Impact of Flow of FDI on Indian Capital Market

Abstract

Foreign direct Investment plays a very vital role in the economic development of both developing as well as developed nations. Large number of the countries are integrated and pursuing their international operations due to foreign direct investment. Fast growing economies like China, Korea and Singapore etc have registered incredible growth at the onset of FDI. As we know that FDI provides an access to the foreign capital but at the same time FDI also helps to provide the most modernize technology available, various tools of innovations and other complementary skills. Now the government plays a very vital role in drafting and executing various policies regarding the inflow of FDI. The FDI policies framed on the part of the government will act as a stimulus so that various foreign countries may be attracted to ensure their investment in India. No doubt that amount of the inflow of FDI will account to our growth in GDP but at the same time the Indian stock market will also be affected due to the inflow of FDI. This paper will attempt to study the impact of foreign direct investment on the Indian stock market. Various statistical tools will be applied in order to analyze the study. The tools to be used are coefficient of correlation, regression analysis. In order to study the impact, Sensex and nifty are used as they are representing the Indian stock market. Data of 12 years 2001-2012 suggests that amount of FDI has a direct impact on both Sensex and Nifty. The study concludes that flow of FDI in India determines the trend of Indian Stock Market.

Keywords: FDI, Stock Market