Macroeconomic Indicators (22 May 2010)

The close nexus between net foreign institutional investment (FII) into the Indian equity market and the BSE sensitive index is very much evident since 2005-06. In fact, except in the year 2007-08, the response rate of the sensex to net FII was significantly more than proportionate. For instance, in 2005-06, the sensex responded by 73.7% to a 26.0% rise in FII. In the year 2008-09, a decline of 18.6% in FII caused a sharper decline of 37.9% in the sensex. In 2009-10, the respective increases were 43.1% and 80.5%.