FOREIGN INSTITUTIONAL INSTITUTIONS DEFINITION: A hedge fund, pension fund manager, mutual fund, bank,

insurance company, large corporate buyer, or a representative agent for any of these parties that is registered to do business in a country other than where the investment instrument is being purchased. The investor takespositions in foreign financial markets on behalf of the institution in the home country.

Analysis of Indian Stock Market Overview of Indian Stock Market Stock markets were first introduced to India in 1875 as a non profit making organisation. Bombay Stock exchange is the oldest stock market in whole Asia. Stocks in India are traded on the stock exchanges which are around 23 which includes Bombay Stock Exchange and National Stock Exchange. Stock exchange is a corporation which provides its brokers to trade stocks of companies which are listed with them. The organisation of Stock Exchange, its systems and practices are regulated by Securities Contract, (Regulation) Act (SC(R) ACT), 1956.They are highly efficient organisations which have led to growth of securities market. Stock exchanges trade securities which include shares, unit trust, pooled investments and also bonds which are listed on them. Members of the stock exchange act as its agents as they are only allowed to trade on behalf of their customers who pay brokerage to them for the services provided by them. Stock exchanges also provide plenty of services as in issuing and redeeming shares and also in payment of dividends to its shareholders through its participants or members. Stock exchanges are important even though it is not necessary to issue shares via stock exchange. Shares are normally issued through Initial Public Offering (IPO). Stock exchanges play a major role in the economy as of today as they help with expansion plans of the country by mobilising the savings to investments and also by redistributing wealth among the economy. Stock exchanges maintains the records of all the shareholders at one central location but shares that are traded on stock exchange they are not dependent on that central location as the computerisation has made it easier to trade stocks. All stock exchanges

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have become an important part of world market for securities as global investors can invest in any market from anywhere. Importance of Stock Markets in India: Stock markets play an important role in the economy as they are now the financial indicators of growth in any country. They represent the crux of functioning of all the sectors of country. NSE NIFTY comprises of 50 top Indian companies from each sector and BSE SENSEX comprises of 30 companies from all the sectors. The following points describe the role stock markets play in India: Improving Corporate Governance: Since Stock markets are regulated by SEBI, companies are bound to follow the rules and regulations in order to have a good market value of their stocks on stock markets. This is possible only if they keep their shareholders satisfied. So they generally tend to improve their company procedures and management standards to keep up with other companies. They make their financial performance and other important company decision available to its shareholders and also take all necessary steps to make their company fundamentally strong in order to attract foreign investment. Diversification of Investment opportunities: Everybody wants to have their wealth increased and in order to do so they need to invest in places where they think is most profitable. Take for example small investors; If an investor wants to invest its money into real estate as their is expected to be a boom in that sector but he doesn't have large sum of money to invest in property, so in order to take advantage of opportunity, instead of really investing into property which he cannot afford he can invest in company dealing in real estate sector through stock market. This way he can have the advantage of boom in the sector with his investment and he will also have the opportunity to invest in any other sector which he thinks is profitable. Mobilising Savings: People earn money and then they save it for their future but this approach is not favourable for the growth of the economy of any country. So savings needs to be mobilised and converted them into investments to have a growing economy. Stock markets have created a good platform for investors to invest money as they can invest or withdraw anytime they want. Indian investors which include small investors as well as domestic and foreign institutional investors have seen a growth in number of investors over the years. This has helped India to mobilise investments in under developed sectors and have a balanced growth. Redistribution of Wealth: By investing in different stocks, stock markets give chance to its investors to become part of the different companies and help them to make profits in their stocks and have a systematic growth in their money. This helps in money flow and helps in reducing inequalities of income. This way income gets distributed among wide spectrum of investors and it helps in improving standard of living of different investors by redistributing wealth. Raising of Money by Corporate and Government: In order to go ahead with the expansion, the big corporate and even the government needs money. In order to go for

