Impact of Foreign Institutional Investment on Indian Stock Market Volatility Evidence from the NIFTY Bank Index

Background: Foreign investors can improve liquidity in emerging markets, but concentrated withdrawals may coincide with sharp price adjustment. Purpose: This study examines whether daily Foreign Portfolio Investment (FPI), the current regulatory category commonly described in earlier literature as Foreign Institutional Investment (FII) is associated with returns and volatility in the National Stock Exchange (NSE) NIFTY Bank Index. Data and period: The analysis combines an official NIFTY Bank daily price series with NSE-sourced daily FPI and Domestic Institutional Investor (DII) cash-market activity for 135 matched trading days from 14 January to 24 August 2026. Method: Log returns, absolute returns and squared returns are examined through screening, descriptive statistics, normality tests, Pearson and Spearman correlations, multiple regression, an independent-samples t-test and an asymmetric-flow regression. Results: FPI net investment was not significantly related to daily index returns and did not significantly predict absolute or squared-return volatility after DII activity and lagged volatility were controlled. Mean volatility was higher on net-selling days, but the difference was not significant. Although the selling-magnitude coefficient was positive and individually significant, a formal coefficient contrast did not show that selling was stronger than buying. Implication and conclusion: Recent volatility persistence mattered more consistently than net foreign flow in this short sample. Investors and regulators should therefore interpret daily FPI activity as one market signal rather than a stand-alone volatility forecast.