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Determinants of Foreign Institutional Investment in India

Determinants of Foreign Institutional Investment in India

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There have been attempts to identify the determinants of these inflows at firm, industry levels and at the economy levels, both in the Indian and global contexts. The present study analyzes the trends of sectoral shareholding pattern (the percentage of shares held by the foreign investors to the total shares of the firm, RFIIn henceforth) in manufacturing and service sectors using the database for 32 firms from manufacturing sector and 13 firms from services sector, listed on NSE. This was intended to examine the determinants of RFIIn in India at these sectoral levels. The study period for the estimation of determinants of RFIIn is 2000-01 to 2006-07. The explanatory variables used in this empirical exercise are: stock return, profit margin, the ratio of market capitalization to the total sales, R&D expenditure to the total turnover and the ratio of total assets to the total turnover which serves as a proxy for the firm size and a sectoral dummy has been used for capturing the peculiarities of manufacturing versus service sector.The empirical results demonstrate that except for R & D expenditure ratio, the other explanatory variables emerge as significant determinants of RFIIn.
A Sectoral Analysis