large scale expansion it is not sensible to invest all the money from your own pocket. So in order to reduce the risk, big corporate and Governments divide the risk by raising money from public. Public basically are investors who want to be part of the expansion plans lend money to these corporate and government and expect return on their investments. Companies come up with IPO and government may issue bonds. These investments don't have any fixed obligations to pay but they tend to pay returns to its investors. Stock markets facilitate issuance of IPO and bonds and helps companies and government in raising money. Investors then become the shareholders of the company and have right to participate in the decision making of the company as they have right to vote. SEBI protects the right of these investors and avoid any discrepancies from happening. 6. Barometer of Economy: Stock markets are the mirror of any economy. They represent the country in terms of its progress and its economic outlook. If the stock markets are volatile then the foreign investors tend to stay away from the markets but if the stock markets are stable in their performance and fundamentals of the company are strong, foreign investors tend to flush the money in economy and help in keep a positive balance of payments. Economic stability also helps in getting the currency strong against other countries. Indian companies are based on strong fundamentals and stock market looks positive and hence foreign investors are eyeing Indian stock market with top preference among all the emerging economies. Analysis of Foreign Institutional Investors Foreign Institutional Investors: Foreign Institutional investors are those investors which are registered with Securities and Exchange Board of India to participate in the market. This term is basically used in context to India and it refers to those institutions or organisations which invests their money into financial market of India. These organisations are incorporated in countries outside India and they may include: Hedge Funds Pension Funds Mutual Funds Insurance companies Investment trusts Banks Endowments Foundations University Funds Charitable Trusts Following entries proposed to invest on behalf of broad based funds, are also eligible to be registered as FIIs:

Asset Management Companies Institutional Portfolio Managers Trustees Power of Attorney Holders

Eligibility Criteria for deciding FIIs Application by SEBI

1. Applicant's track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. 2. The applicant should be registered and regulated by appropriate Foreign Regulatory Authority in the same capacity in which application is filed with SEBI 3. The applicant should be fit and proper person 4. The applicant should have been in existence for past one year. In order to invest in Indian Stock markets, FIIs have to abide by rules and regulations imposed by SEBI. FIIs have to register themselves with SEBI. Registration process takes seven working days and these days start from the day FIIs give complete documents to SEBI for registration with registration fees of US $5000.
Financial Instruments Applicable to FIIs

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The financial instruments applicable to FIIs are: Securities in primary and secondary markets which includes shares, debentures, warrants of companies, listed companies, unlisted companies or companies in the process of listing. Units of Mutual Funds Dated Government Securities Derivatives traded on a recognized stock exchange Commercial papers
Regulations for Foreign Investors:

Foreign Institutional Investors, Persons of Indian Origin and Non-Resident Indians are allowed to invest in Indian stock market through Portfolio Investment Scheme to acquire an interest in Indian companies through Stock exchange on the following basis: FIIs can invest in Indian company up to 24% of the paid up capital of the company. This limit can be enhanced to statutory ceiling limit of the company if a special resolution is passed by the board of directors and the general body of the company. NRIs and PIOs can invest in Indian company to the limit of 10% of the paid up capital of the company. This limit can be increased to 24% by passing a resolution subject to approval of general body of the company. There is no co-relation between the ceiling limit of FII and NRI or PIO. The limit mentioned above is the overall limit of FIIs/NRIs/PIOs regardless of number of FIIs/NRIs/PIOs

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The Securities and Exchange Board of India was established on 12th April 1988 as a non statutory body in order to deal with matters related to development and regulation of securities market, investor protection and to advise government on all the matters. (http://www.sebi.gov.in/bulletin/glossarycover.pdf) It became an independent body in 1992 when it was given more powers. Objectives of SEBI The main objective of SEBI is to look after the interest of the investors, so that they don't suffer due to any irregularities of the companies. Another objective of SEBI is to constantly involve with regulating and developing of its securities market so that it becomes easier for its investors to trade on it and for issuers of securities by simplification of its processes. In order to achieve these objectives SEBI has introduced regulatory measures, code of conduct for its participants, limits of their involvement, financial obligation which its participants may have to incur in case of deviation from their course of action and it has also taken steps to stop manipulations in order to make it convenient for investors to invest by making all the procedures transparent. Functions of SEBI According to Section 11 of the Securities and Exchange Board of India Act, functions of SEBI are: To regulate the businesses of Stock Exchanges by reviewing their market operations and having an administrative control over the exchange. To register and regulate the working of its depository participants, foreign institutional investors and other intermediaries. To curb any unfair trade practices and fraud happening in the securities market by taking necessary steps and strict actions to have a normal functioning of securities market. To prohibit insider trading by strengthening the market surveillance. To educate its investors by giving them training and also by keeping them updated about the recent developments happening in the securities market by issuance of its journal and publications and by other press releases. Government Initiative: Initially FIIs restricted themselves from entering into Indian as there were many terms and conditions to invest in India. But slowly and steadily SEBI simplified the norms for FIIs to enter into Indian market by taking various steps: SEBI increased the ceiling of investments of FIIs to 24% of the paid up capital of the company or up to the statutory limit of the company subject to approval by the company. They allowed foreign individuals to directly register as FIIs by simplifying registration norms. They also simplified norms for opening of Sub-accounts.

