 2014) In Rs crores In US$ million $)
1. 2000-01 10,733 2,463 -
2. 2001-02 18,654 4,065 ( + ) 65 %
3. 2002-03 12,871 2,705 ( - ) 33 %
4. 2003-04 10,064 2,188 ( - ) 19 %
5. 2004-05 14,653 3,219 ( + ) 47 %
6. 2005-06 24,584 5,540 ( + ) 72 %
7. 2006-07 56,390 12,492 (+ )125 %
8. 2007-08 98,642 24,575 ( + ) 97 %
9. 2008-09 142,829 31,396 ( + ) 28 %
10. 2009-10 # 123,120 25,834 ( - ) 18 %
11. 2010-11 # 97,320 21,383 ( - ) 17 %
12. 2011-12 # ^ 165,146 35,121 (+) 64 %
13. 2012-13 # 121,907 22,423 (-) 36 %
14. 2013-14 147,518 24,299 (+) 8%
15. 2014-15 (Apr - Nov, 2014) 114,047 18,884 -
CUMULATIVE TOTAL
1,158,478 236,587 -
(from April, 2000 to November, 2014)

(i) FEDAI (Foreign Exchange Dealers Association of India) conversion rate from rupees to
US dollar applied, on the basis of monthly average rate provided by RBI (DEPR), Mumbai.
# Figures for the years 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 (from
April to November, 2014) are provisional subject to reconciliation with RBI.
^ Inflows for the month of March, 2012 are as reported by RBI, consequent to the adjustment
made in the figures of
March, ‘11, August, ’11 and October, ‘11.
 22

1.2 STATEMENT OF THE PROBLEM:

The present study tries to assessing the determinants and impact of FDI in Indian
economic factors. Thus, the present study is an endeavor to discuss the trends and
patterns of FDI, and its impact of FDI on FII, SENSEX, NIFTY, FOREX RATE and
FOREX RESERVES.

1.3 OBJECTIVE OF THE STUDY:

1. To find out the growth rate of FDI, and its determinants.
2. To examine the relation between FDI and determinants.
3. To understand the influence of selected determinants on FDI.
4. To identify the pre-crisis and post-crisis period and examine the flow of FDI
and its determinants.
5. To test the difference in terms of FDI and other determinants with respect to
pre and post crisis period.
6. To examine the returns of FDI and other determinants are stationary.
7. To test the casual effects with respect to selected variables.

1.4 HYPOTHESES OF THE STUDY:

To achieve the objective of the study the following hypotheses have been developed:

Ho = there is no significant difference in terms of FDI inflows with respect to pre-

crisis and post crisis.
H1 = there is significant difference in terms of FDI inflows with respect to pre-crisis
and post crisis.

Ho = there is no significant difference in terms of FII inflows with respect to pre-crisis

and post crisis.
H1 = there is significant difference in terms of FII inflows with respect to pre-crisis
and post crisis.

Ho = there is no significant difference in terms of SENSEX inflows with respect to

pre-crisis and post crisis.
H1 = there is significant difference in terms of SENSEX inflows with respect to pre-
crisis and post crisis

UNIT ROOT TEST

 23

Ho = there is no unit root FDI returns and d_ FDI return

H1 = there is unit root FDI returns and d_FDI return.

Ho = there is no unit root FII returns and d_ FII return

H1 = there is unit root FII returns and d_FII return.

Ho = there is no unit root BSE returns and d_ BSE return

H1 = there is unit root BSE returns and d_BSE return.

Ho = there is no unit root NSE returns and d_ NSE return

H1 = there is unit root NSE returns and d_NSE return.

Ho = there is no unit root FOREX RATE returns and d_ FOREX RATE return
H1 = there is unit root FOREX RATE returns and d_FOREX RATE return.

Ho = there is no unit root FOREX RES returns and d_ FOREX RES return
H1 = there is unit root FOREX RES returns and d_FOREX RES return.

PAIRWISE GRANGER CAUSALITY TEST:

H0 = There is no causality between the FDI and BSE

H1 = There is causality between the FDI and BSE

AUTO CORRELATION FUNCTION :

H0= there is no auto correlation between the FDI return

H1 = there is auto correlation between the FDI return

H0= there is no auto correlation between the FII return

H1 = there is auto correlation between the FII return

H0= there is no auto correlation between the d_ BSE_return

H1 = there is auto correlation between the d_ BSE_return
 24

H0= there is no auto correlation between the d_ NSE_return

H1 = there is auto correlation between the d_ NSE_return

H0= there is no auto correlation between the FOREX RATE_return

H1 = there is auto correlation between the FOREX RATE_return

H0= there is no auto correlation between the FOREX RES_return

H1 = there is auto correlation between the FOREX RES_return

1.5 SCOPE OF THE STUDY

It is apparent from the above discussion that FDI is a predominant and vital
factor in influencing the contemporary process of global economic development. The
study attempts to analyze the important dimensions of FDI in India. The study works
out the trends and patterns, main determinants and investment flows to India. The
study also examines the role of FDI on economic growth in India for the period 2004-
2014. The period under study is important for a variety of reasons. First of all, it was
during July 2014 India opened its doors to private sector and liberalized its economy.
Secondly, the experiences of South-East Asian countries by liberalizing their
economies in 2014s became stars of economic growth and development in early
2014s. Thirdly, India’s experience with its first generation economic reforms and the
country’s economic growth performance were considered safe havens for FDI which
led to second generation of economic reforms in India in first decade of this century.
Fourthly, there is a considerable change in the attitude of both the developing and
developed countries towards FDI. They both consider FDI as the most suitable form
of external finance. Fifthly, increase in competition for FDI inflows particularly
among the developing nations. The shift of the power center from the western
countries to the Asia sub – continent is yet another reason to take up this study. FDI
incentives, removal of restrictions, bilateral and regional investment agreements
among the Asian countries and emergence of Asia as an economic powerhouse (with
China and India emerging as the two most promising economies of the world)
Develops new economics in the world of industrialized nations. The study is
important from the view point of the macroeconomic variables included in the study
as no other study has included the explanatory variables which are included in this
study. The study is appropriate in understanding inflows during 2004-2014

1.6 RESEARCH METHODOLOGY

With a view to achieve the objectives of the present study, the secondary sources of
information have been utilized. The history, genesis, components, growth,
performances etc. of the Foreign Institutional Investments and Indian capital market
 25

have been examined on the basis of secondary data like periodicals, magazines, text
books, journals, reports, office records of various organizations like SEBI, RBI and
ministry of finance, and different websites containing information and data of FIIs and
Indian Capital market. Thus, research work is heavily banked on the secondary
source of information.
The following tools were used in this research is;

Correlation analysis,
Regression analysis,
Descriptive statistical analysis,
Pair wise granger causality test
Auto correlation function
Unit root test
Q-sort

1.7 LIMITATIONS OF THE STUDY

All the economic / scientific studies are faced with various imitations and this study is
no exception to the phenomena. The various limitations of the study are:

1. At various stages, the basic objective of the study is suffered due to Inadequacy of
time series data from related agencies. There has also been a problem of sufficient
homogenous data from different sources. For example, the time series used for
different variables, the averages are used at certain occasions. Therefore, the trends,
growth rates and estimated regression coefficients may deviate from the true ones.

2. The assumption that FDI was the only cause for development of Indian economy in
the post liberalized period is debatable. No proper methods were available to
segregate the effect FDI to support the validity of this assumption.

3. Above all the research was faced with the problem of various resources like time
and money.
 26

CHAPTER II
REASERCH METHODOLOGY
 27

II. Review of Literature

Review of literature is a body of text that aims to review the theoretical and
methodological contributions of related authorities and offices to a particular research
topic. Its’ ultimate goal is to make the researcher up to date with current literature on a
topic and forms the basis for another goal, such as future research that may be needed
in the area. It must be remembered that reviews of literature are based on secondary
sources, and as such, do not report any new or original experimental work. In general,
review of literature surveys scholarly books, articles, dissertations, conference
proceedings etc. relevant to a particular area of research. The purpose is to offer an
overview of significant literature published on the topic.

The review of the literature provides a cross section of representative sample of

studies done for both global markets and domestic Indian stock market. Many of these
studies have initiated new modeling techniques, expanded theoretical concepts,
explored new hypothesis, and focused on different economies depending on their
objectives. The literature review has been done in the three phases. The first phase of
the review deals with the relationships between macroeconomic variables and stock
market returns .The second phase focuses on the relationships between FIIs inflows
and outflows, Sensex and exchange rate. The third phase of review attempts on
understanding behavior of major sectoral indices during sub-periods created due to
structural breaks. The purpose is to reveal and rationally examine common factors
used in these studies in terms of concepts, selection of variables, methodologies
adopted, and usage of statistical and econometric techniques, determining the gaps in
the studies, and understanding the significance and implications of emerging policies.
28
 29

2.2.1 Review of Literature for 1st Phase

There have been numerous studies on the impact of macroeconomic variables on

stock price for developed economies. The objective is to identify and include
macroeconomic variables in the suitable robust model, and to determine the
relationship of variables which contribute to price movements of Indian stocks in the
long-run as well as the short-run. The significant contribution is of Chen, Roll and
Ross (1986) who concluded that stock returns are exposed to systematic economic
news and are priced in accordance with their exposure. The paper also provided a
basis that a long-term relationship exists between stock prices and relevant
macroeconomic variables. They used seven macro variables’ data series – industrial
production, risk premium, inflation, and term structure of interest rate, market return,
oil prices and consumption. It was assumed that these variables are serially
uncorrelated. It was observed that industrial production, spread between long and
short interest rates, expected and unexpected inflation, and the spread between high
and low grade bonds, are sources of risk and are significantly priced. They found that
oil price risk is not separately rewarded in the stock market. Fama (1970, 1990, and
1991) studied the relationship between fundamental economic activities and stock
market return. Fama (1991) suggests that stock prices reflect earnings, dividends and
interest rate expectations as well as information about future economic activity. Stock
returns affect the wealth of investors which in turn influences the level of
consumption and investment. Geske and Roll (1983) concluded that the US long-
term interest rates show a significantly negative influence on share prices. Hamo
(1988) has done a similar study on the Japanese stock market by APT and found that
changes in inflation, unexpected changes in the risk premium, and term structure of
interest rates, significantly affects stocks. He observed that changes in monthly
production is weekly priced and unexpected changes in the exchange rate as well as
30
 31

changes in oil prices are not priced in the Japanese stock market. Schwert (1981,
1990) showed that growth of industrial production is a significant factor for long-run
stock return. Brown and Otsuki (1990) found that money supply, production index,
crude oil price, exchange rate and call money rates are associated with a significant
risk premium in pricing Japanese equities.

The relationship between the set of macroeconomic variables and stock price is done
extensively for developed markets but limited studies have been conducted for
emerging markets particularly for India. Research studies have been done for the
different countries on the basis of varied sets of significant macroeconomic variables
using different methodologies. Some are summarized below:

Rad A (2011) used the unrestricted VAR model to examine the relationships between
Tehran Stock Exchange (TSE) price index and three macro economic variables –
Consumer Price Index (CPI), free market exchange rate and liquidity (M2) on the
monthly data for a period from 2001 to 2007. The impulse response analysis indicated
that the response of TSE price index to shocks in the three macro economic variables
is weak. The generalized forecast error variance decomposition reveals that the
contribution of macroeconomic variables in fluctuations of TSE price index is around
12%.

Asaolu T & Ogunuyiwa (2011) examined the impact of macroeconomic variables on

Average Share Price (ASP) for the Nigerian stock market. The monthly data from
1986 to 2007 was taken for six macroeconomic variables – external debt, exchange
rate, foreign capital flow, investments, industrial output and inflation rate. The
Average Share Price for 25 quoted companies from Insurance, Manufacturing,
Banking, Services and Real estate were taken representing dependent variables where
as others as exogenous variables. Granger causality test, cointegration and Error
Correction Method (ECM) were employed and results revealed existence of weak
relationship between ASP and macroeconomic variables. A long-run relationship was
found between ASP and macroeconomic variables. The findings indicated that ASP is
not a leading indicator of macroeconomic performance in Nigeria.
32
 33

Baek IM & Jun J (2011) tests for existence of financial contagion using a method
which allows an incubation period before contagion takes effect. Contagion is an
increase in cross-market linkages following shocks. Using daily data on the total
return index for selected Asian countries in 1997 to 1998, strong evidence for
existence of financial contagion was found during the Asian crisis. The evidence
remains robust even when global and regional factors as well as hetroskedasticity and
serial correlation are explicitly controlled. A significant upward shift in the linkage
between the stock returns of Thailand and other Asian countries was found.

Hosseini M, Ahmad Z & Lai Y (2011) examined relationships between stock market
indices of China and India and four macroeconomic variables, crude oil price (COP),
money supply (M2), industrial production (IP) and inflation rate for the period
between 1999 to 2009. They used Johansen-Juselius (1990) multivariate cointegration
and VEC model technique which indicated that both countries have short as well as
long-run relationships between macroeconomic variables and market index of
individual countries. The results for both economies are different. In the long-run the
impact of increase in crude oil price and money supply for China is positive, whereas,
for India, it is negative. The influence of industrial production for China is negative.
The effect of inflation for both stock indices is positive. In the short-run, crude oil
price has contemporaneous effect for India but negative and insignificant for China.
The immediate effect of inflation on current Chinese stock index (SSE) is positive and
significant. However, for India it is negative but insignificant. This analysis will help
investors to enhance their knowledge for both short-term and long-term investment
strategies for both countries.

