The stock market deals with securities already issued by the corporate. Shares are issued by the corporate to the public for the first time is called Initial Public Offering (IPO). After making the issuance of the shares/securities the companies list their security in a recognized stock exchange. After the share is getting listed, it is allowed to trade in the exchange. Share of a company is listed at a specific price, later the share price is determined by the market, generally it is fluctuating in nature, this is caused by various factors such as macro, micro economic variables and the factors specifically related to the company.

Index system is followed by exchanges, which reveals the overall movement of stock markets. Under this system an exchange considers average change in value of certain number of shares of top companies in terms of turnover of shares. So index plays as proxy for overall market movement. In India there are 21 recognized stock exchanges, among them the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are functioning as national level stock exchanges. Out of total quantity and value of shares traded in India, 99.5 per cent are traded in these two exchanges together. Among various types of investors such as individual and institutional investors, Foreign Institutional Investors (FIIs) are playing vital role in stock market, because they are playing as major investors in the market. FIIs are the foreign institutions who registered with Securities and Exchange Board of India (SEBI) as FII and make investment in Indian stock market. Presently FIIs are playing as major investors in Indian stock market, especially in equities. Until 1990, foreign investments were not allowed in to India. In early 90’s under a new economic policy as per the recommendations of Narsiman Committee, Foreign Investors were allowed to invest in India with some restrictions. In the year 1992-93, foreign investors were allowed to invest in Indian capital market. Since then the FIIs have been investing in India and their investment has been increasing. During the year 1996-97, 439 FIIs were registered with SEBI which increased to 1739 during the year 2013-14. FIIs invest about 20 per cent of the total amount invested in Indian capital market. Net investment of FIIs was Rs.51649 crore during 2013-14¹.

Foreign Institutional Investors (FIIs) are contributing more or less 20 per cent of the total investment made by all type of investors. As a major investors, their investment behaviour may affect the market either positively or negatively, the reason because FIIs are large and well educated investors. They study the market carefully and invest accordingly. They go for the sectors which are progressing and performing well. Earlier studies have identified that FIIs are concentrating on eight major sectors for investment. They are Banking, Automobile, Information Technology, Capital goods, Oil and Gas, Metal and Realty sectors. According to SEBI data, during 2013-14, 60.09 per cent of FIIs total investment went to these seven major sectors². BSE is maintaining separate indices for major sectors including these sectors. The shares belonged to concerned sector which are included in BSE 500 index are included in specific sector index. Movement of sectoral indices reveals overall movement of share prices of companies which belonged to a particular sector. A study of FII investment in a particular sector and the movement of sectoral indices will exhibit the impact of FII investment on the particular sector. Hence the study has made an attempt to analyse the FII investment in the selected sectors and movement of the concerned sector indices.

LITERATURE REVIEW:

Malayendu Sahu (2009) evidenced that there was a cause-effect relationship between Indian stock market with FII investment. The FII had an impact on foreign markets and Indian capital markets and also it affected foreign exchange rate and stock price movement. Positive correlation was found between net investment by FII and movement of stock market. Jimmy Kapadia, Pooja Patel and Bhavik Pancholi (2010) found very low positive correlation between FII net investment and Sensex returns during 2007. Ganesamoorthy and Shankar (2012) evidenced that FII net investment was increased at rate higher than the rate of increase of select indices. The study found positive relationship between FII net investment and return of select indices during 2001-10. The study also evidenced that the impact was more during the second sub period. Syed Tabassum and Pardhasaradhi (2012) evidenced a moderate positive Correlation between FII and Sensex and FII had a significant impact on Indian stock market. Sayantan Bandhu Majumdar and Rajandra Narayan Nag (2013) found that higher stock market returns amplified the volume and volatility of the FII without any evidence on the other direction. The study also found that the flow of FII had no significant effect on the inducing volatility in the stock market.

STATEMENT OF THE PROBLEM:

FIIs are investing in Indian stock markets because it gives high returns than other developed and most of the developing markets. There are various sectors in India and all the sectors are not performing uniformly. There is variation among the performance of sectors in terms of return in stock markets. FIIs try to find best performing sectors in the view of getting more return and prevent from losses. Many studies have been made to analyse the impact of FII investment on stock market movement at a whole. Investigating the impact of FII investment in a particular sector and the movement of the sector index was very limited. Hence the researchers have made an attempt in this aspect.