FIIs are allowed to invest in Indian primary and secondary market through portfolio investment scheme which allows them to acquire shares and debentures of Indian companies. SEBI increased the limit of FIIs investment in corporate bonds to US$ 15 billion. SEBI increased the limit of FIIs in Government securities to US$ 5 billion. SEBI allowed FIIs to invest in equities or debts in any ratio they want. This step was taken to allow flexibility to foreign investors to decide them to invest in any instrument they want. SEBI reduced the brokerage' paid by FIIs to attract them to invest in India by giving them cost saving advantage. SEBI also allowed Institutional portfolio managers and other investment managers belonging to NRI category to register themselves as FIIs. SEBI lifted ban on 40% limit on investments through Participatory Notes. (Source: http://www.mydigitalfc.com/stock-market/fiis-pull-out-13-billion-2008-356) CHAPTER 6 Findings and Analysis Investment climate in India: India has been facing the financial crisis since the time it attained independence. The turnaround for Indian economy came after balance of payment crisis which led to opening up of Indian economy for foreign investors as India got support from International Monetary Fund. These crisis led India to growth process as India went on towards the globalisation as reforms were introduced to make the country conducive to free flow of resources from one country to other. Government took steps to promote Indian investors to open up for foreign know how and technical support. Foreign Investors came to India in two forms; firstly as Foreign Direct Investors and Secondly as Foreign Institutional Investors. Though both these investors bring money into Indian Economy but there is difference between the two. Foreign Direct Investors invest in different sectors irrespective of its share price. They are basically the long term investors as they develop the different resources in the country. Foreign Institutional Investors are in country for short period of time, they invest in company and withdraw as soon as they get profits and then invest in any other company. Indian government is keen on attracting Foreign Direct Investors to country because they affect the long term growth of the country. But country needs both the Investors. Foreign Institutional Investors provide liquidity to economy. India realized the importance of Foreign Investors after the crisis as they knew that domestic investments will be insufficient to put the country into growth path. Since then the investment climate in India has been very positive. India has been able to achieve GDP growth of 8% and has brought down the inflation costs. India has loads of resources ready to be unleashed just waiting for the right opportunity. The low costs of investment and labour has brought the country on a high platform. The best thing about India is that it not only has huge supply but it also has huge demand. So it

can be said that India has a positive investment climate with long term story which foreign investors are aware. Present Investment Scenario: The worst year in the history of Indian Stock Market has been 2008 in which the markets crashed from High of 21000 points to low of 9000 points. According to SEBI, foreign institutional investors from March till November 2008 were net sellers to the extent of US$ 8 billion whereas in the same period a year before they were net investors to the extent of US $ 16billion, nearly double in the previous year in the same period. This was mainly due to global recession and also Satyam Computers Ltd's corporate governance issue. Despite these Indian economy is booming and has been attracting investments by FIIs. This has been possible due to constant effort by SEBI by promoting the financial market of India and by taking measures such as relaxing the measures for FIIs to enter in India and by other measures inducing investments. According to data given by Securities and Exchange board of India as on 17th March 2009, total number of FIIs registered with SEBI equals 1626 and registered subaccounts equals 4972 and their cumulative investments in equity market stands at US$ 50950.20 million and Investments in Debts stand at US$ 6541.50 million. This amount is nearly 25% of the total investments by FIIs coming into Asia, Africa and Latin America which was around 15% in 2007. According to US global management based consulting firm A T Kearney, India is the most attractive destination among the top 30 emerging economies of the world. India has been ranked as most attractive destination for foreign investors in retail segment for the fourth time in five years. Foreign Institutional Investors have invested in Indian economy in the month of May the amount equals to US$ 4.17 billion in equity which is highest in past one and half year. There are loads of new financial institutional investors entering the market despite the global meltdown which includes Morgan Stanley, HSBC, Goldman Sachs, etc. These all are the big investors who have global recognition. Some instances of recent deals by some of the big investors explains the story of continued growth of Indian Economy: Kotak Mahindra's purchase of stakes in NIIT in March'09 for over US$ 897414. Goldman Sachs purchased stake in NDTV to the extent of 8.16% Morgan Stanley purchased stake in IDFC to the value of US$ 11.61 million. HSBC bought shares of Intellivisons for US$144.94 billion. These are just few from many foreign investments which entered in 2009. Due to increase in these investments, the results for quarter ending June 2009 have been encouraging. According to Prateek Agrawal, Head-Equity, Bharti Investment Managers out of 30 BSE Sensex companies 25 of them have reported that their earnings are flat which is good as compared to predictions by analysts to be falling as an impact of recession. The Earnings Before Interest Tax and Depreciation are also up