Ahmet B (2010) analyzed the effects of macroeconomic variables on the Turkish

stock exchange market by consumer price index, money market interest rate, gold
price, industrial production index, oil price, foreign exchange return, and money
supply, and the main Turkish stock market index (Istanbul Stock exchange, ISE-100)
for monthly data from January 2003 to March 2010. A Multiple regression model was
designed to test relationships between macroeconomic variables and ISE-100. It was
found that interest rate, industrial production index, oil price, and foreign exchange
rates have a negative impact on ISE-100 Index returns. Inflation and gold price do not
have any significant influence on ISE-100 returns.
 34

Von Lach, Krakau (2010) employed application of linear, non-linear and long-run
Granger causality tests in order to examine causal links between the main Polish
market price index (WIG) of the Warsaw stock exchange and four macroeconomic
variables, namely the value of sold industrial production, unemployment rate, interest
rate, and rate of inflation by using monthly data from January 1998 to June 2008. All
macroeconomic variables were found to have a long-run causal influence on the
performance of the stock market. The linear causality analysis strongly supports the
hypothesis that the Polish stock market is informationally inefficient with respect to
the value of sold industrial production and interest rate. Further test results provided
grounds for claiming that the stock market has already incorporated all past
information on the unemployment and inflation rate as no linear causal influence was
found for these. They found bidirectional linear causal relationship between the stock
market index and sold industrial production and a strong evidence of linear and non
linear Granger causality from changes in the interest rate to fluctuations in the stock
market index.

Bilquees, Mukhtar & Malik (2010) focused on investigating the impact of exchange
rate volatility on exports of India, Pakistan and Sri Lanka using VECM technique for
yearly data for a long period 1960 to 2007.Their findings indicated the presence of a
unique cointegrating vector linking real exports, relative exports prices, foreign
economic activity and exchange rate in the long-run. It was also observed that real
exchange rate volatility exerts a significant effect in both the short and long-run.
Improvement in the terms of trade represented by the decline in the real exchange rate
and real foreign income exerts positive effect on export activities. Maintaining a
stable competitive real exchange rate will enhance exports in the three countries.

Hasan A & Javed M (2009) examined the both short-run and long-run relationships
between macroeconomic variables and equity market returns using monthly data for a
period from 6/1998 to 6/2008 by using the VAR frame work. The variables considered
are industrial production index, consumer price index, money supply,
35
 36

exchange rate, foreign portfolio investments, Treasury bill rates and oil price. It was
found that a long-run relationship exists among macroeconomic factors and the equity
market. Unidirectional Granger causality was found from consumer price index,
exchange rate, money supply and interest rate to equity market. There was no Granger
causality among industrial production, foreign portfolio investment and equity market
return. VDC analysis indicates that the monetary variables bring volatility in the
equity market.

Pilinkus D (2009) analyzed the relationship between 40 macroeconomic variables (!)

and the Lithuanian stock market index (OMXV). The objective is to investigate
whether stock prices may serve as a leading indicator for macroeconomic variables in
the Lithuanian economy or a group of macroeconomic variables may serve as a
leading indicator for stock returns. Granger causality tests have been employed to
estimate the relationship between the OMXV index and 40 macroeconomic variables
depicting the health of Lithuanian economy. It was found that some macroeconomic
variables (GDP deflator, net exports, foreign direct investment) lead OMXV, whereas,
macroeconomic variables (GDP, material investment, construction volume index) are
led by the OMXV index and macroeconomic indices (money supply, payment
balance) and the stock market returns Granger-cause each other. The study establishes
existence of a relationship between stock market returns and most of macroeconomic
variables.

Humpe and Macmillan(2009) applied cointegration analysis on stock prices in the

US and Japan and found that US stock prices are influenced positively by industrial
production and are negatively related to both the consumer price index and long-term
interest rates.

Adam, Anokye M, Tweneboah & George (2008) examined the impact of

macroeconomic variables, namely, inward foreign direct investments, treasury bill
rate, consumer price index, average crude oil prices on Ghana stock prices using
cointegration test and VECMs. They established co-integration between
macroeconomic variables and stock prices in Ghana indicating a long-run relationship.
The lagged values of interest rate inflation have significant influence on
37
 38

the stock market. The inward foreign direct investments, oil prices and exchange rate
show weak influence on price changes. The stock index is not informational efficient
with respect to interest rate, inflation, inward FDI, exchange rate and world oil price.

Adam, A M & Tweneboah G (2008) employed multivariate cointegration and error

correction model to examine the impact of Foreign Direct Investment (FDI) on the
stock market development in Ghana. The study indicated that there exists a long-term
relationship between FDI, nominal exchange rate and stock market development in
Ghana. They found that a shock to FDI significantly influenced development of the
stock market in Ghana resulting in sector specific policy implications.

Ratanapakorn and Sharma (2007) investigated long term and short-term

relationship between the US stock price index (S & P 500) and six macro economic
variables namely industrial production index, narrow money supply (M1), treasury
bill rate, government bond rate, inflation rate, Yen /$ exchange rate and observed that
the stock prices negatively relate to the long-term interest rates and every
macroeconomic variable causes stock prices in the long run but not in the short-run.

Chachart S, Valadkhani A and Harvie C (2007) examined the impact of fifteen

stock market indices and five macroeconomic variables – Consumer Price Index
,Exchange rate, Interest rate (on money), Money supply (M2) and Oil price on the
Thai stock market for the pre and post 1997 period on the basis of monthly data from
1988:1 to 2004:12 using a GARCH-M model. It was found that the Singapore stock
market influenced Thai stock market for both the pre and post 1997 period.
Indonesian and Malaysian stock market were significantly related to the Thai stock
market during pre 1997, whereas, Korean and Philippines played predominant role for
variation in the Thai stock market during post 1997. Thus, the Thai market was largely
influenced by regional neighboring countries and non-regional markets had
insignificant role. This explains why the financial crisis of 1997 remained a regional
crisis.

Patra T & Poshakwale S (2006) studied the short-run dynamic adjustments and
long-run equilibrium relationships between selected macroeconomic variables,
namely inflation, money supply, exchange rate and trading volumes, and stock returns
39
 40

for the emerging Greek stock market using Granger causality, co-integration
techniques and error correction models. The empirical evidence suggests that these
macro variables have a short-run and long-run equilibrium relationship with the stock
prices. However, no causal or co-integrating relationship was found between the
exchange rates and stock prices. It was also concluded that the Athens Stock
Exchange is inefficient as publicly available information on macroeconomic variables
and trading volumes can be used in stock price prediction.

Christopher G, Minsoo L, Hua Y & Jun Z (2006) examined the relationship

between New Zealand Stock Index and a set of seven macroeconomic variables –
Inflation Rate (CPI), Exchange Rate (EX), Gross Domestic Product (GDP), Money
Supply (M1),Short-term Interest Rate (SR) and Domestic Retail Oil Price (ROIL)
from 1990 to 2003 using cointegration test. They have employed Johansen Maximum
Likelihood and Granger-causality test to determine whether the New Zealand stock
Index is a leading indicator for macroeconomic variables. It also examines the short-
run dynamic linkages between NZSE-40 and macroeconomic variables using
innovative accounting analysis. It was seen that in general NZSE-40 is consistently
determined by interest rate, money supply and real GDP, and no evidence was found
that NZSE-40 is a leading indicator for the changes in the macroeconomic variables.

Erdem, Arslan and Erdem (2005) examined volatility spillover from inflation,
exchange rate, M1 money supply and industrial production to Istanbul Stock
Exchange’s stock price indices including IMKB 100, financial, industrial and services
indices using monthly data. EGARCH model captured significant unidirectional
spillovers from inflation, interest rate to all stock price indices. There are negative
volatility spillovers from inflation to stock price indices except the Service Index and
positive spillover from interest rate to stock price indices except Service Index
(negative spillovers). Spillovers from M1 money supply to the financial index and
from exchange rate to both IMKB 100 and industrial indices were observed. There is
no volatility spillover from industrial production to any index.

Kanokwan, Sel and Ike (2005) investigated the relationship and influence of
domestic macro economic variables and stock excess returns and they also assessed
41
 42

market efficiency in Southeast Asian economies prior to the 1997 Asian crisis. It was
found that the autoregressive conditional hetroskedasticity type models are best
representative of situation. Some macroeconomic variables are identified that seem to
have a certain predictive power for excess return. Asian monetary authorities seem to
have a credibility problem in keeping inflation within target range and lack of
credibility and transparency may have contributed to the 1997 crisis.

Chaudhuri K & Smiles S (2004) used multivariate cointegration methodology to

investigate long-run relationship between real stock price and measures of aggregate
real activity which includes real GDP, real private consumption, real money and real
price of oil for Australian market. Using quarterly data from 1960:1 to 1984:4, they
established existence of a long-run relationship between real stock price and real
activity. The error correction technique indicated that the real stock prices are related
to the changes in the real economic variables. It was further found that the stock
market variations in the US and New Zealand markets significantly affects Australian
stock return movements.

Dritsaki and Dritsaki (2004) studied the long-run relationship between the Greek
stock market index and macroeconomic variables industrial production, inflation and
interest rate and found a significant causal relationship between these and stock prices.

Wongbangpo and Sharma (2002) studied interdependence between the stock

markets and fundamental macroeconomic factors for the five South East Asian
countries – Indonesia, Malaysia, Philippines, Singapore and Thailand – on the basis of
monthly data for GNP, consumer price index, money supply, interest rate and
exchange rate for these countries. The results indicates that high inflation in Indonesia
and Philippines influences the long-run negative relation between stock prices and
money supply, whereas, the money growth in Malaysia, Singapore and Thailand
imparts positive effect on their stock markets. The exchange rate is positively related
to the stock prices in Indonesia, Malaysia and Philippines and negatively related for
Singapore and Thailand.
43
 44

Maysami and Koh (2000) investigated the long-run relationships between selected
macroeconomic variables and the Singapore stock index, as well as among stock
indices of Singapore, Japan and the US. The macroeconomic variables used in the
study are: exchange rate, short and long-run interest rates, inflation, money supply,
domestic exports and industrial production on the basis of monthly data from 1988 to
1995. They found that the changes in two measures of real economic activities,
industrial production and trade are not integrated of same order as changes in
Singapore’s stock market levels. But the changes in Singapore stock market levels
form co-integrating relationship with changes in the price levels, money supply, short-
long-run interest rates and exchange rates. It was further found that changes in interest
and exchange rates contributes significantly to co-integrating relationship whereas
both price level and money supply do not. It means that Singapore stock market is
interest and exchange rate sensitive. Significant positive cointegration of the
Singapore stock market with stock markets of US and Japan was observed.

Niarchos N and Alexakis C (2000) examined the possibility of predicting stock

market prices by the usage of macroeconomic variables for the Athens stock exchange
on the basis of monthly data from January 1984 to December 1994. The variables
included for the study are inflation, money supply and exchange rate. A positive
correlation between stock prices and identified variables was found. The statistical
evidence suggests that monthly stock prices in the Athens Stock Exchange are
positively correlated to those variables. Further, using cointegration technique and
causality test statistically, efficient market hypothesis was rejected.

Kwon C.S and Shin S Tai (1999) investigated whether current economic activities
can explain stock market returns in Korea on the basis of stock prices. The VECM
illustrates that stock prices are co-integrated with the set of macroeconomic variables,
namely, foreign exchange rates, trade balance, production level and money supply.
The co-integration indicates a direct long-run and equilibrium relations with identified
variables. The stock price variability is fundamentally linked to economic variables
and it was observed that the change in stock price lag behinds economic activities.
The stock price index and production index simultaneously affect each other. Further,
it was found that the stock price index is not a leading indicator for economic
45
 46

variables which is inconsistent with the findings that the stock market signal bring
changes in real activities (Fama 1991;Geske & Roll 1983). The Korean stock price
movements are different due to investors’ perceptions from those of the US and
Japanese investors, suggesting that the Korean market is more sensitive to
international trading activities than to inflation or interest rate variables.

Ibrahim & Mansor (1999) investigated the dynamic interactions between seven
macroeconomic variables and the stock prices for the emerging market, Malaysia,
using co-integration and Granger causality tests. The Bivariate analysis suggests co-
integration between stock prices and three macroeconomic variables – consumer
prices, credit aggregates and official reserves.

Abdullah D (1998) employed VAR model using M1, budget deficit, budget surplus,
industrial production, consumer price index and long-term interest rate to examine
effect of money growth variability for British stock prices using the London share
price index. The VDC showed that the money growth variability accounts for 22.82%
of variation of interest rate and 19.85 % variation of stock prices.

Abdalla & Murinde, (1997) investigated interaction between exchange rates and
stock prices in the emerging financial markets of India, Korea, Pakistan and
Philippines in order to study causal linkages between leading prices in the foreign
exchange market and the stock market. Unidirectional causality from exchange rates
to stock prices in all the sample countries was seen, except for Philippines. The main
implication of the study is that the change in the exchange rates affects firms’ exports
which ultimately influence stock prices.

Habibullah, Muzafar & Baharumshah (1996) employed a two step tri-variate

cointegration approach to check whether money supply and output can be used to
predict stock prices in Malaysia on the basis of monthly data on stock price indices,
money supply and national output from January 1978 to 1992. It was found that the
money supply and national output are not co integrated. This implies that stock price
indices for Malaysia have incorporated all past information about both money supply
and output, which is consistent with the efficient market hypothesis.
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Mukherjee TK and Naka A (1995) explored effect of six macroeconomic variables,

namely, exchange rate, money supply, inflation, industrial production, long-term
government bond rate and call money rate, call money rate by VECM on Tokyo Stock
Exchange index and found that co integrating relation exists and stock prices
contribute to this relation. The results were robust to the selection of macroeconomic
variables and defined sub periods. It was seen that the VECM consistently
outperforms the VAR model in forecasting ability.