OBJECTIVES:

1. To study the trend of selected sectoral indices and

2. To study FIIs investment in selected sectors and its impact on the movement of sectoral indices.

METHODOLOGY:

The data related to FIIs investment in selected sectors and sectoral indices were collected on fortnightly basis from 15^th January 2012 to 31^st March 2014. For this purpose of analysing trend of select sector indices, the data collected for 10 years from 2004-05 to 2013-14 on yearly basis. The study applied trend analysis and correlation analysis as statistical tools. The data were collected from various reports of SEBI and official websites of BSE and SEBI. Methodologies followed for analysis are presented subsequently. For the purpose of analysis, return on selected sectoral indices, FII net investments were calculated and correlation analysis was applied to know the impact.

Impact of FIIs investment on the movement of selected sectoral indices was calculated as,

Where, x refers to change of FII investment, Y refers to return on index.

Returns on selected sectoral indices were calculated as,

Where, SI refers to Sectoral Index, t- current period and t-1 – previous period.

FIIs’ net investment was calculated as,

Where, I refers to changes in FIIs investment, t- current period and t-1 – previous period.

RESULTS AND DISCUSSION:

The scripts which are included in broad based index of BSE 500 are classified on the basis of sector and they are the components of sectoral indices. This index reveals the performance of each sector in terms of share price movement. The study analysed the effects of FIIs net investment in select sectors and its impact on the movement of concerned sectoral indices maintained by BSE. The study has taken seven major sectors for which separate indices are maintained by Bombay Stock Exchange (BSE) namely Automobile, Bank, Capital Goods, Information Technology (IT), Metal and Mining, Oil and Gas and Realty sectors. The selected indices of BSE were BANKEX, BSE AUTO, BSE IT, BSE CG, BSE METAL and BSE REALTY. Table 1 gives the results of trend of select sector indices of BSE for the period of ten years.

Table 1: Trend of Selected Sectoral Indices of BSE

Year	BSE BANKEX	% Change	BSE AUTO	% Change	BSE IT	% Change	BSE CG	% Change
2004-05	3847.96		2644.94		2701.35		3192.17
2005-06	5265.24	36.83	5322.73	101.24	4030.29	49.20	8170.56	155.96
2006-07	6542.01	24.25	4869.13	-8.52	4899.39	21.56	9074.72	11.07
2007-08	7717.61	17.97	4524.77	-7.07	3547.61	-27.59	14009.02	54.37
2008-09	4490.97	-41.81	3061.67	-32.34	2285.68	-35.57	6466.03	-53.84
2009-10	10652.35	137.19	7671.24	150.56	5237.5	129.14	14081.74	117.78
2010-11	13299.77	24.85	9290.75	21.11	6548.1	25.02	13092.14	-7.03
2011-12	11751.18	-11.64	10134.88	9.09	6081.87	-7.12	10027.92	-23.41
2012-13	13033.35	10.91	9994.23	-1.39	6885.46	13.21	9017.59	-10.08
2013-14	14572.46	11.81	13280.27	32.88	8789.38	27.65	12011.23	33.20
Mean	9117.29		7079.46		5100.66		9914.31
SD	4006.65		3524.95		2031.63		3500.32
CV	43.95		49.79		39.83		35.31
CAGR	14.24		17.51		12.52		14.17

Table 1: Cont....

Year	BSE OG	% Change	BSE METAL	% Change	BSE REALTY	% Change
2004-05	3053.95		6323.04
2005-06	4918.98	61.07	8869.91	40.28	1588.53
2006-07	6419.18	30.50	8488.44	-4.30	5646.06	255.43
2007-08	10016.82	56.05	14022.56	65.20	7554.8	33.81
2008-09	7053.04	-29.59	5795.07	-58.67	1560.83	-79.34
2009-10	10159.14	44.04	17973.81	210.16	3273.56	109.73
2010-11	10240.64	0.80	16161.39	-10.08	2337.01	-28.61
2011-12	8087.5	-21.03	11346.31	-29.79	1708.05	-26.91
2012-13	8326.6	2.96	8758.32	-22.81	1780.09	4.22
2013-14	9485.72	13.92	10059.1	14.85	1468.4	-17.51
Mean	7776.16		10779.80		2990.81
SD	2424.93		4079.29		2174.51
CV	31.18		37.84		72.71
CAGR	12.00		4.75		NA

