Trend analysis and relationship between Bombay stock exchange index number, foreign institutional investment and GDP in India

In India, SEBI defines all these investors as FIIs. Developing countries like India are generally capital scarce. This is because of low levels of income in comparison to other developed countries, which in turn means savings and investments are also lower. So how do developing nations get out of such a situation? Simple! They borrow money. To analyze the relationship between institutional investment (i.e. FIIs and MFs investment) and stock returns the study proposes to use Simple Linear Regression and Semi Log Linear model. The foundation of time series analysis is Trend. The study has used monthly net investment data of FIIs and monthly return of BSE Sensex index is taken from SEBI website and Sensex index closing values is collected from Yahoo Finance database. The study period is from January 1998 to December 2012. Full period has been divided in to 15 sub periods to account for changes in trends in institutional investment flows i.e. January 1998-December 1998, up to January 2012-December 2012. It is also coincided with large changes in the market capitalization. The important result of this study is that the foreign investment is determined by stock market return. But foreign investment is not a major factor for the stock market boom in India the FII are increasingly dominant in the stock market. The domestic investors and domestic companies remain not so dominant. There is the fear of suddenly outflows of the foreign capital and this may be a trigger a third stock market scam as most regularity changes are being made only as a follow up of an adverse event.