by 5.9% for the overall market. There has been a volatile market overall but the sector-wise growth has been stagnant Net Flows are Gross Purchases by FIIs minus Gross Sales by FIIs. In other words, Net flow is equal to inflows minus outflows. Looking at above it can be seen that Net flows by FIIs have been positive for the whole year of 2007 except in the months of August and November. But 2008 gave a bad start with FII flows going into negative which means that FIIs withdrew money from Indian market and they had been a net seller for nearly Rs 18000 Crores. They turned positive in February, March and April then went into negative again all the way down till end of November 2008. This period had been the worst period in the history of Indian Stock Market as markets fell miserably. But the effect of recession impacted Indian Economy badly till February 2009 but after that things started to turnaround and FIIs turned out to be net buyers again in Indian Stock Market. They invested nearly Rs 21000 crores in the month of May 2009. The main reason for rise in investment by FIIs in the month of May has been due to formation of UPA led government with full majority which gave a boost towards market sentiment as government will be able to go ahead with its plans of progress which they were not able to do during last regime due to coalition government formed with minority support. By investing in Indian stock markets just after the elections results, FIIs had shown their support to UPA Government. Hence it can be said that India is still a favourite destination by FIIs for investment. Now let us have a look at the growth factors of India till last year. Indian stock market had slowdown in 2008 after four years of strong gains in the market. Indian market had been growing due to positive flows by FIIs and development in other sectors due to development by FDIs. But due to sub-prime recession, FIIs had started pulling money back from Indian market due to bad position of FIIs in their own country. This led to fall in Indian stock market which created panic among Indian investors. One of the indicators of economic growth of country is Gross Domestic Production (GDP). After looking at the GDP growth of India year-on-year, it looks promising even though it slipped down a bit in 2001 and 2002. This improvement in GDP has been ringing bells in the foreign investors and they are investing in India as the long term story of India looks good with its strong fundamentals. GDP has also been high due to FDI in Indian economy and also due to self sufficiency of Indian economy in agricultural and manufacturing goods. Due to this self sufficiency exports of these goods leads to improvement in foreign currency and makes our currency strong against other currencies. Now let us have a look at above table and figure to analyse biggest intraday falls in past three years. On 18/5/06, Sensex lost 856 points and Gross purchases of FIIs were Rs 761.80 crores and Gross Sales were Rs 527.40 crores finally leading to net positive investment of Rs 234.40 crores. If we look at it any layman would think that since

