Assessing the Influence of Foreign Institutional Investments on Stock Market Volatility and Performance

Assessing the Influence of Foreign Institutional Investments on Stock Market Volatility and Performance

Dr. Manita D Shah1, Abdul Ahad2, Ankit Keshri2 and Mohammed Mudassir Ahmed2

1Professor, 2MBA, Faculty of Management Studies, CMS Business School,

 JAIN (Deemed-to-be-University)

Bangalore, India

Abstract: This research examines the impact of Foreign Institutional Investments (FIIs) on the volatility and performance of India’s stock market, specifically through the Nifty 50 index. Using a time-series analysis of FII inflows and outflows over recent years, the study identifies trends and patterns linking these investments to stock market movements. Findings indicate a significant correlation between FII activities and market volatility, with inflows generally associated with positive market performance and investor optimism, while outflows often contribute to instability and negative market sentiment. This dual effect of FIIs presents both opportunities and challenges: they enhance liquidity and drive market growth yet introduce risks of short-term volatility.

The study’s insights are relevant for investors and policymakers aiming to navigate and stabilize the Indian market amid global financial influences. Recommendations include enhanced regulatory measures to mitigate volatility while fostering a supportive environment for foreign capital. Further research incorporating additional macroeconomic factors and advanced econometric models could deepen understanding of the complexities surrounding FIIs' role in emerging markets like India. This paper contributes to the broader discourse on the impact of foreign capital on market dynamics and offers a foundation for policy frameworks that balance growth with market stability.

Keywords: Foreign Institutional Investments, Stock Market Volatility, Nifty 50 Index, Emerging Markets, Market Liquidity, Investor Sentiment, Financial Stability, Economic Growth, Capital Inflows, Indian Stock Market.