Abdullah, Dewan A and Hayworth SC(1993) examined Granger causality between

8 macro economic variables namely budget deficit, trade deficit, money growth,
industrial product growth, inflation rate, short-term and long-term interest rates and
US stock prices. It was found that past money growth, budget deficits, inflation, both
short and long-term interest rates Granger cause stock prices. These variables also
explain significant proportion of the forecast error variance of stock prices. Further, it
was observed that stock prices are related positively to inflation and money growth
and negatively to budget deficit, trade deficit and both short and long-term interest
rates.

Few studies have been conducted on examining the relationship of macroeconomic

variables with Indian Stock market returns.

Tripathi N (2011) examined the relationship between the stock market and a set of
macroeconomic variables for January 2005 to February 2011 on the basis of weekly
observations for Sensex, WPI, Treasury bill rates, Exchange rate, S&P 500 and BSE
trading volume. The Granger causality test shows evidence of unidirectional causality
running from international stock market to domestic stock market, interest rate ,
exchange rate, and inflation rate, indicating sizeable influence in the stock market
movement. Bi-directional relationship was observed between interest rate and stock
market, exchange rate and stock market, international stock market and BSE volumes,
and exchange rate and BSE volume. It was also found that the Indian stock market is
sensitive towards changing behavior of international market, exchange rate and
interest rate. The study reveals that the Indian stock market is not weak form efficient.
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It implies that abnormal returns can be attained by using historical data of stock prices
and macroeconomic indicators.

Singh D (2010) has explored causal relationship between macroeconomic variables

and stock market for monthly data from April 1995 to March 2009. The selected
variables are BSE, WPI, IIP, and exchange rate. Granger causality test indicated that
IIP is the only variable having bilateral causal relationship with Sensex, whereas, WPI
and Sensex have unilateral causality. Further, the Indian stock market is approaching
towards informational efficiency with respect to exchange rate and inflation.

Tuteja & Agarwal (2008) examined the causal relationship between share price index
and industrial production for India in a multivariate vector correction model which
include macroeconomic variables, namely, money supply, credit to private sector,
exchange rate, WPI and money market rate. The focus of the study was to understand
the relationship between the health of economy and health of the stock market. They
found that the share price index and macroeconomic variables are co integrated,
implying that there is a long-term relationship between share price index and
identified macroeconomic variables. The stock markets in India are demand driven
and industry led, which means that demand for greater equity finance is spurred by
higher industrial production but rising price in stock markets cannot be taken as
leading indicator of revival of Indian economy.

Pradhan PC (2007) examined the causal linkages between the stock market and
economic activity in India. Granger non-causality tests by Toda-Yamamota, Dolado
and Lutkephol (TYDL model) was applied, it was found that both stock price (BSE
Sensex) and economic activity (IIP) are integrated of order one I(1). The Johansen-
Juselius cointegration test suggests existence of one co-integrating vector. This rules
out spurious relations and confirms presence of at least one direction of causality. The
TYDL model suggests that there is bi-directional causality between stock price and
economic activity during the post-liberalization period, implying that a well-
developed stock market could enhance economic activity and vice-versa. The main
limitation of the paper is usage of FII as a proxy for economic activity, which neglects
two primary sectors – agricultural and service sector.
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The review of the literature about the relationship between the fundamental economic
activities and stock market price indicated that there are divergent views amongst the
researchers about their relationships. Some were able to establish relationships, but
some could not determine any. As observed, there have been limited numbers of
studies conducted for the Indian stock market till now. Thus, the review of the
existing research work also supports that there is a gap for further conducting rational
study in order to understand long-run and short-run relationships and direction of
causality between the identified macroeconomic variables and emerging Indian stock
market. The significance of their relationships will help in suitable policy formulation.

2.2.2 Review of Literature for 2nd Phase

In a globalized world, FII, exchange rate and stock index are important economic
variables for stability of business and economy.

Mukherjee & Roy (2011) studied about the nature and determinants of investments
by institutional investors in the Indian stock market and it focused on finding out the
factors which govern the investment patterns of two institutional investors in the
Indian equity market – FIIs and mutual funds. The basic premise is that the investment
behavior is driven by portfolio diversification as well as expectation formation
pattern. It was found that investment decision of FIIs are significantly influenced by
MFs. Investment pattern of FIIs is opposite of what MFs do in the equity market.
Further, while investing in equity, MFs do not track equity return or volatility, but FIIs
do track the previous day’s equity return as well as volatility. Both track domestic and
international interest rates for investment.

Poshakwale S & Thapa (2010) studied the influence of FIIs in explaining short-run
and long-run relationships of the Indian equity market with global equity markets
using MSCI India Index and MSCI world total return index for the daily data for six
years from 1/1/2001 to 15/1/2007. Using VECM, it was found that rapid growth in
flow of foreign equity portfolio investment is leading to greater integration of the
Indian equity market with global markets. Due to increased global integration post the
subprime crisis, the Indian market has become more susceptible to global shocks.
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Mishra, Das & Pradhan (2010) in their study, focusing on foreign investments and
real economic growth in India, using the VAR framework observed that bi-directional
causality runs from net FIIs flows to real economic growth. Economic growth is
determined and influenced by the volume of portfolio investments.

FIIs have both a positive and negative impact on the domestic economy triggering
significant influence on broadly three areas – stock market, exchange rate and foreign
exchange reserves. It increases savings of low and middle-income developing
countries (Menkhoff 2003; Modi et al, 2001), enhances market depth and breadth
(Sumanjeet & Paliwal 2010).

Srinivasan, Kalaivani and Bhat (2010) examined the relationship between net
foreign investment flows and equity market returns for India. The daily data has been
divided into two periods non-crisis period (1/7/1999 to 31/12/2007) and global
financial crisis period (1/1/2008 to 27/2/2009). Granger causality test indicates that
there is an evidence of negative feedback trading hypothesis and positive feedback
trading hypothesis by foreign investors before and after the global crisis, respectively.
This means that FIIs act as smoothening effect and destabilizes forces before and
during the crisis period, respectively. But positive feedback trading strategies from
FIIs appears to be the rationale during the period of global financial crisis.

Sehgal S & Tripathi N (2009) in their study on investment strategies of FIIs for the

Indian equity market examined whether FIIs adopt positive feedback12 and herding
strategy. They found that FII’s exhibit return chasing behavior while using monthly
data, and are using this strategy for daily data as they do not react instantaneously but
wait for market information to crystallize. Further, FII’s display a strong herding
behavior which is much stronger at the aggregate level than at individual stock level;
this may be because FIIs are more cognizant of corporate fundamentals of the
individual stock.

Badani & Tripathi (2009) investigated the relationship between FII investments and
the Indian stock market using ARIMA model and found that the past FII investments
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have significant impact on the current Sensex & NSE Index, but there is no significant
impact of current FII investment on the current indices. A significant finding of the
study is that the FII investment in India needs well calibrated policy response,
whereas, the daily movement of stock market can be better explained by the factors
other than FIIs.

Ahmad M & Masood T (2009) analyzed the behavior of a few macroeconomic

variables in response to Total Capital Inflows (TCI) in India using quarterly data for
the period 1994:1 to 2007:4. Macroeconomic variables included in the study are TCI,
Real effective exchange rate export based, real effective exchange rate trade based,
Nominal effective exchange rate trade based, WPI, money supply, foreign exchange
reserves and current account balance. Cointegration test confirms long-run
equilibrium relation between total capital inflows and real effective exchange rate –
both trade and export based, and between TCI and nominal effective exchange rate –
export based. Granger causality test confirms the bi-directional causality between
foreign exchange reserves and TCI, and unidirectional causality from TCI to real
effective exchange rate, trade based. Further, nominal effective exchange in India does
not appreciate in response to capital inflows and there is linkage between real
effective exchange rate and capital inflows.

Badhani, Chhiwal and Suyal (2009) evaluated the impact of exchange rate
fluctuations on the stock prices for different industry specific portfolios. The returns
for the entire stock portfolio are found to be positively correlated with the external
value of Indian Rupee. It was seen that the indices of export oriented industries are
negatively associated with the change in exchange rate after making adjustments for
market trends. The IT, technology and knowledge based sectors show high sensitivity
towards exchange rate fluctuations. Whereas, the indices of financial sector and
import intensive industries show a positive association with the exchange rate of
Rupee. The stock indices, in general, do not show a lagged effect of change in the
exchange rate, except for BSE capital goods. This observation is consistent with the
concept of efficient market hypothesis. The VAR model shows unidirectional causality
running from stock prices to exchange rate. This implies that the portfolio
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rebalancing activity of FIIs has played a predominant role in the dynamic interaction
between stock prices and exchange rate.

Rajput A & Thaker (2008) measured the relationship between exchange rate, FII and
stock index, and its predictive power for the period from January 2000 to December
2005. It was found that no long-run positive correlation exists between exchange rate
and stock index, except for the year 2002 and 2005. FII and stock index show positive
correlation but fail to predict the future value.

Dua & Sen (2006) studied the relationship of real exchange rate, level of capital
flows, volatility of the flows, fiscal and monetary policy indicators, and current
account surplus for 1993 Q2-2004 Q1. It was found that the variables are co-
integrated and each granger causes the real exchange rate. The generalized VDCs
show that the determinants of the real exchange rate, in descending order of
importance, include net capital inflows and volatility (jointly), government
expenditure, current account surplus, and money supply.

Batra A (2004) while studying stock return volatility patterns in the Indian stock
market examined the time variation in volatility using monthly data and asymmetric
GARCH model augmented by structural change analysis. This helped in the
identification of a sudden shift in stock price volatility and nature of events which
caused shift in volatility. It was concluded that the period around the Balance of
Payments (BOP) crisis and subsequent reforms was the most volatile phase. Major
policy changes resulted in sudden shift in stock return volatility, which was a
consequence of domestic political and economic events rather than of global
happenings.

Bose & Coondoo (2004) examined quantitative impact of FII regulatory policy
reforms on its investment flow using intervention analysis technique, based on
multivariate GARCH regression model. Ten policy interventions during 1999-2004
were examined for their possible significant influence on FII flows and their
sensitivity to stock returns. It was found that liberalization of policies have had
desired expansionary effect in increasing mean level of FII flows, however, some
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restrictive measures to control FII flows do not have significant negative impact on
net inflows.

Batra A (2003) analyzed trading behavior of FIIs and the impact of its trading biases
upon stock market stability. Strong evidence that the FIIs have been positive feedback
investors and trend chasers at the aggregate level on daily data was observed. But no
evidence of positive feedback trading on monthly basis was found. There was no joint
dynamics between long horizon return and net equity purchase. The foreign investors
were found to have a tendency to herd on equity market even though it may not
happen the same day. At the time of financial crisis, there is an excessive sell side
13
herding even though the extent of herding, on the average, and either side of the
market during crisis may be lower than that in the immediate preceding period.

Mukherjee, Bose & Coondoo (2002) study is an extension of Chakarbarti (2001)

study which focused on the nature and cause of FII flows. They found that (1) FII
flows are caused by returns in the domestic equity market and not conversely, (2)
Return on equity is the single most important factor influencing FII inflows, (3) FII
sales and FII net inflows are significantly affected by Indian equity market
performance but FII purchase is non-responsive to market performance, (4) FII
investors are not using Indian equity market for diversification of their investments,
(5) Return from exchange rate variation and Indian economy fundamentals seem to
have influence on FII decisions, but these are weak, and (6) Daily FII flows are highly
auto-correlated.

Chakarbarti R (2001) studied the importance of FIIs flow in India and its
relationship with other economic variables from May 1993 to June 2001. The study
found that even though the flows are highly correlated with the equity returns, they are
more likely effect than cause of returns. FIIs not having informational disadvantage
compared to the local investors and the Asian crisis changed determinants of FII flows
into India resulting in domestic equity returns to be the sole drivers of flows.
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Kohli (2001) investigated the trend of capital inflows and their impact on some key
macroeconomic variables. It was observed that inflows lead to appreciation in real
exchange rate and increase in money supply.

The study is motivated due to lack of research using high frequency daily data which
is divided into sub-periods due to structural breaks. A variety of stationarity tests were
used. For the first time VAR models comprising of different endogenous variables
were employed to comprehensively understand emerging statistical and economic
relationships and causation between them, and the related policy implications.

2.2.3 Review of Literature for 3rd Phase

Due to increasing globalization and liberalization of trade policies, investment

opportunities in the emerging markets have increased significantly in the recent past.
Many studies focusing on the diversification and optimum portfolio management have
been conducted. But few studies on the interrelation amongst stock market sector
indices for global markets were done so far, with hardly any relating to the Indian
sector indices. The identification of relative importance of the indices in driving others
and obtaining information about market inefficiency by the study may be used for
potential economic gains and for developing suitable investment strategies.

Ahmed W (2011) examined both long-run and short-run aspects of the inter-sectoral
linkages in the Egyptian stock market. The Johansen’s multivariate cointegration
analysis reports evidence in support of existence of only a single co-integrating vector
within 12 indices. Granger’s causality analysis shows that the short-run causal
relationships between the sectoral indices are limited and, where they do exist, are
unidirectional. Benefits could be derived from portfolio diversification in the short-
run, however, investors with long-term horizon may not benefit from diversifying
investments into the different sectors of the Egyptian stock market.

