An Econometric Analysis of Presence of Association among FIIs’ Trading Activities and Indian Macroeconomic Variables

Abstract

Foreign Institutional Investors (FIIs) is one of the major significant drivers of Indian Securities Markets. FIIs trading activities is of immense importance for Indian capital markets. Exchange rate of Indian rupee per dollar, CPI Inflation rate, Bank Interest rate and Sensex (Benchmark stock market index) are among the most relevant determinants of FIIs trading activities in India. The present study is an attempt to identify relationship among FIIs trading activities, S&P BSE Sensex, Interest rate, CPI Inflation rate and Exchange rate of Indian Rupee per dollar from January1, 2001 to December31, 2019. Time-series Cointegration test, Granger Causality and Vector Error Correction Model have been used to examine the relationship between the variables considered under present study. The results confirmed that CPI Inflation rate and Exchange rate of Indian Rupee per dollar have unidirectional association with FIIs trading (Purchase and Sales) activities as indicated by Granger causal test. Bidirectional Granger Causality is confirmed to be existing between Sensex closing value and FIIs trading activities. However, no causal relationship is found among FIIs trading activities and Interest rates as indicated by Granger causal test.