trend analysis of fii

INTRODUCTION

Entities covered by the term 'FII' include "Overseas pension funds, mutual funds, investment trust, asset management

company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations,

charitable trusts, charitable societies, a trustee or power of attorney holder incorporated or established outside India

proposing to make proprietary investments or investments on behalf of a broad-based fund Foreign portfolio inflows

through FIIs, in India, are important from the policy perspective, especially when the country has emerged as one of the

most attractive investment destinations in Asia. In this paper an effort has been made to develop an understanding of the

investment decisions, trading strategies and behavior of the FIIs in the Indian equity market.

With the emerging market crises of the late 1990s, the role of Foreign Portfolio Investment (FPI) and the major

players therein i.e. the foreign institutional investors (FIIs) has come under intense scrutiny by academics as well as

policymakers. A general perception about the FIIs is that they are speculators and their investment is motivated by short-

term gains. The FIIs in pursuit of short- term gains adopt short- term trading strategies such as positive feedback trading

and herding (i.e. buy or sell stocks together as a group). Such behavioral biases of FIIs, it is believed, may lead to price

overreaction and contribute to the creation or exacerbation of a financial crisis.

Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain

profitable returns in the form of interest, income, or appreciation of the value of the instrument. Investment is related to

saving or deferring consumption. An investment involves the choice by an individual or an organization such as a

pension fund. after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property,

commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign

currency, that has certain level of risk and provides use possibility of generating returns over a period of time. When an

asset is bought or a given amount of money is invested in the bank, there is anticipation that some return will be received

from the investment in the future. Investment comes with the risk of the loss of the principal sum. The investment that

has not been thoroughly analyzed can be highly risky with respect to the investment owner because the possibility of

INTERNATIONAL JOURNAL OF MARKETING,

FINANCIAL SERVICES & MANAGEMENT RESEARCH

Vol.1 No. 6, June, ISSN 2277 3622

Online Available at indianresearchjournals.com

TREND ANALYSIS OF FOREIGN INSTITUTIONAL INVESTORS (FIIS)

INVESTMENT IN INDIA OF MONTHLY FLOWS DURING

JANUARY 2006 - OCTOBER 2011

MR.SARAVANAKRISHNAN V

Lecturer, Department of MBA, CMR Institute of Technology, Bangalore

ABSTRACT

The objective of FIIs to invest in any country is; return and safety of its funds. Here in this paper researchers have

made an attempt to analyze the trend of FIIs investment in India. The information regarding monthly and yearly

investment by Foreign Institution Investors (FII's) in India have been collected from the India Infoline Website.

The period covered under the study is from January 2006 to October 2011.The findings of the study indicate

that in 2009 FIIs have invested Rs. 91,067.60 Crores. While they have withdrawn Rs.60, 905.90 Crore in 2008

this is due to the effect of global meltdown and recession in world economy. During the study we found that

Market size, Political scenario, Labour cost and productivity, Liberalized Trade Policy, Infrastructure, Incentives

and Operating conditions and Disinvestment policy were the causes of FIIs investment in India.

Keywords : Equity and Debt, FII - Foreign Institutional Investor, Indian Economy and Trend Analysis.

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losing money is not within the owner's control. The difference between speculation and investment can be subtle. It

depends on the investment owner's mind whether the purpose is for lending the resource to someone else for economic

purpose or not. Investment can be made by a Person resident in India and an entity resident out of India or Foreign

Institutional Investors (FIIs)

India opened its stock market to foreign investors in September 1992 and in 1993 received portfolio investment

from foreigners in the form of foreign institutional investment in equities. This has become one of the main channels of

FI1 in India for foreigners. Initially, there were many terms and conditions which restricted many FIIs to invest in India

but in the course of time, in order to attract more investors SEBI has simplified many terms such as the ceiling for overall

investments of FIIs.

FII's (Foreign Institutional Investors) is used to denote an investor: it is mostly of the form of an institution or

entity which invests money in the financial markets of a country. The term FII is most commonly used in India to refer to

companies that are established or incorporated outside India, and is investing in the financial markets of India. These

investors must register with the Securities & Exchange Board of India (SEBI) to take part in the market. Entities

covered by the term 'FII' include "Overseas pension funds, mutual funds, investment trust, asset management company,

nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts,

charitable societies, a trustee or power of attorney holder incorporated or established outside India proposing to make

proprietary investments or investments on behalf of a broad-based fund .

