Impact of Foreign Institutional Investors (FII's) on the Indian Stock Market: A Sectoral Analysis of Market Fluctuations

The research examines Foreign Institutional Investors (FIIs) effects on India's stock market while determining the most volatile market sector from 2015–2024. The research adopts quantitative methodology through the analysis of secondary data obtained from NSE, Money control and Trading View. The analysis evaluated both monthly FII net investment data and changes to sectoral index performance. Linear regression models analyzed both FII flow relationships with NIFTY 50 index performance and with performances of individual sector indices. The analysis used GARCH (1,1) to measure volatility across different market sectors. A range of robustness tests included GARCH (1,0), (0,0) and (0,1) model variants. For return series analysis the data needed cleaning followed by log-transformation. The model performance evaluation relied on log-likelihood and AIC values. FII flows showed a meaningful statistical relationship with the IT sector and the Banking sector as well as the FMCG sector according to regression analysis results. The volatility persisted strongly (α + β ≈ 1) in every sector based on GARCH modelling but the IT sector displayed the highest level of volatility. Market shocks have the least impact on the Pharma sector which demonstrated stability among all sectors. Among various GARCH specifications the GARCH (1,1) model demonstrated the most suitable balance for detecting both market shock effects alongside volatility persistence levels. Foreign investors demonstrate distinct reactions in each sector because they evaluate individual risk characteristics and potential returns when making rebalancing decisions. The research provides both original value by unifying macro-level Foreign Investment Impact assessment with sectoral ARCH/GARCH volatility modelling. This assessment demonstrates varying sector responses towards worldwide capital movement. The research provides crucial insights which help investors and risk managers and policy-makers understand sectoral levels of capital flow sensitivity and volatility behaviour.