Assessing the Dynamic Impact of Foreign Institutional Investment on the Indian Stock Market: A Decade-long Analysis (2013-2023)

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Satyanath Mohapatra, Pragyan Parimita Sarangi, Bhabani Mallia

Abstract

This research examines the intricate and dynamic relationship between Foreign Institutional Investment (FII) and the performance of the Indian stock market, focusing on the NIFTY 50 and BSE Sensex indices over a decade from December 2013 to December 2023. Drawing from prior studies and utilizing data from credible sources, such as stock market indices and FII investment records, the study employs rigorous statistical techniques to assess this crucial interaction. Methods like Karl Pearson’s Coefficient of Correlation, variance, covariance, beta coefficients, R-squared, and regression analyses are applied to quantify the strength and direction of the relationship between FII activities and market indices. Additionally, the Granger causality test is utilized to evaluate whether changes in market returns can predict FII activities based on historical data, uncovering significant causative links and highlighting the responsiveness of FIIs to market movements. This investigation delves into the influence of FII on stock market volatility, price dynamics, and investor sentiment while emphasizing the role of short-term fluctuations and long-term trends. Special focus is placed on understanding the behavioral patterns of foreign institutional investors and their reactions to diverse economic conditions, as well as identifying determinants that shape their impact on the Indian stock market. The research findings are poised to enrich our comprehension of the nuanced and multifaceted connections between FII activities and stock market behavior. These insights bear significant implications for market stability, investor confidence, and the broader economic framework, offering actionable guidance for scholars, policymakers, and market participants aiming to enhance the effectiveness of investment and regulatory strategies.

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How to Cite
Satyanath Mohapatra, Pragyan Parimita Sarangi, Bhabani Mallia. (2025). Assessing the Dynamic Impact of Foreign Institutional Investment on the Indian Stock Market: A Decade-long Analysis (2013-2023). European Economic Letters (EEL), 15(1), 996–1002. https://doi.org/10.52783/eel.v15i1.2481
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