Foreign Institutional Investors (FIIs) are allowed to invest in the primary and secondary capital markets in India

through the Portfolio Investment Scheme (PIS) administered by the Reserve Bank of India (RBI). Under this scheme

FIIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

India, which is the second fastest growing economy after China, has lately been a major recipient of Foreign

Institutional Investor (FII) funds driven by the strong fundamentals and growth opportunities. According to analysts,

the late revival of monsoon, upward revision of economic growth from 5.8 per cent to 6.1 per cent, better-than-

expected performance of companies in the quarter ended-June 30, the new direct taxes code, leading to savings in the

tax payer's money, and the trade policy with an ambitious target of US$ 200 billion exports for 2010-11 have all revived

the confidence of FIIs investing in India. Both consumption and investment-led industries linked to domestic demand,

such as auto, banking, capital goods, infrastructure and retail, are likely to continue attracting FII funds.

TREND ANALYSIS

The term "trend analysis" refers to the concept of collecting information and attempting to spot a pattern, or trend, in

the information. In some fields of study, the term "trend analysis" has more formally-defined meanings.

In project management trend analysis is a mathematical technique that uses historical results to predict future

outcome. This is achieved by tracking variances in cost and schedule performance. In this context, it is a project

management quality control tool. The analysis of a variable's past value changes to determine if a trend exists and if so.

What the trend indicates? A technical analyst may graph a stock's price throughout a period of time to determine

whether a trend has been established. This is a type of technical analysis that is used /or attempt to predict the future

movement of a stock or institutional of fund.

OBJECTIVES

1) To find out the causes for investment by Foreign Institutional Investors (FIIs) in India.

2) To know the trend of investment of Foreign Institutional Investors in India.

3) To study the scope and trading mechanism of Foreign Institutional investors in India.


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4) To study the Correlation of equity flow and Debt flow of Foreign Institutional investors in India.

RESEARCH METHODOLOGY

Our entire study is based on secondary data and relevant secondary data have been collected from various books, journal

and web sites. The information regarding monthly and yearly investment by Foreign Institution Investors (FII's) in

India have been collected from the SEBI, India Infoline and Money control websites. The period covered under the

study is from January 2006 to October 2011. We have used Trend Analysis Technique by which we would able to know

the trend of investment by FII's.

Trend analysis is used to predict a trend of investment in future and know the impact of past in present or in future. In

trend analysis one can also compute the percentage and know the results about future. Here the purpose of using trend

analysis is to determine and find trend of FIIs investment in India.

TREND ANALYSIS OF FII'S

Table -1 FII Investment in India in 2006

Months Equity Debt

Jan-06 3,220.70 -869.5

Feb-06 7,571.90 -151.6

Mar-06 6,532.30 -214.5

Apr-06 589.2 235.8

May-06 -8,247.20 706.8

Jun-06 1,418.20 395.7

Jul-06 1,447.90 82.4

Aug-06 4,774.00 811.6

Sep-06 6,231.70 628.3

Oct-06 4,578.54 1,066.65

Nov-06 6,574.74 884.33

Dec-06 -3,410.90 53.2

Chart - 1

Amount in Crores

TREND ANALYSIS OF FOREIGN INSTITUTIONAL INVESTORS (FIIS) INVESTMENT IN INDIA OF

MONTHLY FLOWS DURING JANUARY 2006 - OCTOBER 2011

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Table 1 reveals that in the year 2006 FIIs equity inflow was less than in comparison to outflow i.e. FIIs have withdrawn

the highest amount for the year. FIIs withdrew Rs. 8,247.20 Crore in May, 2006 followed by Dec. 2006. Inflow of

funds by FIIs in India was highest in Feb. 2006 i.e. Rs. 7,571.90 Crore followed by Rs. 6,574.74 in Feb. 2006.

Chart - 2

Nifty VS FII Equity for 2006

Table -2 FII Investments in India in 2007

Months Equity Debt

Jan-07 94.45 -1,747.57

Feb-07 6,065.00 421.5

Mar-07 1,403.30 2,164.00

Apr-07 5,431.80 620.1

May-07 4,574.50 1,360.10

Jun-07 7,939.60 -772

Jul-07 18,132.80 -1,101.60

Aug-07 -7,526.80 471.3

Sep-07 18,948.50 2,775.50

Oct-07 15,577.60 2,088.20

Nov-07 -4,597.40 -391.4

Dec-07 4,896.70 3,261.00


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Chart - 3

Amount in Crores

In the year 2007, FIIs average inflows and outflows of funds for equity were very high. FIIs investment to equity was

highest Rs 18,948.50 Crore and Rs. 18,132.80million in July 2007 and Sep. 2007 respectively, while FIIs have

withdrawn two times in the same year i.e. Rs. 7,526.80 Crores in August. Rs. 4,597.40 Crore in Nov. 2007.W h e r e a s ,

FIIs withdrawn from debt thrice in 2007. The FIIs investment inflow has increased to Rs. 3,261.00 Crores in December

2007.

