Foreign Institutional Investors: Trends and Investment Preferences in India

Abstract

Indian capital markets are heavily influenced by foreign institutional investments(FII). Foreign institutional investors are drawn to investing in developing economies like India because of its substantially stronger growth than developed economies. Additionally, foreign investment is crucial for developing nations like India. The Indian equity market has recently seen the emergence of foreign institutional investors as significant players. In this study, FIIs data from the past 4 years(2018-2022) is analyzed to understand the dynamics of trading behaviors of FIIs and how the investment preferences of FIIs change over time. In this research, we also intend to examine the sector-wise trends and patterns of foreign institutional investments in India. We have employed Pearson’s correlation analysis to examine the relationship between different sectors in the Indian market by using foreign institutional investors’ fortnightly sector-wise FIIs investment data. Further, quarterly data is analyzed to find the change in the net investment of different sectors and the moving average is used to get a deeper understanding of the trends. The research also examines how FII has impacted certain companies that are part of the National Stock Exchange's sensitivity index(NIFTY) and the connection between foreign institutional investment and company-specific attributes such ownership structure, financial performance, and stock performance. It is observed that FII investments are inversely related to Promoter’s holding, DII, government holdings, and the general public. The P/E Ratio, P/B Ratio, and earnings per share are some factors influencing their investment decision among the financial performance variables.