Source: Computed from data collected from www.bseindia.com

It could be known from table 1 that BSE bank index (BSE BANKEX) increased drastically during the study period. It increased from 3847.96 points in 2004-05 to 14572.46 points in 2013-14. Mean value of the index was 9117.29 points. The results of standard deviation and co-efficient of variation showed a moderate level of deviation in the index from its mean value. The calculated value of CAGR (14.24 per cent) showed drastic increase in the index during the study period. The results also showed that during 2008-09, the index decreased rapidly by 41.81 per cent due to global economic crisis and during 2011-12 it met an another decrease by 11.64 per cent. BSE index for automobile industry (BSE AUTO) increased over the study period from 2644.94 points in 2004-05 to 13280.27 points in 2013-14. It recorded a compounded annual growth rate of 17.51 per cent. There was a moderate level of deviation in the index of BSE AUTO over the study period as shown by the results of SD and CV at 3524.95 points and 49.79 per cent respectively. BSE AUTO met a decrease during 2006-07 to 2008-09, the rate of decrease during 2008-09 was severe at 32.34 per cent, as other sectoral indices. The index decreased again during 2012-13, but the rate of decrease was lower (1.39 per cent). The index of BSE IT (for Information Technology sector) was also in increasing trend over the study period. It decreased during 2007-08 by 26.59 per cent, by 35.57 per cent during 2008-09 and it met another decrease during 2011-12 by 7.12 per cent. The results of SD and CV indicated lower level of deviation of the index from its mean value during the study period. The calculated value of CAGR was 12.52 per cent, it showed normal rate of growth of the index during the study period.

The index of BSE CG (Capital Goods) recorded very high growth during 2005-06 and 2009-10 by 155.96 and 117.78 per cent respectively. The index went down at a high rate (53.84 per cent) during 2008-09 due to global financial crisis. The index also decreased over previous year during three continuous years from 2010-11 to 2012-13. The results of SD and CV indicated minimum level of deviation in the index from its mean value. The results of CAGR (14.17 per cent) showed a considerable growth in the index during the study period. BSE index for oil and gas sector (BSE OG) recorded considerable growth during 2005-06 to 2007-08 by 61.07, 30.5 and 56.05 per cent respectively. During 2008-09, it met a downfall by 29.59 per cent over previous year due to global financial crisis, but the rate of decrease was lower than any other selected sectoral indices. The reason is that this sector mainly dealt with foreign currency, and hence derived the benefit from fluctuation of exchange rate (upward) of Indian currency against foreign currencies. The index increased by 44.04 per cent during 2009-10 and it met a decrease again during 2011-12 by 21.03 per cent. Moderate level of deviation was found in BSEOG index as shown by the results of SD and CV. The result of CAGR showed a considerable growth in the index during the study period.

The index of BSE METAL was fluctuating every year. It increased considerably during 2005-06 by 40.28 per cent, its growth rate was high during 2007-08 (65.20 per cent). During 2008-09, the index went down (by 58.67 per cent) as other sectoral indices. But during 2009-10, the index recovered from the crisis unlike other indices (by 210.16 per cent). But during the following three years the index decreased continuously and it went up during 2013-14 by 14.85 per cent. The results of SD and CV showed moderate level of deviation of this index from its mean value and the results of CAGR (4.75 per cent) showed poor growth of this index during the study period. BSE REALTY index is highly fluctuating over the study period. The index was incepted only during 2005-06. It increased at very high rate during 2006-07 (255.43 per cent). As other indices this index also decreased during 2008-09 due to global financial crisis, it recovered during the next year, it was decreasing during the remaining years of the study period except 2012-13. The results of SD and CV showed high deviation of the index from its mean value.

#It was observed that during the year 2008-09 all the sectors were affected due to global financial crisis, hence the sectoral indices of BSE also experienced downfall during the year. Realty sector affected severely (79.34% down over previous year) followed by BSE METAL, BSE CG and BSE BANK EX. BSE OG was the least affected sector during global financial crisis followed by BSE AUTO and BSE IT.

