Relationship between Foreign Investment and ESG Stock Market Indices

Abstract: The study analyzes the impact of ESG Index Return on foreign portfolio inflows and volatility of foreign portfolio inflows in equity. It employs the return on Nifty 100 ESG index to proxy for ESG returns. The dependent variable (net foreign portfolio investment in equity) is percentage of previous months’ stock market capitalization at the NSE. Standard deviation over a rolling window of 3 months is used to compute capital flows volatility. The study strengthens the positive feedback trading behavior of foreign portfolio investors while confirming the pivotal role of global factors in influencing the investment decisions of foreign investors. It ascertains the effect of the COVID-19 pandemic on foreign portfolio flows to the Indian stock market and establishes that the pandemic exacerbated the volatility of these flows. Keywords: EGG Index, Foreign Intuitional Investors, Volatility Index, Performance Measure JEL Classification Number: C22, C53