Wang G & Lim C (2010) examined the impact of macroeconomic variables on the
industry stock returns in Australia. The monthly time series data from March 2000 to
December 2007 is considered for stocks listed on the Australian Stock Exchange
(ASX). According to the ASX200 classification; the index comprises of 11 industry
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sectors which includes A-REITs, consumer discretionary, consumer staples, energy,

financials, healthcare, materials, industrials, IT, telecommunication services and
utilities. The 10 macroeconomic variables include changes in ASX P/E ratio,
exchange rates between the Australian, New Zealand and US $, ASX bond index
return, dividend yield of ASX200, ASX market return and capitalization, the official
cash rate, interbank interest rate, treasury bill yield and unemployment rate. The time
series regression analysis shows that macroeconomic factors are important
determinants of the ASX industry returns. Further there is a positive significant
relationship between the industry returns, exchange rates and market returns. The
consumer discretionary and IT industries had opposite signs for dividend yield and
market capitalization, respectively.

Fayoumi, Khamees & Thuneibat (2009) employed VECM to study information

transmission among stock return indices for Amman Stock Exchange (ASE) for
dynamic interaction among daily return of indices for 3/9/2000 to 30/8/2007. A co-
integrating relation for long-run for four major sector indices – general, financial,
industrial and services was observed. Granger causality confirmed short-run causality
running from general, financial and industry to other indices but no evidence was
found that the service index Granger causes returns in to other indices. Variance
decomposition and impulse response analysis confirmed these results indicating that
the financial sector is the most significant while service being less integrated with
other sectors provides an opportunity for its diversification within ASE.

Poshakwale S & Patra T(2008) studied long-run and short-run relationship between
the main stock indices of Athens Stock Exchange (ASE) by using daily data from
1996-2003 and observed that the sector indices do not show a consistent and strong
long-run relationship. It was found that at least in the short-run, the banking sector
seems to have a strong influence on the returns and causes volatility in other sectors.
The VDC analysis shows that the most sectors are largely influenced by their own
innovations. The banking sector plays a predominant role by explaining 25% of
variance of construction and insurance sector, and around 15% of variance of
industrial investment, which also confirms that the ASE is not weak form efficient.
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Constantinou et al. (2008) analyzed daily price for the 12 sector indices of the
Cyprus Stock Exchange (CSE) for portfolio diversification by the domestic investors.
It was seen that no cointegration exists in most bivariate combinations, which implies
existence of long-term profitable investment opportunities by way of portfolio
diversification. Further, it was suggested that no short-run causality relationship exists
between the sectoral indices, indicating opportunities for development of short-term
investment strategies in the CSE.

Hassan & Malik (2007) used a multivariate GARCH model to simultaneously

estimate mean and conditional variance using daily returns among different US sector
indices from 1/1/92 to 6/6/2005. In order to make an optimal portfolio allocation
decision, it is important as a financial market participant to understand the volatility
transmission mechanism over time and across sectors. Significant transmission of
shocks and volatility among different sectors was observed. These results support the
idea of cross-market hedging and need for sharing of common information by
investors in the identified sectors.

Mohammad S et al. (2006) examined opportunities for diversification and long-term

investments across identified economic sectors by using sectoral indices for the
Malaysian stock market. High, but unstable correlation amongst different industry
sectors was observed, which means focus should also be on potential movements in
sector specific and subsector specific risks. Due to increasing sector specific effect on
the portfolio, investment in one or two sectors may attract higher total risk than what
happened in the past.

Wang and Yang (2005) studied the relationship between major sector indices of
Chinese stock exchange for 1993-2001. Various sectors are highly integrated and
sector prices reflect information from other sectors. High degree of interdependence
of the sectoral indices indicates limited opportunity for diversification benefits from
sector specific investments. A shock to any sector has significant impact on the other.
It was found that industry is the most influencing sector and Finance, being least
integrated with other sectors, provides best investment opportunity for diversification.
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Lafunte and Ruiz (2004) provided empirical evidence of the relationship and effect
of new market (technology index) on return and volatility of Spanish stock indices
using GARCH methodology. A positive significant impact on the financial, industrial
and utility sector volatility was observed, and it was found that high volatility in the
new markets enhances volatility in other sectors. Merely a statistical effect is detected
on the returns of the industrial sector, suggesting that only this sector requires a risk
premium when shocks in the technological sector increases the global market risk.

Ewing, Forbes & Payne (2003) studied how shocks to macroeconomic variables
affects five major S&P sector specific stock market indices, namely, utilities,
transportation, industrial, financials and capital goods. The research uses generalized
impulse response analysis and identifies various responses of the sectors to
unanticipated changes in some key macroeconomic variables and it also found strong
interrelationships amongst five S&P’s stock indices. It was suggested that investors
are not only interested in individual stock performance but are also keen in knowing
the behavior of different market indices. It was observed that the institutional
investors use sectoral indices as benchmark to evaluate performance of stocks and
portfolios.

Ewing B.T (2002) examined five S&P stock indices to determine the relative
importance of individual index shocks in terms of accounting for forecast error
variance of other indices using generalized forecast error variance decomposition
[Koop et al(1996) , Pesaran and Shin(1998)]. The results highlighted the importance
and popularity of stock market indices in the financial markets due to two reasons.
First, the study has helped in the identification of relative roles of individual indices’
shocks as being transmitted to others and, secondly, to know how generalized forecast
error variance decomposition is useful in examining interrelationship between
different time series.

Lee, Boon & Baharumsha (2001) explored the dynamic linkages between
macroeconomic fundamentals, economic growth and the Kuala Lumpur Stock
exchange index before the 1997 Asian crisis for quarterly data from 1987:1 to 1997:2
by employing VAR model. Two models were set up. The first considered 7
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macroeconomic variable including stock price index, inflation rate (CPI), interest rate,
industrial output, money supply (M3), exchange rate and trade balance. This model
was estimated with various stock indices, including the composite index, industrial
index, Finance index, property index, plantation index and mining index. The second
model which included the stock capitalization, stock volume, real GDP and saving
helped to investigate the contribution of Malaysian stock market to economic growth.
The two significant findings are that macroeconomic variables are significantly
important for determining movements in stock prices in both the short- and long-run.
A healthy stock market is important for economic growth.

Arbelaez H et al. (2001) examined the short-term and long-term linkages amongst six
Colombian stock indices, namely – general, industrial, financial, commerce, various
and a selection of former Medellin Stock Exchange for the daily data from 2/01/1988
to 9/08/1994 using VECM. It was found that the Colombian capital market index time
series are integrated of order one and are highly correlated. The indices exhibit long-
term linkages and in 50% cases show Granger causality. The impulse response
analysis results indicate that the responses to innovations in other indices are small but
are rapid and persistent. Variance decomposition shows high percentage of error
variance which is accounted for by the innovations in the same index.

The present study complements the earlier research which had primary focus on
overall market returns. The research is perhaps the first attempt in providing insights
into responses of the 11 sector specific indices of the Indian capital market in an
integrated and globalised environment. The study fills a void in existing research work
and provides an insight into the magnitude and persistence of responses of sectoral
indices due to unexpected innovations. The main objective of the empirical research is
to provide evidence on the short- and long-term relationships amongst sectoral indices
in the sub periods answering specific questions about indices’ behavior in the
mutually exclusive time frames and their change of behavior over a period of time –
Do these indices influence each other? Is there an index driving other sector index?
What is the direction of causality? Is it consistent over a period of time? Are there any
policy implications?
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G. Literature Review for Variable Selection

We have selected macroeconomic variables based on the literature review starting

from the path breaking contribution of Chen, Roll and Ross (1986) till the recent
studies done by Rad A; Asaolu T & Ogunuyiwa; Hosseini M, Ahmad Z & Lai Y
(2011) for determining a basic econometric model. The selected macroeconomic
variables, namely, GDP, Inflation (WPI), Index of Industrial Production(IIP),
Exchange Rate(Rs/$), Oil Price, FII, Interest Rates (91-day treasury bills), Long-term
Interest Rates (10 years Government security- GSEC10), Money Supply(M3), Foreign
Exchange Reserves and Trade Balance are likely to influence the Indian economy and,
in particular, returns of the composite index Sensex.

The selection of influencing macroeconomic variables relates to sensitivity of results

and it depends upon money, goods and securities markets (Abdullah and Hayworth,
1993). The Money market is represented by interest rate and money supply. Inflation,
GDP and IIP contribute to goods market. Security market includes Sensex, NIFTY,
FDI/FII. Exchange rate and oil price relates to influence of the overseas markets on
the external sector of the Indian economy.

Interest rates play an important role in stock returns. According to the earlier studies
of different economies, the short-term interest rate (3 months T-bill) and long-term
interest rates (ten year bond yield) have negative impact on stock prices. Changes in
the short-term interest rates are due to monetary policy as well as business cycle,
whereas, changes in the long-term interest rate reflect changes in the discount rate in
larger perspective. An increase in interest rate may reduce corporate profitability due
to probable recession or because of increase in the cost of capital. On the contrary, a
positive relationship was found between short-term interest rate represented by call
money rate and Japanese stock price by Mukherjee and Naka (1995). In a study,
Butter and Jansen (2004) tried to forecast 10-year German bond yields by
multivariate time-series method and found that interest rates are co-integrated with
various macroeconomic factors.

There are divergent outcomes with supporting analysis about the effect of inflation on
the stock prices (Modigliani & Cohn 1979; Geske & Roll, 1983). Negative stock
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return and inflation results were empirically concluded by many researchers including
Fama (1981), Shwert (1981), Geske & Roll (1983), Mukherjee and Naka (1995),
Erdem, Arslan & Erdem (2005), Patra T & Poshakwale S (2006)and Humpe &
Macmillan (2009). The increased inflation may enhance the nominal risk free rate,
resulting in higher discount rate or cost of capital which will consequently decrease
stock prices. Whereas, a positive relationship was demonstrated by Abdullah and
Hayworth (1993) and Ratanpakorn & Sharma, (2007). The stock prices react
positively to inflation because equities act as a hedge against inflation.

Money supply refers to the stock of money held by the public in the economy at a
particular time. M3 is better measure than M1. Money supply may be related to
increase and uncertainties of inflation which is negatively related to share price. The
evidence presented in the study of Patra T & Poshakwale S (2006) confirms an
indirect effect of money supply on the stock prices through inflation .The decrease in
money supply led to reduction in inflation which in turn increased the demand of
stocks for Athens stock market. Further, an increased money supply may result in
higher liquidity in the economy, reducing the interest rates and, thus, increasing the
share prices (Petra T & Poshakwale S (2006). The increase in money supply can also
enhance economic activity or increase in output, and may positively increase share
prices Ratanpakorn & Sharma, (2007). Positive impact due to increase in money
supply may also be seen as possible change of portfolio by portfolio substitution as
non interest bearing assets may switch over to risk bearing equities
(Abdullah & Hayworth 1993; Mukherjee and Naka 1995; Cheung & Lai 1999).

The level of aggregate economic activity (proxy by GDP & IIP) will have an impact
on corporate profitability and, therefore, may influence stock price. An increase in
output may increase cash flows raising the stock price in the same direction; an
opposite effect may be seen during recessionary condition. Many studies including
Gesk and Roll (1983), Chen, Roll and Ross (1986), Fama (1990), Abdullah &
Hayworth, (1993), Mukherjee and Naka (1995), and Hume and Macmillan (2009)
suggest positive relation between stock price and real activity. The stock return real
activity brings fluctuations in stock prices which results in increased consumption and
inflow of fresh investments and, consequently, increasing productivity and raising
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stock prices. Hume and Macmillan (2009) further found that industrial production
was negatively related to interest rate and rate of inflation.

It has been seen that exchange rate depreciation would stimulate exports and curtail
imports, while exchange rate appreciation will be detrimental to exports and
encourage imports. Mukherjee and Naka (1995) hypothesize a positive relation
between the exchange rate and stock prices. When the Japanese yen depreciates
against the US dollar, Japanese products become cheaper in US. If the demand of
these goods is elastic, the volume of Japanese exports should increase causing higher
yen dominated cash flows to Japanese companies. The opposite should hold when yen
appreciates against the US dollar. Thus, if you are exporting and your local currency
becomes weaker, your product becomes cheaper for your buyer. If you are importing
and your local currency becomes strong then the products becomes cheap. If the
country is export dominant, the exchange rate appreciation lowers its competitiveness
and negatively affects domestic stock prices, whereas, if a country is import dominant,
the exchange rate appreciation reduces costs and generates a positive impact on
domestic stock prices Ratanapakorn & Sharma (2007). However Adam A M &
Tweneboah G (2008), while studying stock market movement in Ghana, found that
exchange rate demonstrate weak influence on price changes. In a study Ray H (2008)
has concluded that in the long-run, the exchange rates are positively related to Indian
stock prices and money supply. The innovation analysis shows that Indian exchange
rates drives and are driven by the stock prices and key macroeconomic variables.

Adam A M, Tweneboah G (2008) included oil price as one of the macroeconomic

variables for studying impact of oil price surge on the stock price of Ghana and found
its significant relationship with the stock index. Higher oil prices not only push
inflation, resulting in higher interest rates, but also dampen growth due to overall
increase of cost of capital and, thus, affecting stock prices.