FIIs purchased more that is why markets crashed. But the one who deals in stocks and has knowledge about workings of stock market will realize that since markets fell, FIIs did loads of buying to take advantage of the fall. Here markets didn't fall due to FIIs involvement instead FIIs took advantage of the situation. Now let us look at other date which is 1/8/07 on which market crashed by 615 points. On analysis it can be seen that FIIs were net sellers to Rs 147.50 crores. Though markets crashed by less points as compared to previous day but FIIs were net sellers. The reason behind is that markets crashed because FIIs withdrew money. FIIs short selling created panic among the market and market crashed. Now let us look at the biggest crash which was on 21st Jan 2008. Sensex crashed by 1408 points and still FIIs were net buyers to Rs 2001.80 crores. This crash was triggered due to weakness in global markets but it impacted India the most as compared to other world markets. FIIs took advantage of it and did buying. So now after looking above it can be seen that FIIs take advantage of each and every situation that arises. They invest when the markets crash and they also lead to crash in markets when they withdraw. They have a great impact this way on the stocks. They always take benefit out of it. If a close watch is kept on FIIs by investors, they can take advantage of the movement of FIIs and have gains from stock market investments and reduce their risks as FIIs have strong network, highly capable staff and they do proper research before investing and they generally invest in Index stocks which represents the whole sectors. In Figure 8 above Monthly Trends has been shown of Investments made by FIIs in Indian Stock Market. This trend has been shown from the period of January 2008 till April 2009. This period is of significance to our study as January 2008 has been the time when impact of global recession started showing signs on Indian economy and it is shown till April 2009 as signs of recession had started to be slowed down with the economic development and measures taken by the Government. Above gross purchases, gross sales and net purchases/sales by FIIs in equity and debt market has been shown. As it can be seen that investments by FIIs had been negative in equities during most of 2008 except for few months and this effect continued on till February 2009 and after that FIIs had started pouring money back into economy due to strong fundamentals of economy. As regards to Investments in Debt market is concerned FIIs had been net investors in most of the months except few months as Debt carries a fixed rate of return and is there for a fixed period of time. During the month of February and March 2009 FIIs were net sellers in Debt securities and the reason behind was that Indian economy was back on its path of growth and in a growing economy returns a more in equity investments then in Debt investments, so there is a probability that the after selling the debt instruments the investments were flushed into equity market and it can be seen from above that equity markets were flushed by FII investment during March and April 2009. From above following analysis can be drawn:

Due to global recession FII flows into India might have slowed down a bit but long term story is good. Markets have fallen down from high of Sensex 21000 points to 8000 points but it is slowly and steadily picking up. So it is a good time to invest into Indian Market. Indian economy is driven by domestic consumption and investment and hence the effect of global recession has not impacted it as bad as to other countries. People of India have been concentrating on saving their money and hence savings are high and hence the long term economic growth of country looks certain. Due to rise in inflation there was a marginal pressure on the resources of the country but this had been due to rise in crude oil prices and hence this was affecting the foreign currency reserves of country. According to Centre for Monitoring Indian Economy (CMIE) for the financial year 2009-10 has been down to 0.3% as compared to 2008-09 which was around 8.3%. (http://www.bankofmaharashtra.in/newsletter/NEWS21MAY09.pdf) After looking at the fundamentals of growth of Indian economy, FIIs which had turned out to be net sellers in 2008 are entering back strongly into Indian economy which is evidenced after looking at the growth in the number of FIIs registered till first half of 2009 which increased from last year. There are loads of new FIIs entering into Indian Economy which is also due to Government's efforts by giving certain relaxations to FIIs and making procedures for them to enter to India easy. Due to volatility in stock markets in recent past, there have been many new opportunities coming up for investors in India as stock markets are at low and its good time to invest. The main driver for FIIs has been the corporate governance of Indian companies which is creating strong fundamentals for portfolio stocks. As of today stock valuations are attractive as Indian economy is on a low as compared to last year. Hence it is a good opportunity to invest but investments in stocks has to be done after careful analysis. Even though FIIs before investing in any stock do the background research about the company but before making a decision as a investor it becomes our duty to do our research as well in order to minimise the risks associated with following FIIs blindly. The subprime crisis in US had not affected India to large extent but it sent shockwaves among Indian investors and as a result in year 2008 Indian stock Market had to see one of its greatest falls which was mainly led by withdrawing of money by FIIs. This made Indian investors scared to invest in stock markets but the thing to note here is that investors forget it that markets will not always move in upward direction. Even though increasing participation of FIIs has increased volatility in the stock markets but Indian markets are fundamentally strong so prices may fall for time being but in long run they will rise. CHAPTER 7 Conclusions

