A Research Proposal on Foreign Institutional Investment in India: An

Analysis since 2000

This research paper shows how Foreign Institutional Investment influences the stock market,
inflation rate, foreign exchange rates in India. Prior 1991 reforms, India faced major crunch in
foreign exchange reserves and thus felt a need of liberalizing the foreign investment policies. This
paper shows how foreign investments in developing countries is important and also talked about
the risk that affect portfolio investments in domestic country’s stock market. Such huge FII
investments can also be pulled back by the companies and there is a greater risk of volatility in
stock market. Also, when such huge amount is invested in stock market, monetary flow in economy
increases and this affects the inflation rate of an economy. Huge FIIs are made by the companies
of developed countries in developing country like India only when the economic reforms and
restrictions are least and high returns can be made from the stock market. Thus, here it is necessary
to study FII’s trends, determinants and their effects on Indian stock market and inflation rate.

Relevance:

 Foreign Institutional Investment in any company of developing country helps in economic

growth and boosts up the foreign exchange reserves in the country. Also, the risk in stock
market increases as these investments are risky because the investor can withdraw his
investment from stock market. This creates high fluctuations in stock market and thus
affects the interest of shareholders.
 Flow of investments increase all over money supply in the country and thus it effects the
inflation rate of economy. Also, this flow of foreign currency affects the value of India’s
currency.