ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Volatility in the Stock Market in India and Foreign Institutional Investors

The influence of FIIs on the movement of the Sensex became apparent after the 2004 general elections in India when the sudden reversal of FII flows triggered a panic reaction which resulted in very high volatility in the Indian stock market. During this period, the Sensex experienced the worst single-day decline in its history. In the three months between April and June 2004, the index declined by about 17 per cent. And it all started because of the selling pressure exerted by the FIIs after the elections when they became less confident about the continuation of the reform process in India. FII control in the companies that constitute the Sensex is very high. Data on the shareholding pattern show that the FIIs are currently the most dominant non-promoter shareholder in most of the Sensex companies and they also control more tradable shares of these companies than any other investor group.

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