Study to Find out Impact of Fn and Dm Investment on Nifty Monthly Returns January 2008 to October 2014

Abstract

There are two broad options for any company to raise money viz. equity and debt. For any business to sustain and grow it requires funding on an ongoing basis. Fund requirements could be for short term working capital or long term capital expenditure. In this paper focus will be on equity funding route. Equity fund raising could be done through primary or secondary market. However primary as well as secondary market fund raising depends on the stability of the secondary market. For a developing country like India, it is important for business to have an established secondary capital market. It is a common belief that Foreign Institutional investors (Fll) drive Indian capital markets. It is also believed that Fll's and domestic institutional investors (Dll's) show negative correlation in terms of their short term investment trends .However this negative correlation could be viewed positively from the point of view of sustainability of Indian capital markets and Indian business which require funding for expansion. This study explores the net monthly investment done by Fll's and Dll's in Indian capital market and its impact on monthly returns given by Nifty 50 Index. The Nifty covers 23 sectors of the Indian economy and offers investment managers exposure to the Indian market in one portfolio. As per National Stock Exchange (NSE) website the market capitalization of Nifty 50 companies is about 66.85% of the free float market capitalization of the stocks listed on NSE as on June 30, 2014. Fll interest is more in case of Nifty 50 companies. As these companies are bigger in size as compared to other listed companies in NSE and offer more liquidity. So Nifty can be taken as a proxy to Indian Capital market. The paper also tries to quantify the relationship between net investment done by Fll's and Dll's and monthly return given by Nifty using Multiple Regression Analysis .From the ANOVA table F-test, t stat and p value are used to test the null hypothesis and the strength of the relationship. Null Hypothesis states that there is no relation between the dependent variable (i.e. Nifty Monthly Returns) and two independent variables i.e. 1) Net Monthly Investment by Fll's and 2) Net Monthly Investment by Dll's.