FOREIGN INSTITUTIONAL INVESTMENT (FII) AND BSE FINANCIAL SERVICES SECTOR OF INDIAN STOCK MARKET – AN OVERVIEW OF RELATIONSHIP

Abstract

Since liberalization Foreign Institutional Investment (FII) plays an important role in the Indian economy. Foreign Institutional Investors (FIIs) are the sophisticated investors as they are always analyzing the market condition prior to invest. Bombay Stock Exchange (BSE), one of the oldest stock exchanges in India. BSE may be termed as the barometer of India economy. BSE has 14 sectoral representations, out of which Banking and Financial sector has the highest sectoral weightage. In this study, the relationship is trying to measure in between equity inflow of FII and BSE Financial services sector in the post-liberalization period. Various econometric tools have been used to investigate the relationship. Johansen Co-integration test confirms the longer relationship between the two. Valid error correction term was found under VECM. Finally, short-run unidirectional causal relation established from BSE Financial services sector to equity inflow of FII under Granger Causality test.