Foreign portfolio inflows through FIIs depend upon the attractiveness of investments
and associated returns. Batra A (2003) in a study of foreign portfolio inflows and
equity returns in India showed aggregate evidence of FIIs chasing trends and adopting
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positive feedback trading on a daily basis, even though no such behavior is evident
over horizons of a month or so. This evidence seems to support the hypothesis that
resident investors have better information on a daily basis, thus, making it essential
for FIIs to use price signals to discern underlying information that may have
triggered them. Further, foreign investors have a tendency to herd on the Indian
equity market even though they all may not do it on the same day. Bose S and
Coondoo (2004) studied the impact of FII regulations in India and found mild
evidence of bi-directional causality between returns on the BSE stock index and net
inflows of FII on a monthly basis. Adam A M and Tweneboah G (2008) used
multivariate cointegration and error correction model to examine the impact of FDI
on development of stock market in Ghana and found long-run relationship between
FDI, nominal exchange rate and stock market development.
 78

Figure 1: Impact of FDI and FII on Indian Stock Mark

AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 1

CHAPTER – IV
FRAME WORK OF ANALYSIS &
CONCEPT OVERVIEW

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 2

FRAMEWORK OF THE STUDY

The world economy has gradually started recovering due to buoyant economic activities
in the emerging economies. However, the developed economies are still suffering from
compounded factors, including large fiscal deficits, unemployment, inflation and high debts. All
these have resulted in very slow economic growth. The sub-prime crises created an environment
of uncertainty and risk. The rising oil and agriculture prices, fueling inflationary pressures and
large inflows of capital in the emerging economies have slowed down global economic recovery.
However, the Indian growth story is remarkable as its economy has exhibited resilience despite
compounded factors, including persistent worldwide recessionary conditions, growing current
account deficit and inflationary pressures. The other challenges faced by the Indian economy are
volatility in FIIs flows, slowdown in exports resulting in widening balance of payment due
shrinking global demands, increasing oil and commodities prices, and existence of alternative
attractive markets.
The phenomenal rise of the Sensex from a level of 2600 on 21/9/ 2001 to a peak of
21,078 on 8/01/2008, when Indian GDP was growing at an average annual rate of 8-9 %,
suggests that equities prices were driven by future expectations about India’s growth and its
place on the world stage. The slump in 2008 reflects the effect of the global recession which
triggered the withdrawal of FII investments to shore-up the
balance sheets of their principals in their home countries. The subsequent recovery to 16,000 to
17,000 levels suggests that the precipitous slump in 2008 was an 64overreaction and the current
levels are the more natural levels. But these are hypotheses that need to bevalidated by empirical
research.
The rapid growth of the equities market raises the question whether this is a natural
corollary of growth and of trade liberalization, or did the Sensex of the BSE move autonomously.
The massive withdrawal from India, of their portfolio investment by the FIIs when the sub-prime
crisis hit the US and European financial markets, was unrelated to any change in the
macroeconomic fundamentals in India. The consequent collapse of equity prices in India was an
occurrence that could not have been predicted. However, when the US financial crisis was
relatively under control, the FIIsreturned to India.

Thus, one can conclude that in the medium- to long-term the macroeconomic factors are
important. The remainder of this chapter is organized as follows: Section 2 relates to FIIs and
Indian stock market. Section3 provides information on major sector indices. Section 4 lists
research questions, Section 5 gives key assumptions, Section 6 provides the objectives and
hypothesis, Section 7 gives the background of the identified variables including economic
indicators and sector indices, Section 8 provides steps to address the research gaps, Section 9
gives assumed relationships between variables, and Section 10 highlights key issues and
implications.

3.2 FIIs & Indian Stock Market

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The Government of India, in 1991-92, initiated gradual structural and economic reforms, and the
trade liberalization process in order to
bring substantial economic growth, integrate with global economies,
and provide market access for attracting foreign investments by removing restrictions and
regulations. Due to the growing BOP crisis, the high level committee on the Balance of
Payments of 1993, headed by Mr. C Rangarajan, in their report, had recommended to shift the
composition of external flows to non-debt creating flows which resulted in moving from a
regulatory regime and further allowing FIIs to invest in both debt and equity markets.
Subsequently, in January 1993, FIIs in shares and debentures
also started. 65FIIs in the form of Foreign Portfolio Investments helps in enhancing trading
volume and market capitalization, thus, improving functioning ofthe secondary market by
providing an array of attractive investment opportunities of a variety of assets having diversified
risk, returns and liquidity profiles. Further, FIIs, in general, may lower cost
of capital, provide access to cheap global credits, supplement domestic savings and investments,
and help in capital market reforms. However, FIIs may increase inflation, create asset bubbles,
bring financial instability and volatility in the stock market due to a sudden reversal of its
inflows. According to Dr Subbarao, Governor RBI, “Capital flows aid growth by providing
external capital to sustain an excess of Investment over domestic savings. By affording the
opportunity of using the world market, an open capital account permits both savers and investors
to diversify their portfolio to maximize returns and minimize risks” The FIIs follow policies and
guidelines of the RBI and Security Exchange Board of India (SEBI)which have changed from
time to time due to dynamic domestic and global environment.
The guidelines under SEBI (FII) regulation, 1995, provide its
linkage with government policy framework for investment limits in
specific sectors. The policy framework has evolved since 1992 till today.GOI took a steady and
cautious approach for gradual liberalization of quantitative restrictions by focusing on policy
relaxations on investment limits, eligibility criterion for investment, and liberalization of
investment instruments for FIIs.Under the Foreign Exchange Regulation Act (FERA), FIIs
registered with RBI should obtain permission to buy, sell and realize capital gains on investment
s which are made by an initial corpus remitted to India so as to invest in any recognized stock
exchanges through designated banks. The FERA was replaced in 2000 by Foreign Exchange
Management Act, (FEMA), 1999, which now controls foreign exchange related transactions for
FII’s as approved by the RBI.
The two routes for FII’s are 70:30 routes, wherein, 70% of equity and equity related investments
is permissible and balance 30% is for debt. The second route is through 100% debt security
investment, however, our focus is on the normal equity FII route. Furthermore, to provide
flexibility to FII composition, section 15(2) of SEBI FII regulation pertaining to restrictions of
70:30 investments in equity and debt has been removed from October 2008. FIIs are now
permitted to invest in all types of securities including government securities. The investment by
FII’s can avail full capital account convertibility. They can invest in a company under portfolio
investment route up to 24% of paid up capital of the company.

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 4

Conceptual Framework:
For the current study total 120 variables are collected namely FDI, FII, BSE, NSE,
FOREX RATE, FOREX RETURN. This study made on 10 years statistics from 2004 to 2014 all
the data will be collected as secondary data through RBI, Stock Exchanges and Indian Economy
websites.

FDI: Data were collected for 120 months ( 10 years).

Source- RBI website
FII: Data were collected for 120 months ( 10 years).
Source- RBI website
BSE: Data were collected for 120 months ( 10 years).
Source- BSE website
NSE: Data were collected for 120 months ( 10 years).
Source- NSE website
FOREX RATE: Data were collected for 120 months ( 10 years).
Source- RBI website
FOREX RESERVES: Data were collected for 120 months ( 10 years).
Source- RBI website

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 5

CHAPTER IV
DATA ANALYSIS AND INTERPRITATION

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 6

DATA ANALYSIS AND INTERPRETATION

TABLE REPRESENTS DESCRIPTIVE STATISTICS OF FDI AND IT’S

DETERMENENTS:

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
Fdi 120 127.00 6041.00 1680.4083 1220.07887
Forex 120 118154.00 321982.00 242721.5500 67394.27547
Bse 121 4759.62 22386.27 14664.4795 4817.13679
Fii 120 10742.30 128151.00 60964.6007 27464.93976
Nse 120 4759.62 22386.27 14598.1359 4785.47438
forex rate 120 709.89 1375.17 963.3164 137.18479
Valid N 120
(listwise)

Source: RBI bulletin, BES of India, NSE of India

10 Years data (Monthly data from 2004-2014)

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INTERPRETATION:

The above table represents descriptive statistics of FDI, FOREX,BSE,NSE,FII and FOREX
RATE used in this study. It found that the Mean FDI is Rs.1680.4083 cr in India during the
period of study (2004-2014). The average net investment by FII’s in stock market is found to be
Rs.60964.6007 cr. Industrial Growth rate is seen higher. BSE sensex averaged at Rs.14664.4795
cr since 2004-2014 as shown by the table. The mean of NIFTY is 14598.1359 is nearly equalent
to the SENSEX and standard deviation of that two also nearly equal. India is maintaining
FOREX reserves mean of Rs.242721.55 cr
With a standard deviation of 67394.27547. The FOREX rate is traded on average annual mean
of Rs. 963.3164 with a standard deviation of 137.18479. The table also represents the
minimum, maximum, mean and Standard deviation in the case of FOREX reserves, NSE and
FOREX rate. Standard deviation in case of FII investment is found much higher as compared to
FDI which shows that FII’s investment are more volatile than FDI.

TABLE REPRESENTS DESCRIPTIVE STATISTICS OF FDI RETURN AND IT’S

DETERMENENTS:

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
fdi return 118 -1.64 2.28 .0236 .61305
forex return 118 -.12 .08 .0077 .02744
bse return 120 -.27 .25 .0114 .07336
fii return 119 -.57 .58 -.0166 .24415
nse return 119 -.36 .75 .0091 .13623
forex return 119 -28.28 32.84 1.0804 11.35737
Valid N 117
(listwise)

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INTERPRITATION:
The above table represents descriptive statistical returns of FDI, FOREX,BSE,NSE,FII and
FOREX RATE used in this study. It found that the Mean FDI return is 0.0236 in India during the
period of study (2004-2014). The average net investment by FII’s return in stock market is found
to be -0.0166. BSE sensex return averaged at 0.0114 since 2004-2014 as shown by the table.
The mean of NIFTY return is 0.0091 is nearly equalent to the SENSEX return. India is
maintaining FOREX reserves return mean of 0.0077 with a standard deviation of 0.02744. The
FOREX rate return is traded on average annual mean of 1.0804 with a high standard deviation of
11.35737. The table also represents the minimum, maximum, mean and Standard deviation in the
returns of FOREX reserves, NSE and FOREX rate. Standard deviation in case of FDI return
investment is found much higher as compared to FII return.

TABLE REPRESENTS CORRELATION BETWEEN FDI AND ITS DETERMINANTS:

Correlations
fdi forex bse Fii nse forex rate
Fdi Pearson Correlation 1 .629** .511** -.306** .376** .016
Sig. (2-tailed) .000 .000 .001 .000 .859
N 120 120 120 120 120 120
** ** ** **
Forex Pearson Correlation .629 1 .870 -.529 .764 .270**
Sig. (2-tailed) .000 .000 .000 .000 .003
N 120 120 120 120 120 120
Bse Pearson Correlation .511** .870** 1 -.547** .823** .367**
Sig. (2-tailed) .000 .000 .000 .000 .000
N 120 120 121 120 120 120
Fii Pearson Correlation -.306** -.529** -.547** 1 -.485** -.645**
Sig. (2-tailed) .001 .000 .000 .000 .000
N 120 120 120 120 120 120
Nse Pearson Correlation .376** .764** .823** -.485** 1 .448**
Sig. (2-tailed) .000 .000 .000 .000 .000
N 120 120 120 120 120 120
forex rate Pearson Correlation .016 .270** .367** -.645** .448** 1
Sig. (2-tailed) .859 .003 .000 .000 .000
N 120 120 120 120 120 120
**. Correlation is significant at the 0.01 level (2-tailed).

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INTERPRITATION:

This table represents the karl pearson correlation between the FDI and its determinants like FII,
FOREX rate, FOREX reserves, SENSEX and NIFTY. As per the table FDI is having high
positive correlation with FOREX reserves and BSE. NSE and FOREX rate is having low degree
positive correlation at last the FII is having negative correlation with FDI. In case of FOREX
reserves, it showing the correlation with FDI,BSE and NSE is high degree positive correlation at
the same time there is a low degree positive correlation with FOREX rate and negative
correlation with FII. In case of FII as per the table there is a low degree negative correlation with
all determinants. In case of NSE there is a high degree positive correlation with FOREX reserves
and BSE. And low degree positive correlation with FDI and FOREX rate. At last there is a
negative correlation with FII.
In case of there is a low degree correlation with FDI, FOREX reserves, BSE and NSE. At last
there is a negative correlation with FII.

TABLE REPRESENTS CORRELATION BETWEEN TOTAL FDI AND EQUITY FDI:

Correlations
fdi equity total fdi
fdi equity Pearson Correlation 1 .988**
Sig. (2-tailed) .000
N 10 10
**
total fdi Pearson Correlation .988 1
Sig. (2-tailed) .000
N 10 10
**. Correlation is significant at the 0.01 level (2-
tailed).

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 10

INTERPRITATION:

This table represents the karl pearson correlation between FDI equity and Total FDI. With the
1% level of significance in between these two variables are having a perfect positive correlation.
So the Equity FDI is having highest correlation with the Total FDI.

TABLE REPRESENTS REGRESSION BETWEEN TOTAL FDI AND EQITY FDI:

Model Summaryb
Adjusted Change Statistics
R R Std. Error of R Square F Sig. F Durbin-
Model R Square Square the Estimate Change Change df1 df2 Change Watson
1 .988a .977 .974 1630.12525 .977 341.053 1 8 .000 2.512

INTERPRETATION:

MODEL SUMMARY:
The model summary shows that the value of R 2 stands at 0.97 indicating 97% of the variation in
Independent variable explained by dependent variables. It is also further noted the result can be
generalized with respect to Adjusted R2 change indicates that the variance in the variables which
are not included in the study may have a lesser impact on the variance in Dependent variables.

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ANOVAb
Sum of
Model Squares Df Mean Square F Sig.
1 Regression 9.063E8 1 9.063E8 341.053 .000a
Residual 2.126E7 8 2657308.325
Total 9.275E8 9
a. Predictors: (Constant), total fdi
b. Dependent Variable: fdi equity

ANOVA:
The above table indicates that the model fit which represents the regression modelist fit with
respect to significant F Value at 1% level of significance.

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta T Sig.
1 (Constant) -1756.023 1326.961 -1.323 .222
total fdi .743 .040 .988 18.468 .000
a. Dependent Variable: fdi equity

COEFFICIENTS:
The above table of coefficients indicates that there is a high positive impact of FDI Equity on the
Total FDI at 1% level of significance.

