A Study on the Impact of Currency Fluctuation on FIIs Net Equity Investment & Indian Capital Market (BSE, NSE)

Abstract

The last twelve months have seen the Indian Rupee (INR) soaring to new highs against the Dollar (USD), and subsequently falling to new lows. This has been a key concern, with the INR rising notably from around INR 46.62/$ level in January 2010 to INR 52.26/$ currently. The dynamic linkage between exchange rate and stock prices is important from the viewpoint of recent large cross-boarder movement of funds. The present study focus on the effects of exchange rate fluctuation (Rs/$) on various segments of the Indian financial markets over the last 2 years during the global financial crisis. Using daily data from January 2010 to December 2011, it is found that there is no significant positive correlation between Rs/$ exchange rate and FIIs Net equity investment, BSE return and NSE return.

Keywords: Exchange rate, Regression, Stationary data

JEL Classification: G14