Influence of Foreign Institutional Investors on NSE: Trends and Insights from 2000 to 2020

Abstract: As Foreign Institutional Investors (FIIs) continue to play a pivotal role in shaping the dynamics of the Indian stock market, their impact extends beyond mere capital inflow; it also encompasses the enhancement of market efficiency and liquidity. The influx of foreign investment has led to increased competition among domestic firms, compelling them to improve operational efficiencies and adopt innovative practices to attract further investments. Furthermore, this competitive environment fosters greater transparency and corporate governance standards as companies strive to meet the expectations of international investors who often demand stringent compliance with best practices. Consequently, the growing presence of FIIs not only stimulates economic growth through direct financial contributions but also cultivates a more robust and resilient market infrastructure that can withstand global fluctuations. This research examines the impact of Foreign Institutional Investors (FIIs) on the National Stock Exchange (NSE) using secondary data aggregated from credible sources such as the SEBI Handbook of Statistics, Government of India publications, and the official NSE websites. The study spans two decades, from the fiscal year 2000–2001 to 2019–2020, offering a comprehensive view of the long-term trends and dynamics in the Indian stock market. Daily closing index values form the basis for analysing return and volatility. Employing robust statistical methodologies—cross-correlation, regression analysis, and trend analysis—the study explores the relationships between FIIs and NSE indices. Regression analysis, estimated using the Ordinary Least Squares (OLS) method, is applied to quantify the influence of independent variables, such as FII investments, on the dependent variable, NSE performance. The findings of this study aim to contribute to the understanding of the role of FIIs in shaping stock market behaviour and provide insights into the interdependencies within financial markets over an extended period. Keywords: FII, BSE Sensex, Return Volatility JEL Classification Number: F 21, G10, G17