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Residuals Statisticsa
Std.
Minimum Maximum Mean Deviation N
Predicted Value 2737.9800 32820.5469 20825.1000 10034.84657 10
Residual -2748.41602 2021.45996 .00000 1536.89682 10
Std. Predicted -1.802 1.195 .000 1.000 10
Value
Std. Residual -1.686 1.240 .000 .943 10
a. Dependent Variable: fdi equity

Residual Statistics:

The above table indicates the mean and standard deviation between total FDI and equity FDI.
Here we considered the FDI equity is an dependent variable. By considering ten years data(2004-
2014) the predicted mean was 20825.10 and the standard deviation is 10034.84657 for the 10
years. And the residual standard deviation is 1536.89682.

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta T Sig.
1 (Constant) 3007.074 1634.509 1.840 .103
fdi equity 1.316 .071 .988 18.468 .000
a. Dependent Variable: total fdi

Coefficients:

The above table of coefficients indicates that there is a high positive impact of Total FDI on the
FDI equity at 1% level of significance.

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Residuals Statisticsa
Minimum Maximum Mean Std. Deviation N
Predicted Value 7282.7778 48833.4102 30404.6000 13355.79478 10
Residual -2396.58911 3717.63525 .00000 2045.51992 10
Std. Predicted Value -1.731 1.380 .000 1.000 10
Std. Residual -1.105 1.714 .000 .943 10
a. Dependent Variable: total fdi

Residual statistics:

The above table indicates mean and standard deviation between total FDI and FDI equity. Here
we considered the total FDI is an dependent variable. By considering ten years data(2004-14) the
predicted mean was 30404.6 and the standard deviation is 13355.79478. And the residual
standard deviation is 2045.51992

ANOVAb
Model Sum of Squares df Mean Square F Sig.
1 Regression 7.759E7 5 1.552E7 17.772 .000a
Residual 9.955E7 114 873231.766
Total 1.771E8 119
a. Predictors: (Constant), forex rate, forex, fii, nse, bse
b. Dependent Variable: fdi

ANOVA:

The above table indicates that the model fit which represents the regression modelist fit with
respect to the significant F value at 1% level of significance.

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Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta T Sig.
1 (Constant) 822.227 1177.069 .699 .486
forex .013 .003 .733 4.825 .000
bse .008 .042 .031 .185 .853
fii -.005 .005 -.103 -.967 .336
nse -.046 .034 -.179 -1.344 .182
forex rate -1.590 .890 -.179 -1.786 .077
a. Dependent Variable: fdi

Coefficients:

The above table of coefficients indicates the correlation between FDI and its determinants. Here
we considered FDI is an dependent variable and all determinants are independent variables. This
table represents the forex reserve is having high degree positive correlation (0.733). BSE is
having low degree positive correlation (0.031). FII is having high degree negative correlation
(-0.103). NSE is having low degree negative correlation (-0.179) and Forex rate is having low
degree negative correlation (-0.179).

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Residuals Statisticsa
Minimum Maximum Mean Std. Deviation N
Predicted Value 98.0004 3166.1311 1680.4083 807.49680 120
Residual -1736.76379 4125.74316 .00000 914.62635 120
Std. Predicted Value -1.960 1.840 .000 1.000 120
Std. Residual -1.859 4.415 .000 .979 120
a. Dependent Variable: fdi

Residual Statistics:

The above table indicates mean and standard deviation between FDI and all other determinants.
Here we considered FDI is dependent variable and determinants are independent variables.
By considering all ten years of data (2004-14) the predicted mean 1640.4083 and the standard
deviation is: 807.49680. And the residual standard deviation 914.6263

Correlation between net FDI and BSE:

Correlations
fdi bse
Fdi Pearson Correlation 1 .511**
Sig. (2-tailed) .000
N 120 120
Bse Pearson Correlation .511** 1
Sig. (2-tailed) .000
N 120 121
**. Correlation is significant at the 0.01 level (2-
tailed).

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 16

INTERPRITATION:

The table represents the karl pearson correlation between FDI and BSE with the 1% level of
significance. In between these two variables there is a high degree positive correlation, so the
FDI is having positive correlation with BSE.

Regression between FDI and BSE:

Model Summary
Adjusted R Std. Error of
Model R R Square Square the Estimate
1 .511a .262 .255 1052.86343
a. Predictors: (Constant), bse

Model summary:

The model summary shows that the R2 stands 0.262 indicating 26% of variation independent
variable explained by dependent variables. It is also further noted the result can be generalized
with respect to Adj R2 change indicates that the variables which are not included in the study
may have a higher impact on the variance in dependent variables.

ANOVAb
Sum of
Model Squares df Mean Square F Sig.
1 Regression 4.634E7 1 4.634E7 41.801 .000a
Residual 1.308E8 118 1108521.400
Total 1.771E8 119
a. Predictors: (Constant), bse
b. Dependent Variable: fdi

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ANOVA:
The above table indicates that the model fit which represents the regression modelist fit with
respect to significant F value 1% level of significance.

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta T Sig.
1 (Constant) -223.653 309.789 -.722 .472
bse .130 .020 .511 6.465 .000
a. Dependent Variable: fdi

Coefficients:

The above table of coefficients indicates that there is a high positive (0.511) impact of FDI on the
BSE at 1% level of significance.

Crisis descriptive:

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
PRE CRISIS FDI 48 127.00 5670.00 1019.7917 1208.36212
CRISIS FDI 12 1083.00 3932.00 2277.0000 895.25740
POST CRISIS FDI 60 1042.00 6041.00 2089.5833 1045.04661
PRE CRISIS FII 48 -10214.60 29195.80 7859.4917 10596.91295
CRISIS FII 12 2113.50 20606.90 9804.0083 6632.11919
POST CRISIS FII 60 -17326.30 18948.50 1897.2905 6599.53088
PRE CRISIS SENSEX 48 4759.62 20286.99 10860.3750 4449.22643
CRISIS SENSEX 12 8891.61 17287.31 12124.8025 3055.49713
POST CRISIS SENSEX 60 11403.25 22386.27 18087.0020 1917.90353
Valid N (listwise) 12

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INTERPRITATION:

The above table represents descriptive statistics of post crisis period, crisis period and pre crisis
period used in this study between the FDI, FII and SENSEX. It found that mean of pre crisis
period is 1019.7917 in India during the period of the study (2004-14), on crisis period mean is
2277 and post crisis period the mean is 2089.5833. The average net investment by FII in stock
market in the pre crisis period is 7859.4917, crisis period is 9804.0083 and in post crisis period is
1897.2905. In the period of the study SENSEX on pre crisis period is 10860.3750, on crisis
period is 12124.8025 and on post crisis period is 18087.0020

In case of standard deviation during the study we found that the FDI pre crisis period is
1208.36212, on crisis period is 895.25740 and on post crisis period is 1045.04661. The standard
deviation of net investment by FII is on the pre crisis period is 10596.91295, on crisis period is
6632.11919 and on post crisis period is 6599.53088. In the period of the study standard deviation
of SENSEX on the pre crisis period is 4449.22643, on crisis period 3055.49713 and on post
crisis period is 1917.90353

Compared to three periods with FDI, FII and SENSEX in crisis period the mean of FDI and FII
is high but in post crisis period SENSEX is high compared to pre crisis and crisis periods. In case
of standard deviation with respect to three periods and FDI,FII and SENSEX the pre crisis
period is having high standard deviation.

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Independent Samples Test

Levene's Test for
Equality of
Variances t-test for Equality of Means
95% Confidence
Interval of the
Difference
Sig. (2- Mean Std. Error
F Sig. t df tailed) Difference Difference Lower Upper
fdi Equal .090 .765 -4.685 94 .000 - 237.20748 - -
variances 1111.33333 1582.31434 640.35232
assumed
Equal -4.685 93.384 .000 - 237.20748 - -
variances 1111.33333 1582.35488 640.31179
not
assumed

INTERPRETATION:

Group statistics shows that the Mean value of pre crisis period is 1019.79 and the Mean value of
post crisis period is 2131.12. Indicating there is a significant difference interms of Mean between
FDI inflows with respect to pre crisis and post crisis. Further T-test is applied to find the
difference interms of FDI inflow. Science the levene’s test is insignificant, indicating that the
variance between the two is equal. And further there is substantial evidence to reject the null
hypothesis at 1% level of significance. Ensuring that the FDI inflow substantially differs with
respect to pre crisis and post crisis period.

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FII:

Ho = there is no significant difference in terms of FII inflows with respect to pre-crisis

and post crisis.
H1 = there is significant difference in terms of FII inflows with respect to pre-crisis
and post crisis.

Group Statistics
VAR00
004 N Mean Std. Deviation Std. Error Mean
Fii .00 48 7859.4917 10596.91295 1529.53264
1.00 48 1552.1131 7169.54161 1034.83419

Independent Samples Test

Levene's Test
for Equality
of Variances t-test for Equality of Means
95% Confidence
of the Difference
Sig. (2- Mean Std. Error
F Sig. t df tailed) Difference Difference Lower Up
fii Equal 10.076 .002 3.415 94 .001 6307.37854 1846.71381 2640.68498 99
variances
assumed
Equal 3.415 82.574 .001 6307.37854 1846.71381 2634.05891 99
variances
not
assumed

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 21

INTERPRETATION:

Group statistics shows that the Mean value of pre crisis period is 7859.4917 and the Mean value
of post crisis period is 1552.1131. Indicating there is a significant difference interms of Mean
between FII inflows with respect to pre crisis and post crisis. Further T-test is applied to find the
difference in terms of FII inflow. Science the levene’s test is insignificant, indicating that the
variance between the two is equal. And further there is substantial evidence to reject the null
hypothesis at 1% level of significance. Ensuring that the FII inflow substantially differs with
respect to pre crisis and post crisis period.

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
 AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 22

SENSEX:

Ho = there is no significant difference in terms of SENSEX inflows with respect to pre-crisis

and post crisis.
H1 = there is significant difference in terms of SENSEX inflows with respect to pre-crisis
and post crisis.

Group Statistics
VAR00
004 N Mean Std. Deviation Std. Error Mean
Sensex .00 48 10860.3750 4449.22643 642.19052
1.00 48 17543.0681 1681.50660 242.70457

Independent Samples Test

Levene's Test
for Equality
of Variances t-test for Equality of Means
95% Confidence Interv
of the Difference
Sig. (2- Mean Std. Error
F Sig. t Df tailed) Difference Difference Lower Upper
sensex Equal 47.943 .000 - 94 .000 -6682.69313 686.52325 - -
variances 9.734 8045.80113 5319.585
assumed
Equal - 60.158 .000 -6682.69313 686.52325 - -
variances 9.734 8055.86998 5309.516
not
assumed

INTERPRETATION:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 23

Group statistics shows that the Mean value of pre crisis period is 10860.3750
and the Mean value of post crisis period is 17543.0681. Indicating there is a significant
difference interms of Mean between SENSEX inflows with respect to pre crisis and post crisis.
Further T-test is applied to find the difference interms of SENSEX inflow. Science the levene’s
test is insignificant, indicating that the variance between the two is equal. And further there is
substantial evidence to reject the null hypothesis at 1% level of significance. Ensuring that the
SENSEX inflow substantially differs with respect to pre crisis and post crisis period.

UNIT ROOT TEST:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 24

The unit test have been used that to check whether the FDI return and its Determinants are
stationary during the period of study from 2004-2014. we have applied ADF test and the null
hypothesis were tested at 1% level of significance.

UNIT ROOT TEST FOR FDI RETURN:

Ho = there is no unit root FDI returns and d_ FDI return

H1 = there is unit root FDI returns and d_FDI return.

i) UNIT ROOT TEST WITH OUT CONSTANT:

Coefficient Std.error t Ratio p-value

FDI_RETURN -1.72352 0.157848 -10.92 6.09e-022
d_FDI RETURN 0.187720 0.0921864 2.037 0.0440

Estimated value of (a-1): -1.72352

Test statistic : -10.9188
Asymptotic p –value : 6.09e-022

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FDI has unit root. So reject
the null hypothesis. And the coefficient of d_FDI return is 0.187720.

ii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.0452557 0.0500355 0.09045 0.3677
FDI_RETURNS -1.73226 0.158269 -10.95 2.90e-022
d_ 0.1921213 0.0923860 2.080 0.0398
FDI_RETURNS

Estimated value of (a-1): -1.73226

Test statistic : -10.95
Asymptotic p –value : 2.90e-022

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 25

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FDI has unit root. So reject
the null hypothesis. And the coefficient of d_FDI return is 0.1921213.

iii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.0664929 0.103729 0.6410 0.5228
FDI_RETURNS -1.73355 0.159023 -10.90 1.53e-023
d_ 0.192935 0.0928362 2.078 0.0400
FDI_RETURNS
Time - 0.00148594 -0.2340 0.8154
0.00034774

Estimated value of (a-1): -1.73355

Test statistic : -10.90
Asymptotic p –value : 1.53e-023

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FDI has unit root. So reject
the null hypothesis. And the coefficient of d_FDI return is 0.192935.

