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Decisive Economic and Stock Market Indicators on Foreign Institutional Investments: Evidence from India

T. Mohanasundaram and P. Karthikeyan
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T. Mohanasundaram: Kongu Engineering College, India
P. Karthikeyan: Kongu Engineering College, India

Journal of Applied Management and Investments, 2017, vol. 6, issue 1, 43-57

Abstract: This study explores the determinants of Foreign Institutional Investors (FIIs) investment in India and further more examines the association between FIIs investment and selective economic and stock market variables in both home (USA and UK) and host (India) countries using quarterly time-series data from January 2002 to December 2014.The Bounds F-test for cointegration indicates there is a long-run cointegration relationship among FII investments and its exogenous variables. The outcome of long-run coefficient estimate shows that exchange rate USD-INR has negative and significant impact on FII investments in India both in long-run and short run. NIFTY returns are having significant positive impact on FII investment flows both in long-run and as well as in short-run. Producer Price Index (PPI) of USA reveals positive relationship with FII investments to India only in long-run. Thus, FII investment in India is primarily decided by USD-INR exchange rate, NIFTY returns and USA’s Producer Price Index.

Keywords: foreign institutional investments; exchange rate; inflation; NIFTY returns; cointegration; autoregressive distributed lag (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:ods:journl:v:6:y:2017:i:1:p:43-57