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DELHI BUSINESS REVIEW
Behavioral Pattern of the Foreign Institutional Investors of India a Study of Few Significant Years
Author Details
( * ) denotes Corresponding author
1.
* Baishali Agarwal, Assistant Professor, St. Xavier’s College, Kolkata, India (bagarwal77@gmail.com; baishaliagarwal@yahoo.com)
This paper will primarily try to analyse FII trading behavior in the Indian IPO market. As we know that FII’s invest in various sectors, one of the primary purposes of this paper would be to examine: a) Whether there exists any sectoral preference on their part while investing in IPO’s; b) Whether short term profitability of the IPO’s across sectors vary significantly; c) Whether there exists any significant variation in preference of the FII’s while investing in IPO’s across years; d) Whether short term profitability of the IPO’s vary on an yearly basis; e) Whether there exists any significant variation in preference of the FII’s across year, sector and combination of year and sector while investing in IPO’s.
Design/Methodology/Approach: Statistical tools like one way anova and two way anova tables have been applied to study the significance of yearly and sectoral impacts of investments by the FII’s. We have also used diagrammatic representations through pie charts to reflect upon aspects of short term profitability of FII’s and their investment proportions as well. We have also used correlation to see if there is any correlation between FII investment proportions and short term profitability of the IPO’s.
Findings: We observe that the short term performance of the stocks on an average were unsatisfactory all the three years taken together ( 2009 to 2011).Most of the IPO’s were in the 0 to 20% profit category or0 to -20% loss category as evident from fig 1.One significant reason for this might be the global recession and it’s prolonged effect since it struck at 2008.Thus we see that most of the FII ‘s in this period had invested around 10 % in the IPO’s. Though there is no significant correlation observed between short term profitability and FII investments but it is also true that FII’s on an average had invested around 10 % as evident from fig 2.Given the fact as is evident from our data analysis that there was found no significant correlation between FII investments in the Indian IPO market and that of short term profitability of the stocks we may say that FII’s are in general not motivated by short term profitability of stocks post IPO. The interaction effects of year and sector taken together along with their individual effects have also not been able to influence their investment decisions. Thus we can say that the contribution of the FII’s to capital formation through the Indian IPO market over this period was not significant enough nor have their investments made significant price rise for the stocks post IPO. So we may summarise to say that FII contributions to capital formation and capital gains have not been significant enough.
Research Limitations: It considers a time period ranging from 2009 to 2011 which is just after the recession of 2008 and could bring about some chances of biasedness to our study.
Practical Implications: The primary significance of undertaking this research was to study some of the major behavioral aspects of the FII’s in the Indian IPO market. As we know that FII’s have known to cause significant upheavals in the Indian stock market by their sudden inflows and outflows of investments at the slightest hint of prospect or trouble respectively it was necessary to understand their intention in the capital formation of our country which is primarily done through the Indian IPO market.
Keywords
Foreign Institutional Investors, Initial Public Offer, Capital Flows, Annova.
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