UNIT ROOT TEST FOR FII RETURN:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 26

Ho = there is no unit root FII returns and d_ FII return

H1 = there is unit root FII returns and d_FII return.

i) UNIT ROOT TEST WITH OUT CONSTANT:

Coefficient Std.error t Ratio p-value

FDI_RETURN -1.50535 0.148002 -10.17 6.56e-020
D_FDI RETURN 0.174185 0.0922793 1.888 0.016

Estimated value of (a-1): -1.50535

Test statistic : -10.17
Asymptotic p –value : 6.56e-020

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FII has unit root. So reject
the null hypothesis. And the coefficient of d_FII return is 0.174185.

ii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT -0.0241368 0.0215976 -1.118 0.2661
FII_RETURNS -1.52532 0.148918 -10.24 5.50e-020
D_ FII_RETURNS 0.185156 0.0927009 1.997 0.0482

Estimated value of (a-1): -1.52532

Test statistic : -10.24
Asymptotic p –value : 5.50e-020

INTERPRITATION:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 27

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FII has unit root. So reject
the null hypothesis. And the coefficient of d_FII return is 0.185156.

iii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.000812643 0.0443786 0.01831 0.9854
FII_RETURNS -1.53321 0.149803 -10.23 9.49e-021
D_ FDI- 0.189257 0.0931576 2.032 0.0445
_RETURNS
Time -0.00041127 0.000638558 -0.6441 0.5208

Estimated value of (a-1): -1.53321

Test statistic : -10.23
Asymptotic p –value : 9.49e-021

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FII has unit root. So reject
the null hypothesis. And the coefficient of d_FII return is 0.189257.

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 28

UNIT ROOT TEST FOR BSE RETURN:

Ho = there is no unit root BSE returns and d_ BSE return

H1 = there is unit root BSE returns and d_BSE return.

i) UNIT ROOT TEST WITH OUT CONSTANT:

Coefficient Std.error t Ratio p-value

BSE_RETURN -0.888773 0.123052 -7.223 4.85e-012
d_BSE RETURN 0.0101453 0.0913234 0.1111 0.9117

Estimated value of (a-1): -0.888773

Test statistic : -7.223
Asymptotic p –value : 4.85e-012

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of BSE RETURN has unit root.
So reject the null hypothesis. And the coefficient of d_BSE return is 0.0101453.

ii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.0123145 0.00687002 1.792 0.0757
BSE_RETURNS -0.937162 0.124839 -7.507 1.31e-011
d_ 0.0315262 0.0912402 0.3455 0.7303
BSE_RETURNS

Estimated value of (a-1): -0.937162

Test statistic : -7.507
Asymptotic p –value : 1.31e-011

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 29

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of BSE RETURN has unit root.
So reject the null hypothesis. And the coefficient of d_BSE return is 0.0315262.

iii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.0273339 0.0142191 1.922 0.0571
BSE_RETURNS -0.959863 0.126005 -7.618 3.36e-011
d_ 0.0404484 0.0913593 0.4427 0.6588
BSE_RETURNS
Time - 0.000200489 -1.206 0.2304
0.00024173

Estimated value of (a-1): -0.959863

Test statistic : -7.618
Asymptotic p –value : 3.36e-011

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of BSE RETURN has unit root.
So reject the null hypothesis. And the coefficient of d_BSE return is 0.0404484.

UNIT ROOT TEST FOR NSE RETURN:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 30

Ho = there is no unit root NSE returns and d_ NSE return

H1 = there is unit root NSE returns and d_NSE return.

i) UNIT ROOT TEST WITH OUT CONSTANT:

Coefficient Std.error t Ratio p-value

NSE_RETURN -1.01003 0.132874 -7.601 5.19e-.13
d_NSE RETURN - 0.0932325 -0.05552 0.9558
0.00517581

Estimated value of (a-1): -1.01003

Test statistic : -7.601
Asymptotic p –value : 5.19e-013

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of NSE RETURN has unit root.
So reject the null hypothesis. And the coefficient of d_NSE return is -0.00517581.

ii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.00931914 0.0128652 0.7244 0.4703
NSE_RETURNS -1.01919 0.133749 -7.608 6.27e-012
d_ - 0.0936418 -0.006101 0.9951
NSE_RETURNS 0.00057133

Estimated value of (a-1): -1.01919

Test statistic : -7.608
Asymptotic p –value : 6.27e-012

INTERPRITATION:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 31

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of NSE RETURN has unit root.
So reject the null hypothesis. And the coefficient of d_NSE return is -0.000571326.

iii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.0201348 0.0266528 0.7555 0.4516
NSE_RETURNS -1.02269 0.134424 -7.608 3.60e-011
d_ 0.00125216 0.0940480 0.01331 0.9894
NSE_RETURNS
Time - 0.000381129 -0.4638 0.6437
0.00017678

Estimated value of (a-1): -1.02269

Test statistic : -7.608
Asymptotic p –value : 3.60e-011

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of NSE RETURN has unit root.
So reject the null hypothesis. And the coefficient of d_NSE return is -0.00017678.

UNIT ROOT TEST FOR FOREX RATE RETURN:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 32

Ho = there is no unit root FOREX RATE returns and d_ FOREX RATE return
H1 = there is unit root FOREX RATE returns and d_FOREX RATE return.
i) UNIT ROOT TEST WITH OUT CONSTANT:

Coefficient Std.error t Ratio p-value

FOREX_RATE_RETURN -1.66942 0.149467 -11.17 1.28e-022
d_ FOREX_RATE 0.212473 0.0902670 2.354 0.0203
RETURN

Estimated value of (a-1): -1.66942

Test statistic : -11.17
Asymptotic p –value : 1.28e-022

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FOREX RATE RETURN
has unit root. So reject the null hypothesis. And the coefficient of d_FOREX RATE return is
0.212473.

ii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 1.64923 0.962031 1.714 0.0892
FOREX_RATE_RETURN -1.71429 0.150515 -11.39 1.03e-023
d_ FOREX_RATE 0.235996 0.0905611 2.606 0.0104
_RETURN

Estimated value of (a-1): -1.71429

Test statistic : -11.39
Asymptotic p –value : 1.03e-023

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FOREXRATE RETURN has
unit root. So reject the null hypothesis. And the coefficient of d_FOREX RATE return is
0.235996.
iii) UNIT ROOT TEST WITH CONSTANT

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 33

Coefficient Std.error t Ratio p-value

CONSTANT 1.95659 1.97521 0.9906 0.3240
FOREX_RATE_RETURN -1.71494 0.151202 -11.34 1.85e-025
d_ FOREX_RATE 0.236312 0.0909654 2.598 0.0106
_RETURN
Time - 0.0281765 -0.1784 0.8587
0.00502697

Estimated value of (a-1): -1.71494

Test statistic : -11.34
Asymptotic p –value : 1.85e-025

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FOREX RATE RETURN
has unit root. So reject the null hypothesis. And the coefficient of d_FOREX RATE return is
0.236312.

UNIT ROOT TEST FOR FOREX RES RETURN:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 34

Ho = there is no unit root FOREX RES returns and d_ FOREX RES return
H1 = there is unit root FOREX RES returns and d_FOREX RES return.
i) UNIT ROOT TEST WITH OUT CONSTANT:

Coefficient Std.error t Ratio p-value

FOREX_RES_RETURN -0.524954 0.102509 -5.121 4.16e-07
d_ FOREX_RES -0.146274 0.0925545 -1.580 0.1168
RETURN

Estimated value of (a-1): -0.524954

Test statistic : -5.121
Asymptotic p –value : 4.16e-07

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FOREX RES RETURN has
unit root. So reject the null hypothesis. And the coefficient of d_FOREX RES return is
-0.146274.

ii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.00470344 0.00255206 1.843 0.0679
FOREX_RES_RETURN -0.589304 0.107292 -5.492 1.80e-06
d_ FOREX_RES -0.113313 0.0933343 -1.214 0.2272
_RETURN

Estimated value of (a-1): -0.589304

Test statistic : -5.492
Asymptotic p –value : 1.80e-06

INTERPRITATION:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 35

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FOREX RES RETURN has
unit root. So reject the null hypothesis. And the coefficient of d_FOREX RES return is
-0.113313.

iii) UNIT ROOT TEST WITH CONSTANT

Coefficient Std.error t Ratio p-value

CONSTANT 0.0124131 0.00538209 2.306 0.0229
FOREX_RES_RETURN -0.639755 0.110974 -5.765 4.21e-06
d_ FOREX_RES -0.0887833 0.0938950 -0.9456 0.3464
_RETURN
Time - 7.38993e-05 -1.624 0.1072
0.00011998

Estimated value of (a-1): -0.639755

Test statistic : -5.765
Asymptotic p –value : 4.21e-06

INTERPRITATION:

As per the above table we may reject the null hypothesis because the probable value should be
positive. Since P-Value is less than 0.05 indicating that the series of FOREX RES RETURN has
unit root. So reject the null hypothesis. And the coefficient of d_FOREX RES return is
- 0.0887833.

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 36

PAIRWISE GRANGER CAUSALITY TEST:

It is used to find out the nature of causality between the FDI and its Determinants. Here we have
to frame an hypothesis and based on the probability values represented in the table we will
accept or reject the null hypothesis.

H0 = There is no causality between the FDI and BSE

H1 = There is causality between the FDI and BSE

i) If the F- static value is greater than the probabilistic value then we can reject the null
hypothesis with a particular level of significance.

Null hypothesis Obs F-Statistic Prob.

FDI does not Granger cause BSE 118 1.14991 0.3203
BSE does not Granger cause FDI 118 4.96528 0.0086

INTERPRETATION:

The table shows that Pairwise Granger causality test with respect to FDI & BSE as far as the
relation between FDI to BSE is concern the statement of Null hypothesis FDI does not granger
BSE is accepted since the P-Value is more than 0.05 where as the relation between BSE to FDI
shows that there is a evidence that BSE does Granger causality FDI by way of rejecting the Null
Hypothesis at 1% level of significance.

Reason:

ii) If the F- static value is greater than the probabilistic value then we can reject the null
hypothesis with a particular level of significance

Null hypothesis Obs F-Statistic Prob.

FOREX RESREVES does not 118 0.25516 0.7752
Granger cause BSE
BSE does not Granger cause 118 7.25942 0.0011
FOREX RESERVES

INTERPRETATION:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 37

The table shows that Pairwise Granger causality test with respect to FOREX RESERVES & BSE
as far as the relation between FOREX RESERVES to BSE is concern the statement of Null
hypothesis Forex Reserves does not granger BSE is accepted since the P-Value is more than 0.05
where as the relation between BSE to Forex Reserves shows that there is a evidence that BSE
does Granger causality Forex reserves by way of rejecting the Null Hypothesis at 1% level of
significance

iii) If the F- static value is greater than the probabilistic value then we can reject the null
hypothesis with a particular level of significance

Null hypothesis Obs F-Statistic Prob.

FOREX RESREVES does not 118 11.5650 3.E-05
Granger cause FDI
FDI does not Granger cause 118 2.02045 0.1374
FOREX RESERVES

INTERPRETATION:

The table shows that Pairwise Granger causality test with respect to FOREX RESERVES & FDI
as far as the relation between FOREX RESERVES to FDI is concern the statement of Null
hypothesis Forex Reserves does not granger BSE is accepted since the P-Value is more than 0.05
where as the relation between FDI to Forex Reserves shows that there is a evidence that FDI
does Granger causality Forex reserves by way of rejecting the Null Hypothesis at 1% level of
significance.

iv)If the F- static value is greater than the probabilistic value then we can reject the null
hypothesis with a particular level of significance

Null hypothesis Obs F-Statistic Prob.

NSE does not Granger cause FDI 118 3.23699 0.0430
FDI does not Granger cause NSE 118 0.57045 0.5669

INTERPRETATION:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 38

The table shows that Pairwise Granger causality test with respect to NSE & FDI as far as the
relation between NSE to FDI is concern the statement of Null hypothesis NSE does not granger
FDI is accepted since the P-Value is less than 0.05 where as the relation between FDI to NSE
shows that there is a evidence that FDI does Granger causality NSE by way of rejecting the Null
Hypothesis at 1% level of significance.

v) If the F- static value is greater than the probabilistic value then we can reject the null
hypothesis with a particular level of significance

Null hypothesis Obs F-Statistic Prob.

FOREX RATE does not Granger 118 3.29621 0.0406
cause FII
FII does not Granger cause 118 6.12254 0.0030
FOREX RATE

INTERPRETATION:

The table shows that Pairwise Granger causality test with respect to FOREX RATE & FII as far
as the relation between FOREX RATE to FII is concern the statement of Null hypothesis
FOREX RATE does not granger FII is accepted since the P-Value is less than 0.05 where as the
relation between FII to FOREX RATE shows that there is a evidence that FII does Granger
causality FOREX RATE by way of rejecting the Null Hypothesis at 1% level of significance.

vi) If the F- static value is greater than the probabilistic value then we can reject the null
hypothesis with a particular level of significance

Null hypothesis Obs F-Statistic Prob.

NSE does not Granger cause FII 118 2.87281 0.0607
FII does not Granger cause NSE 118 1.27682 0.2829

INTERPRETATION:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 39

The table shows that Pairwise Granger causality test with respect to NSE & FII as far as the
relation between NSE to FII is concern the statement of Null hypothesis NSE does not granger
FII is accepted since the P-Value is more than 0.05 where as the relation between FII to NSE
shows that there is a evidence that FII does Granger causality NSE by way of rejecting the Null
Hypothesis at 1% level of significance.

vii) If the F- static value is greater than the probabilistic value then we can reject the null
hypothesis with a particular level of significance

Null hypothesis Obs F-Statistic Prob.

NSE does not Granger cause 118 2.80418 0.0648
FOREX RATE
FOREX RATE does not Granger 118 0.73974 0.4795
cause NSE

INTERPRETATION:

The table shows that Pairwise Granger causality test with respect to NSE & FOREX RATE as far
as the relation between NSE to FOREX RATE is concern the statement of Null hypothesis NSE
does not granger FOREX RATE is accepted since the P-Value is more than 0.05 where as the
relation between FOREX RATE to NSE shows that there is a evidence that FOREX RATE does
Granger causality NSE by way of rejecting the Null Hypothesis at 1% level of significance.

viii) If the F- static value is greater than the probabilistic value then we can reject the null
hypothesis with a particular level of significance

Null hypothesis Obs F-Statistic Prob.