One of the most significant factors in the growth of Indian economy has been foreign investments. India has been the most favourite destination for investors from all over the world and every year the total number of foreign investors getting registered with SEBI are increasing significantly. The growth of Indian economy is on one hand due to the strong fundamentals of Indian companies and on the other hand due to liberalisations of financial reforms which led to entry of foreign investors. So contribution of Foreign Investors can't be ignored in the growth of Indian economy. On one side FIIs have brought growth to country and on the other hand side they have brought volatility to stock markets. They have a significant control on the movement of stock prices as when FIIs invest prices go up and when they withdraw prices go down. It is visible that the there is a direct relationship between movement of stock market and FIIs flow into Indian economy. FIIs withdrawal of investments from the markets leads to fall in stock market and also FIIs invest at the time when markets fall and then prices tend to move upwards. FIIs have brought transparency in the procedures, automation and regulations regarding disclosure and reporting standards for companies and have brought corporate governance at its best. They have brought Indian Stock Market in standards with International standards by bringing in Automation and screen based trading system to Indian Stock Market. They have also brought in higher level of accountability for the companies and improved their standards of performance. The volume of investments by FIIs is not very high but they tend to drive the sentiment of the market as other investors tend to follow them. This kind of behaviour by other investors is due to FIIs being considered as a large reservoir of information and the basic aim behind their investment is to make profit and leave the company. FIIs tend to invest in companies which have strong potential and have huge financial backing and good public standing. They consider many factors before making their investments in any company which includes the transparency of companies, less involvement of any majority shareholder, it should not be family run business and should have huge market capitalisation. So basically they tend to be very cautious in decision making before investing, so domestic investors tend to have the herding behaviour and follow FIIs. Results of this research also show that FIIs are the most dominant shareholder on the stock market. After looking at their shareholding pattern it can be said that the holdings of FIIs is the highest after promoters and hence they are able to decide the direction of the market. RBI has been trying to place limits on the number of shares being bought by FIIs in order to make stock market independent of FIIs and on the other hand side government is bound to be lenient with FIIs as any disinvestment by FIIs brings a huge fall in stock markets and creates a situation of panic among investors and market sentiment turns negative. This can be seen from the example in the past when RBI placed a ban on entry route for FIIs through participatory notes in Indian Stock Markets, there was a huge fall in stock market as FIIs started to sell their

shares and market sentiment became negative, so RBI had to come up again to reverse its policy, in order to create normalcy in market. Another major impact is that FIIs tend to manipulate the prices of stock as in when they enter they take the prices of stock very high and people follow them in buying and suddenly when people are still buying at high prices they tend to sell and small investor gets stuck up with the share at high price. They act as speculators instead of investors as they invest in stocks for short term and after attaining short term gains they tend to move to another company. FIIs move their investments regularly and because of these swings there is a tendency of volatility in the market. There has also been evidence that FIIs tend to manipulate the prices of stock by correlating with few of the big brokers and get involved into insider trading which is considered to be bad practices. The impact of FIIs can be minimised only when the domestic institutional investors have enough financial capabilities to flush the stock market with funds. FIIs have also impacted in helping in appreciating the currency and also by maintaining foreign exchange currency reserves. FIIs investments are crucial and critical for Indian Economy but its advantages outweighs its disadvantages an

Read more: http://www.powerfulwords.co.uk/sample-assignments/business/impactof-foreign-institutional-investors.php#ixzz2Mjk2w46o Foreign Institutional Investors have become a part of important mechanism for the growth of any country as they mobilise savings and convert them to investments and since the cost of capital of these investments is low, they are most efficient mode of investments. These investors by increasing their investments help in strengthening the currency of the country and economic prosperity of the country. These investors have changed the Indian stock market by bringing in qualitative and quantitative changes as they have increased the breadth and depth of market. They focus on fundamental of shares and lead to efficient pricing of the shares and hence they play an important role in the growth of stock market. These FIIs function by bringing in the money from the economies where borrowing costs in lower and by investing in economies which are growing. These FIIs have such an impact on the economy that their movement affects the movement of stocks on the stock market in such a way that if they flush money into stock market, markets rise and if they withdraw money then the markets fall miserably. Government is making loads of effort to attract these investors to Indian economy as they have realised the importance of these investments. The major portion of investments by foreign institutional investors goes to equity market impacting the shareholding pattern of the companies listed on the Indian Stock exchanges. Nearly ninety-five percent of their investments contribute to key indices

and nearly half of their investment is into top five companies listed on the stock exchange and therefore having a large effect on the performance of the Indian Stock market.