Chart - 4




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Months Equity Debt

Jan-08 -17,326.30 1,842.70

Feb-08 5,419.90 2,496.80

Mar-08 124.4 -879.7

Apr-08 979 -1,701.70

May-08 -4,917.30 -162.9

Jun-08 -10,577.70 -826.9

Jul-08 -1,012.90 3,594.80

Aug-08 -2,065.80 1,188.70

Sep-08 -7,937.00 3,090.40

Oct-08 -14,248.60 -2,047.50

Nov-08 -2,820.30 5,404.60

Dec-08 1,330.90 341.1

Chart - 5

Amount in Crores

Table 3 shows equity outflow trend throughout the year. In Jan. 2008 FIIs have withdrawn Rs. 17,326.30 Crore which

was the highest amount withdrawn in 2008. Inflow of funds was quite less. Whereas, the debt inflow was quite good

comparing to equity inflow. In the month of November the Debt inflow was very good, whereas the equity has outflow

due to recession.


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Chart - 6



Months Equity Debt

Jan-09 -3,009.50 -168.8

Feb-09 -2,690.50 -369.1

Mar-09 269 -6,481.90

Apr-09 7,384.20 2,684.50

May-09 20,606.90 -2,798.60

Jun-09 3,224.90 743.8

Jul-09 11,625.30 2,361.20

Aug-09 4,028.70 -484.4

Sep-09 19,939.50 2,122.40

Oct-09 8,304.10 7,046.30

Nov-09 5,317.80 236.8

Dec-09 10,367.20 -1,433.80

Chart - 7

Amount in Crores



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Year 2009 was good from India's point of view because in 2009 FIIs investment has been highest since 2004. In May,

2009 FIIs invested Rs. 20,606.90 crore followed by Rs. 19,939.50 crore in Sep.2009. FIIs have withdrawn two times

i.e. in Jan. and Feb. 2009.

Whereas debt market outflow was more, in a year FII's has withdrawn more debt and invested in FII.

Chart - 8



Months Equity Debt

Jan-10 5,902.40 11,564.50

Feb-10 2,113.50 2,209.80

Mar-10 18,833.60 10,136.70

Apr-10 9,764.50 5,226.10

May-10 -8,629.90 5,716.00

Jun-10 10,244.60 95.4

Jul-10 17,120.60 8,137.30

Aug-10 11,185.30 1,988.40

Sep-10 29,195.80 7,625.30

Oct-10 24,770.80 -4,521.10

Nov-10 18,519.90 3,975.90

Dec-10 1,476.10 2,288.50


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Chart - 9

Amount in Crores

FIIs inflow to equity was quite satisfactory in 2010 as it was in 2009. FIIs investment was Rs. 29,195.80 crore and

Rs24,770.80 crore in September and October respectively. FIIs have withdrawn Rs. 8,629.90 Crore in May,

2010.Aslo 2010 central election results brought back the bullish trend in the market.

FII inflow to debt was quite satisfactory throughout the year 2010. FII have withdrawn Rs. 4,521.10 crore in October

2010.

Chart - 10




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Months Equity Debt

Jan-11 -6,330.20 11,086.40

Feb-11 -3,754.50 -1,775.20

Mar-11 6,966.70 2,302.10

Apr-11 7,018.50 -458.3

May-11 -5,158.20 2,648.10

Jun-11 3,172.10 1,308.30

Jul-11 7,411.10 2,664.70

Aug-11 -10,214.60 2,888.80

Sep-11 -1,147.00 -1,251.80

Oct-11 2,468.80 1,189.40

Chart - 11

Amount in Crores

FII withdrew lot of money from equity in this year; it's a bad year for market. Even the inflow is not good, comparing to

the year 2010. Whereas, the debt inflow was quite good comparing equity flow. Very few outflow of funds in debt

market also found.