Impact of FII Investment on Sectoral Indices

Table 2 gives the results of correlation analysis between FII net investment and return on selected sectoral indices of BSE in order to know the impact of FIIs investment on selected sectoral indices.

It was found from table 2 that FIIs net investment in finance sector and the index of BSE BANKEX (proxy index for finance sector) were highly and significantly correlated (0.878). hence FIIs investment in finance sector had significant impact on BSE BANKEX. FIIs net investment on automobile sector had high and significant correlation with the index of BSE AUTO (proxy index for automobile sector), which indicated significant impact of FII investment in automobile sector on the index of BSEAUTO. The correlation between FIIs net investment on information technology sector was higher (0.917) with the sectoral index for IT (BSE IT) than any other sectors. It showed significant impact of FIIs net investment in IT sector on the index of BSE IT.

BSE maintains separate index for the sector capital goods called BSE CG. The results of table 2 shows significant correlation of FIIs net investment in the sector on the index of BSE CG (proxy index for capital goods sector). It indicated significant impact of FIIs investment in the sector on the movement of BSECG. But correlation co-efficient is lower than other sectors. FIIs investment on oil and gas sector had significant correlation on the index of BSE OIL and GAS. It showed a significant impact of FIIs investment on oil and gas sector on the movement of the index BSE OIL and GAS. FIIs investment in metal sector had high and significant correlation (0.905) on the movement of the index of BSE METAL. It reveals significant impact of FIIs investment in metal sector on the movement of the index BSE METAL. There was very low negative and insignificant correlation between FIIs net investment in realty sector and the movement of the index BSE REALTY. Unlike other sectors, FIIs investment in the sector did not have significant impact on the movement of BSE REALTY. It is because the amount of investment of FIIs in the sector was comparatively less and there are some restrictions in making investment in reality sector by FIIs.

CONCLUSION:

Movement of stock market is driven by various factors. FIIs investment is one of the factors which effect market movement. FIIs are the major investments in Indian stock market. They analyse the market and select good performing sectors for making investment. Their investment is about 20 per cent in the stock market. The study analysed the impact of FIIs investment in major sectors in terms of in which FIIs had invested more and on the movement of concerned sectoral index maintained by BSE. The study selected seven major sectors and their sectoral indices. The study found that growths of the indices BSE AUTO, BSE BANKEX, BSE CG, BSE IT and BSE OG were high, the growth rate of the index BSE METAL was low and there was adverse growth in the index BSE REALTY. The study also evidenced that FIIs investment in the sectors of finance, automobile, information technology, capital goods, oiland gas and metal had significant impact on the concerned sectoral indices and the co-efficient of correlation was very high. FIIs investment in realty sector did not have significant impact on the movement of sectoral index of BSE REALTY.

REFERENCE:

1. SEBI Handbook of Statistics, 2014. Securities and Exchange Board of India.

2. Bandyopadhyay Sankhanath. Foreign Institutional Investment: Issue and Challenges. Foreign Institutional Investments-Perspective and Experiences, ICFAI University Press; 2005: 3-18.

3. Malayendu Sahu. Stock Market in India and Foreign Institutional Investment: An Appraisal. Journal of Business and Economic Ties. 1(1); 2009: 1-5.

4. Jimmy Kapadia, Pooja Patel and Bhavik Pancholi. Relationship between FII and Sensex, International Journal of Research in Commerce and management. 1(6); 2010: 96-104.

5. Ganeshamoorthy L and Shankar H. Dynamics of FII Investment and Stock Market Returns in India: An Empirical Analysis, Indian Journal of Finance. 6(5); 2012: 25-31.

6. Syed Tabassum and Pardhasaradhi S. Impact of Flow of FDI and FII on Indian Stock Market, Finance Research. 1(3); 2012: 4-10.

7. Sayantan Bandhu Majumdar and Rajandra Narayan Nag. Foreign Institutional Investment, Stock Market and Volatility: Recent Evidence from India, Indian Journal of Finance. 7(7); 2013: 23-31.

	BSE BANKEX	BSE AUTO	BSE IT	BSE CG	BSE OIL and GAS	BSE METAL	BSE REALTY
Pearson Correlation	0.878	0.799	0.917	0.782	0.796	0.905	-0.099
Sig. (2-tailed)	.000	0.000	0.000	0.000	0.000	0.000	0.480
N	53	53	53	53	53	53	53