Effects of Foreign Institutional Investors in Indian Market – Post T+1 Settlement Reform

Abstract

This study explores the impact of India’s transition to T+1 settlement cycle on the behaviour and performance of Foreign Institutional Investors (FIIs) in the equity market. Implemented in phases between 2022 and 2023, the T+1 reform aimed to enhance settlement efficiency, reduce systemic risk, and provide faster fund access. Using a pre-post event study and regression analysis, the paper evaluates changes in FII inflows, trading volume, market volatility, and liquidity. Results show a modest decline in FII participation immediately after implementation, particularly in low-liquidity segments, along with temporary spikes in volatility around key reform dates. These outcomes are largely linked to operational frictions such as time zone