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Chart - 12


Table -7 FII Investments in India Year Wise

Year Equity Debt

2006 31,281.08 3629.18

2007 70940.05 9149.13

2008 -53051.7 12340.4

2009 85367.6 3458.4

2010 140497.2 54442.8

2011 432.7 20602.5

Chart - 7

Total Flow of FII (year wise)



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FINDINGS

We found that in 2009 FIIs have invested Rs. 88,826 Crores in both equity and debt. While they have withdrawn

Rs. -53,051.70 Crores in 2008 it was the effect of global meltdown or recession in world economy. But for debt

market the inflow of FII was quite good comparing equity. " The FII vs Equity tables show that FIIs have less

impact on Indian stock indices and other unexplained variables are also influencing the Indices.

We found that in 2008 FII's have invested lowest amount in equity of Rs. 7,854.20 crore.

We found that in chart - 7 since 2006 there is no outflow of FII for Debt market.

We found that there is no correlation between equity and debt flow of FII.

We found that domestic sources of outside finance are limited in many countries, particularly those with emerging

markets. Through capital market liberalization, foreign capital has become increasingly significant source of

finance.

We also found that FIIs Investment is depend on the economic condition of the nation, as we can observe from

table-3 that during the time of economic recession FIIs have withdrawn their maximum amount.

As table 8 shows that there was highest inflow of funds by FIIs in 2009. One of the reasons was the growth of stock

market. The FII money found its way to the different financial asset classes, including emerging Indian capital

markets.

The main reason why FIIs put their money in India is because goods and providing services at a lower cost. The

scarcity employment opportunities can easily hire a well qualified or even an over qualified professional at lower

cost.

During the study we found that Market size, Political scenario, Labour cost and productivity, Liberalized Trade

Policy, Infrastructure, Incentives and Operating conditions and Disinvestment policy were the causes of FIIs

investment in India.

CONCLUSION

The important result of this analysis is that the FIIs investment behaviors are determined by stock market return and risk

in and economic factors of India. FIIs investment decisions are not major factors for stock market boom and crash in

India but there are numerous other reasons which determine the trend of FIIs inflows and outflows from and in India. As

we have seeing that India's rapid annual growth rate of more than 8 per cent is reflected in the performance of funds

investing in the country. In 2008 FIIs have withdrawn Rs.60, 905.90 Crore and on the contrary FIIs invested Rs.91,

067.60 Crores in 2009 which reflect that strong economic conditions plays very vital role in influencing FIIs inflows in

the country. One of the impacts of Global Meltdown has been observed during the year 2007-08 while in the year 2009

FIIs have again infuse money into the Indian financial market because they may predict the positive signs of Growth of

Indian Economy. Nowadays FIIs are the major contributors to the stock markets. The pros of allowing FIIs to invest in

the Indian markets far outweigh the cons. Simply banning participatory notes cannot he a solution. It is up to the policy

makers of India to allow to operate and provide them with more opportunities and reasons to invest in Indian markets.

Domestic sources of outside finance are limited in many countries, particularly those with emerging markets. Through

capital market liberalization, foreign capital has become increasingly significant source of finance. Since India is a labour

intensive country. Therefore, in developing countries like Indian foreign capital helps in increasing the productivity of

labour and to build up foreign exchange reserves to meet the current account deficit. Foreign Investment provides a

channel through which country can have access to foreign capital. It is required to understand when they withdraw their

funds and when they pump in more money. Higher Sensex indices and high price earnings ratio are the country level

factors attracting more foreign investment in India. Our study reveals that there is a growth trend in FIIs investment in


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India. Investment of FIIs kept on growing from 2006 to 2009. There is no impact of FII for Debt market also. The

Debt market in entirely depends on the rates of the country.

REFERENCES

1. Agarwal, Chakarbarti and Trivedi & Nair (2003), Determinants of Flls Investment Inflow to India. Paper

Presented in 5th Annual Conference on Money & Finance in the India Economy, Indira Gandhi Institute of

Development Research, Jan. 30-Feb. 1, 2003.

2. David Carpenter, Partner Mayer, Brown, Row & Maw LLP (2005), Foreign Investment in India, Journal of

Financial Research, Vol. 19.

3. Dhamija Nidhi (2007), Foreign Institutional Investment in India, Journal of Research in Indian Stock Volatility,

Vol.14.

4. Stanely Morgan (2002), Flls influence on Stock Market. Journal of Impact on Institutional Investors, Vol. 17.

5. www.Sebi.gov.in

6. www.moneycontrol.com



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