What is the relationship between stock market and fdi and fii?

Answer 1

fdi or foregin direct investment is bought in by the investors under the rules as laid down in fera and fema... these investment are bought in by the investors with a long term horizon say anything between 5-10 years and even more(hero Honda is classic example) . They bring in much need working capital, cash to run industry.Along with this they also bring in expertise and knowledge to run industry. This all helps our industry to grow in terms of sales,profits, goodwill. this in turn increases earnings per share and this is sought by the investors. Hence they purchase the shares there by liifting our sensex or nifty. it also helps in macro environment that is we have higher GDP, higher standard of living, and this in turn leads to better consumption in economy. This all factors make our nation a favourable destination for profitable investments. This is were fiis (foregin institutional investors ) comes. fii are short term investors say with investment horizon of 1-2 years. They either have entry through pn(participatory notes) or through brokers, or can directly invest by registrating themselves.

fiis see the domestic condition as well as external factors before investing in companies. they then either make equity infusion with a lock in period of 1-2years and after words exit. Thus industry instead of borrowing get money in form of equity infusion there by saving interest outgo. if company performs well in all parameters fiis may also become fdis and would exit much after stipulated time......hence fiis and fdis are investors who bring in necessay cash with a hope to earn decent profits and on the basis of profits the future earnings are discounted and speculators play in these shares thereby caousing movements in the market.