NSE does not Granger cause 118 2.80418 0.0648
FOREX RESERVES
FOREX RESERVES does not 118 0.73974 0.4795
Granger cause NSE

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 40

INTERPRETATION:

The table shows that Pairwise Granger causality test with respect to NSE & FOREX RESERVES
as far as the relation between NSE to FOREX RESERVES is concern the statement of Null
hypothesis NSE does not granger FOREX RESERVES is accepted since the P-Value is more
than 0.05 where as the relation between FOREX RESERVES to NSE shows that there is a
evidence that FOREX RESERVES does Granger causality NSE by way of rejecting the Null
Hypothesis at 1% level of significance.

AUTO CORRELATION FUNCTION:

This test is used to correlate of one variable return with probable value of the same variable.
Based on the data we have to decide whether there is any significant relation between the same
variable. If out come is zero then we can assume that there is a significant correlation between
the two functions.

Q-SORT:

A psychological test requiring subjects to sort items relative to one another along a dimension
such as “agree/disagree” for analysis by Q methodological statistics.

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 41

i) AUTO CORRELATION FUNCTION OF FDI RETURN:

H0= there is no auto correlation between the FDI return

H1 = there is auto correlation between the FDI return

Q- P-
LAG ACF PACF SORT VALUE
1 -0.454 -0.454 25.156 0
2 0.0595 -0.1848 25.591 0
3 -0.1352 -0.2406 27.7717 0
4 0.0788 -0.1231 28.5493 0
5 -0.0128 -0.0684 28.5699 0
6 0.0957 0.0727 29.7362 0
7 -0.0877 0.0104 30.7251 0
8 -0.0496 -0.0921 31.0437 0
9 0.0216 -0.0591 31.1045 0
10 -0.0591 -0.1541 31.5665 0
11 0.1111 -0.0241 33.2114 0
12 -0.1414 -0.1604 35.9003 0
13 0.1263 -0.013 38.0655 0
14 -0.0447 0.0309 38.3399 0
15 0.0114 -0.0092 38.358 0
16 0.0187 0.0572 38.4069 0
17 0.1342 0.2256 40.9481 0
18 -0.2738 -0.129 51.6389 0
19 0.2082 0.0353 57.8785 0
20 -0.0661 0.0325 58.5147 0

INTERPRETATION:

Based on the above table we found that there is a auto correlation between ACF and PACF with
respect to p_values. Because we got zero in all LAG. So we can reject the null hypothesis
because of there is auto correlation among the FDI return.

ii) AUTO CORRELATION FUNCTION OF FII RETURN:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 42

H0= there is no auto correlation between the FII return

H1 = there is auto correlation between the FII return

Auto correlation function FII_RETURN

LAC ACF PACF Q-SORT P-VALUE

1 -0.2891 -0.2891 10.2022 0

2 -0.0815 -0.1802 11.0206 0
3 0.0936 0.0154 12.1071 0
4 -0.0043 0.0198 12.1094 0
5 -0.2093 -0.2112 17.6417 0
6 0.0719 -0.0742 18.2999 0
7 -0.0954 -0.1672 19.4706 0
8 0.1594 0.122 22.7683 0
9 -0.1375 -0.0993 25.2445 0
10 0.135 0.0796 27.6528 0
11 -0.1415 -0.1667 30.3229 0
12 0.1479 0.0922 33.266 0
13 -0.1772 -0.1496 37.5308 0
14 0.0174 -0.0673 37.5722 0
15 0.0395 0.0087 37.7877 0
16 0.0464 -0.0025 38.0891 0
17 -0.1574 -0.0787 41.5871 0
18 0.1778 -0.0099 46.0955 0
19 -0.0544 0.0232 46.5216 0
20 0.063 0.0302 47.0987 0

INTERPRETATION:

Based on the above table we found that there is a auto correlation between ACF and PACF with
respect to p_values. Because we got zero in all LAG. So we can reject the null hypothesis
because of there is auto correlation among the FII return.

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 43

iii) AUTO CORRELATION FUNCTION OF d-BSE RETURN:

H0= there is no auto correlation between the d_ BSE_return

H1 = there is auto correlation between the d_ BSE_return

Auto correlation function d_ BSE_RETURN

LAC ACF PACF Q-SORT P-VALUE

1 -0.4228 -0.4228 21.6328 0

2 -0.1026 -0.3425 22.917 0
3 0.0122 -0.2633 22.9353 0
4 0.1142 -0.0587 24.5542 0
5 -0.0134 0.0209 24.5767 0
6 -0.1412 -0.1246 27.0985 0
7 0.1222 0.0005 29.0049 0
8 -0.1275 -0.1857 31.097 0
9 0.1079 -0.0548 32.6107 0
10 0.0237 0.0505 32.6844 0
11 -0.097 -0.055 33.9296 0
12 0.0438 -0.0051 34.1854 0
13 0.0607 0.074 34.6815 0
14 -0.1628 -0.2036 38.2912 0
15 0.1236 0.0088 40.3912 0
16 0.049 0.0813 40.724 0
17 -0.1208 -0.0763 42.7709 0
18 -0.0317 -0.0719 42.9131 0
19 0.1387 0.0272 45.664 0
20 -0.018 -0.0217 45.7108 0

INTERPRETATION:

Based on the above table we found that there is a auto correlation between ACF and PACF with
respect to p_values. Because we got zero in all LAG. So we can reject the null hypothesis
Because of there is auto correlation among the d_ BSE_return.

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 44

iv) AUTO CORRELATION FUNCTION OF d-NSE RETURN:

H0= there is no auto correlation between the d_ NSE_return

H1 = there is auto correlation between the d_ NSE_return

Auto correlation function d_ NSE_RETURN

LAC ACF PACF Q-SORT P-VALUE

1 -0.51 -0.51 31.4822 0

2 0.0252 -0.3175 31.5599 0
3 -0.0149 -0.2403 31.5872 0
4 0.0577 -0.102 32.0003 0
5 -0.1189 -0.2035 33.7725 0
6 0.1674 0.0061 37.3159 0
7 -0.1888 -0.1645 41.8625 0
8 0.0671 -0.1719 42.4425 0
9 0.038 -0.0886 42.6302 0
10 -0.035 -0.1201 42.7907 0
11 -0.1471 -0.3548 45.6529 0
12 0.2628 -0.1461 54.8761 0
13 -0.1105 -0.105 56.5234 0
14 0.0442 -0.0436 56.7888 0
15 -0.0381 -0.5997 56.9886 0
16 -0.0141 -0.1268 57.016 0
17 0.0295 -0.0501 57.1382 0
18 -0.0189 -0.183 57.189 0
19 0.0268 -0.0616 57.292 0
20 -0.0251 -0.0472 57.3833 0

INTERPRETATION:

Based on the above table we found that there is a auto correlation between ACF and PACF with
respect to p_values. Because we got zero in all LAG. So we can reject the null hypothesis
Because of there is auto correlation among the d_ NSE_return.

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 45

v) AUTO CORRELATION FUNCTION OF FOREX RATE RETURN:

H0= there is no auto correlation between the FOREX RATE_return

H1 = there is auto correlation between the FOREX RATE_return

Auto correlation function

FOREX_RATE_RETURN

LAC ACF PACF Q-SORT P-VALUE

1 -0.3747 -0.3747 17.1347 0

2 -0.0522 -0.2241 17.4702 0
3 0.0982 -0.0119 18.6677 0
4 -0.1992 -0.2086 23.6339 0
5 -0.0114 -0.2054 23.6503 0
6 0.2603 0.1582 32.287 0
7 -0.0992 0.0982 33.552 0
8 -0.0348 -0.0185 33.7089 0
9 -0.0882 -0.1989 34.7261 0
10 -0.0438 -0.1207 34.9796 0
11 -0.0403 -0.15 35.1966 0
12 0.2976 0.2003 47.1168 0
13 -0.0945 0.0853 48.33 0
14 0.0925 0.2113 49.5046 0
15 -0.1388 -0.0101 52.1709 0
16 -0.1183 -0.1198 54.1271 0
17 0.1376 0.0197 56.7981 0
18 -0.0189 -0.0974 56.8488 0
19 0.0105 -0.0644 56.8648 0
20 0.0351 -0.0729 57.0436 0

INTERPRETATION:

Based on the above table we found that there is a auto correlation between ACF and PACF with
respect to p_values. Because we got zero in all LAG. So we can reject the null hypothesis
Because of there is auto correlation among the FOREX RATE_return.

vi) AUTO CORRELATION FUNCTION OF FOREX RES RETURN:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 46

H0= there is no auto correlation between the FOREX RES_return

H1 = there is auto correlation between the FOREX RES_return

Auto correlation function FOREX_RES_RETURN

LAC ACF PACF Q-SORT P-VALUE

1 0.3344 0.3344 13.6448 0

2 0.2129 0.1138 19.2249 0
3 0.2946 0.2207 30.001 0
4 0.1091 -0.0659 31.4904 0
5 0.0717 -0.0042 32.1389 0
6 0.0737 -0.0092 32.8319 0
7 0.0003 -0.0342 32.8319 0
8 0.0069 0.0039 32.8381 0
9 -0.1137 -0.1485 34.531 0
10 -0.0593 0.0267 34.9954 0
11 0.0103 0.054 35.0094 0
12 -0.1421 -0.1141 37.7251 0
13 -0.0257 -0.0257 39.0427 0
14 0.0887 0.0887 39.1718 0
15 0.0325 0.0325 39.2357 0
16 0.1807 0.1087 40.0386 0
17 -0.0124 -0.0124 40.6951 0
18 0.0127 0.0127 41.0725 0
19 -0.0059 -0.0059 41.75 0
20 -0.0713 -0.0713 41.798 0

INTERPRETATION:

Based on the above table we found that there is a auto correlation between ACF and PACF with
respect to p_values. Because we got zero in all LAG. So we can reject the null hypothesis
Because of there is auto correlation among the FOREX RES_return.

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 47

CHAPTER V

SUMMARY OF FINDINGS, SUGESSIONS &

CONCLUSION

FINDINGS & SUGGESTIONS:

Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 48

 The FDI has the highest correlation between FII,BSE,NSE,FOREX RATE and FOREX
RES during the period 2004-14.

 The correlation between total FDI and Equity FDI has the highest positive correlation of
0.988 during the period of study.

 The correlation between FDI and all other determinants, FDI has the positive correlation
with FOREXRES and BSE and negative correlation with FII, NSE and FOREX rate
during the period of study.

 During the pre, post and crisis periods with FDI, FII, SENSEX:
Crisis: mean of FDI & FII is high
Post Crisis: SENSEX is high
Incase of Standard deviation with respect to the three periods the PRE CRISIS period is
having high Standard deviation.

 The Levene’s test is insignificant, indicating that the variance between the two are equal.
And further there is substantial evidence to reject null hypothesis @ 1% LOS.

 There is a significant difference interims of FDI inflows with respect to PRE CRISIS and
POST CRISIS periods, during the period of study.

 There is a significant difference interims of FII inflows with respect to PRE CRISIS and
POST CRISIS periods, during the period of study.

 There is a significant difference interims of SENSEX inflows with respect to PRE

CRISIS and POST CRISIS periods, during the period of study.

 There is unit root of FDI and D_FDI RETURNS

 There is unit root of FII and D_FII RETURNS

 There is unit root of BSE and D_BSE RETURNS

 There is unit root of NSE and D_NSE RETURNS

 There is unit root of FOREX RATE and D_FOREX RATE RETURNS

 There is unit root of FOREX RESERVE and D_FOREX RESERVE RETURNS

 There is a Pairwise Granger Causality between FDI and BSE

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AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 49

 There is an Auto Correlation between FDI return

 There is an Auto Correlation between FII return

 There is an Auto Correlation between d_BSE return

 There is an Auto Correlation between d_NSE return

 There is an Auto Correlation between FOREX RATE return

 There is an Auto Correlation between FOREX RESERVE return

CONCLUSION:

Empirical results shows that the five independent variables FII’s, BSE, NSE, FOREX
RATE and FOREX RESERVES are significant determinants of FDI inflows in INDIA.
Hence the null hypothesis of all are rejected. Thus the over all significance of the model
satisfied in this study would contribute t greater understanding of the FDI determinants in the
emerging markets like India. This study suggest that India should continue this program of
economic reforms as a sustained healthy economic growth is the biggest attraction for
foreign capital inflows. From the current study it is Evident that there is a strong positive
correlation between FDI and SENSEX & FDI and NIFTY. And moderate positive correlation
between FII and SENSEX. Using the multi-Regression two significant models developed, in
the first model FDI is dependent variable, BSE, NSE and FII were found to be significant
predictors. Similar results were obtained for second level FII is dependent variable. Hence it
can be concluded that the Empirical impact of flow of FDI on FII, Indian Stock Market,
FOREX RATE and FOREX RETURN are significant.

REFERENCES

[1] Kumar, S.S. “Indian stock market in international diversification: An FIIs perspective”
Indian Journal of Economics, Vol, lxxxii, No-327, April, pages 85-102. 2002.
[2] Rai. K. and Bhanumurthy, N.R.“Determinents of Foreign Institutional Investments in India:
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[3] Chopra, C. “Determinates of FDI Inflows in India”, Decision, IIM, Calcutta, 27(2): 137-
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[4] StanleyMorgan , "FII's influence on StockMarket", Journal: Journal of impact of Institutional
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Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM
AN EMPIRICAL STUDY OF DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI) IN INDIA 50

[5] Agarwal, R.N. (1997). “Foreign portfolio investment in some developing countries: A study
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[6] Chakrabarti, Rajesh. (2001). “FII Flows to India: Nature and Causes.” Money and Finance
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Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya University

KANCHIPURAM