RECOMMENDATIONS:

Though the primary objective of financial liberalisation has been to attract foreign capital but attracting FIIs should not stop the process of domestic policy formulation and domestic institutional developments. Government should keep on encouraging domestic institutional investors to invest more in stock markets so that it helps to reduce volatility associated with FIIs. One of pros of inviting FIIs to Indian markets is that it helps in effective monitoring of companies but after all these efforts the problem of monitoring them still prevails. So Government should take steps which will help in monitoring the performance of large companies who tend to be manipulative. The best time to invest in market is by having a close watch at investments by FIIs as they invest in companies which have net worth and they have done their basic research. The data about their investment is available at the same time when they invest as it comes in the news, so the best time to invest is the time when they invest or the next day, this way profits may come less than the profits earned by FIIs but risk relating to investments will be reduced. Government should fix an upper limit and lower limit in which FIIs can invest in India this will help reduce the volatility in Stock Movements and there will be assurance of FII investment into Indian economy. Investors those who make their decision on the basis of FIIs investment must have an entry and exit strategy as they invest in market. If an investor invests at the same time as FIIs, regard should be had that investors are here to make profit and they hold their investments for very short time period. So it is advisable to have a set target upper limit or lower limit on the price. So once that target is achieved investor must get rid of that stock. If stock goes down to a certain price, investor must book its loss and when it goes upto a certain price, stock should be sold. This strategy will bring returns and will also minimize your losses. Investor will have to get rid of his temptations to make high profit in each stock and to follow FIIs blindly. Investors tend to change their strategy looking at others making more money and put themselves in a bigger risk. Though FIIs invest after carefully analysing the company before investing but sometimes they are unaware of situations or conditions in the economy, so they might make wrong investment and may bear losses. It is advisable for investors to carefully analyse the company chosen by FIIs and market conditions before investing. This is so because FIIs have a huge risk appetite due to the nature of their trading whereas

small investor cannot put himself at risk as risk bearing capability is fairly low. So investor has to be a lot more cautious. FIIs have created volatility in stock market and due to this volatility there is a huge swing in prices of stocks. Due to this swing some of the investors take advantage of this volatility and make huge gains from swing in prices but most of the investors tend to lose as they wait for the stock prices to recover which might take a long time. So it is advisable for investors to keep a certain portion of money as reserves to bear losses if they arise and also not to invest money by taking loans from brokers or banks. There is a saying for people investing in stock market that any small investor who speculate in the market may make profit in the short run but in the long term will always bear a loss. So the best thing to do is to not follow FIIs and buy stocks in companies which are fundamentally strong. There is no good time or bad time to invest in fundamentally strong stock as such stocks will give profit in the long run. BIBLIOGRAPHY Aggarwal R., Klapper L, & Wyoscki, P.D., 2005. Portfolio Preferences of foreign institutional investors. Journal of Banking and Finance, 29(12), pp. 2919-2946 Ahmadhian C.L. & Robbins G.E., 2005. A clash of Capitalisms: Forteign Shareholders and Corporate restructuring in 1990s Japan. American Sociological Review, 70(3), pp. 451-471 Bank of Maharashtra, 2009. News of 21st May 2009. [Online] Bank of Maharashtra. Available at http://www.bankofmaharashtra.in/newsletter/NEWS21MAY09.pdf [Accessed 09 June 2009] Bombay Stock Exchange Limited, 200?. Opportunities available for foreign investors. [Online] Bombay Stock Exchange Limited. Available at: http://bseindia.com/invdesk/coforeign.asp [Accessed 17 July 2009] Cerny A., 2004. Stock Market Integration and the Speed of Information Transmission. Working paper series, ISSN 1211-3298, Charles University (excepted for publication January 2008) Choe H, Kho B & Stulz R.M, 2005. Do domestic Investors have an edge? The trading experience of foreign investors in Korea. Review of Financial Studies, 18(3), pp. 795829 Collis J. And Hussey R., 2003, Business Research, Hampshire, Palgrave, Macmillan, 2nd edition Covirg, Vicentiu, Lau, Sie Ting and Ng L. K, 2007. Do domestic and foreign fund managers have similar preferences for stock characteristics? A cross country analysis. Journal of International Business Studies. Dahlquist M, Pinkowitz L, Stulz R. M, & Williamson R, 2003. Corporate Governance and Home Bias. Journal of Financial and Quantitative Analysis, 38(1), pp. 87-110 Data for SEBI available at: (http://www.sebi.gov.in/bulletin/glossarycover.pdf) De Santis G and Imrohoroglu S, 1997. "Stock Returns and Volatility in Emerging Financial Markets", Journal of International Money and Finance. 16, pp. 561-579

Douma S, Rejjie G, & Kabir, 2006. Foreign and Domestic ownership, business group and firm performance-Evidence from large emerging market. Strategic Management Journal, 27(7), pp. 637-657

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