Foreign Institutional Investors and Indian Stock Market

“India is shining.” This was a slogan of NDA government before going to elections during 2003. Though the government changed at the centre, the same situation prevails in the economy. In fact, there was a doubt about the economic reforms of UPA government from the beginning since the left parties who support the government from outside are against Liberalization, Privatization and Globalization (L.P.G). After the adoption of LPG philosophy from 1991, the flow of foreign funds gradually increased and in 21st century it became vital. Of late, the Indian stock market has registered tremendous growth despite high volatility in prices of stocks. The causes include global factors, information boom, IT revolution, internet myth, psychological factors, changes in the income pattern of middle class, foreign direct investment (FDI) and foreign institutional investment (FII). Among the aforesaid, the later plays a dynamic role in stock market and also causes high fluctuations in stock market prices. Many times, FIIs caused accumulation of wealth, some times caused to collapse the entire market and crores of rupees in a single trading day. The LPG policy removed the quantitative restrictions on FII. By 1991, on the recommendations of Narasimham Committee, FIIs were permitted to invest directly in the Indian stock market. Therefore, an earnest attempt is made in this paper to study the growth of FII and its impact on stock market.