INTRODUCTION

Foreign direct investment (FDI) is direct investment by a company in production

located in another country either by buying a company in the country or by expanding
operations of an existing business in the country. Foreign direct investment is done for
many reasons including to take advantage of cheaper wages in the country, special
investment privileges such as tax exemptions offered by the country as an incentive
for investment or to gain tariff-free access to the markets of the country or the region.
Foreign direct investment is in contrast to portfolio investment which is a passive
investment in the securities of another country such as stocks and bonds.

It is commonly known that capital flows in developing economies like India have
risen sharply and has, therefore become a self propelling and dynamic factor in the
accelerated growth of economies. The impassioned advocacy of increased FDI flows
is based on the well worn arguments that FDI is a rich source of technology and know
how; it can stimulate the labour oriented export industries of India, promote
technological change in the industries and put India on a higher growth path. The
excitement of FDI needs to be based on analytical review of India’s needs,
requirements and potential to participate in huge investment flows.

The study takes a closer look at the structure of Foreign Direct Investments into India.
It traces the development of India’s economic policy regarding FDI and the resulting
changes. The expansion of FDI in India has been followed by a rapid economic
growth and an increasing openness to the rest of the world. The primary objective of
this study is to review why India has been a preferred destination for FDI and study
the impact of FDI on the Indian economy. The sub objectives of the study are to
review the major reasons for attracting FDI; to analyze the investment strategies in
selecting the right investment projects; to study if the FDI investments have
contributed to the positive growth in the standard of living and; to study the impact of
FDI investments on the culture of the country.

1
The Multinational companies play a vital role in the changes of economic condition in a
country. The role, importance, impact and their investment strategies in foreign direct
investment in India (FDI) have played a vital role in the economic development of India.
The foreign direct investment in started in 1990s in India as it plays an important role in
the development and globalisation process. The FDI has helped in the growth of economy
by its investment strategies, the investments made in the emerging markets like
telecommunication, transportation, automobile industry, manufacturing industries and
other major industries have brought enormous changes in the economy.

The investment strategies used by the investors not helped the growth in the economy but
also have an impact on the positive growth in the relative sectors and other sectors like the
living standards have increased and the increase in the living conditions have give a life
blood for the growth of saving which ultimately turned in to another form of invest source
where by we can find the changes in the growth of the overall markets in all the sectors
like food to manufacturing etc. There is a cyclic development in the economy of India as
the recent world wide recession has no much effect on the economy in India. The
emerging markets in India have provided the oxygen for the existence of positive growth
in the markets.

The investment strategies in India have a very interesting progress as the investment was
on a wide spread into different sectors and in to different industries and could gain a good
amount of attraction in each and every sector. The growth in textile industries, pharmacy
industries automobile industries communication industries and other industries has
attracted the FDI at positive level from its start. Apart from all these the role of
government plays a vital role in pooling the FDI and as India is the world’s largest
democratic country with open markets and with governing the markets in well structured
rules it has placed a base platform for the investors to find a safe place to invest without
any much restrictions. The intellectual knowledge and well known English language and
the human resource and cost efficiency have shown a good result for the FDI’s to find the
best opportunity to invest and reach their expectations.

2
 REVIEW OF LITERATURE

1. Dr. V. Backiyavathi (2012) has studied “Foreign direct investment inflows in

India: An overview”, in which he has reported that FDI in India has change
remarkable after inception of economical reforms in 1991. The given study
shows the trends & pattern of FDI in India with respect to different sector, by
which he concludes that FDI acts a very crucial role in the growth of
developing nations, also it is seen that the many major nations like USA, UK,
Mauritius, Japan & France have top places in investment in India. He said that
the FDI in India is in the middle of the track whereas it is expected to continue
to step up.
2. R. Himachalapathy et al. (2012) given “A Study on Trend of FDI Inflows in
India” where they had studied the size, growth & trend of inward FDI in India.
This study bring to a close that though the quantity of FDI inflows was
increase in the past few years in India but the size of the inflows of FDI is
thinner than the other countries which are taken into the study it also observe
the government policies variables of other countries are more attractive to the
foreign direct investment than Indian policies, and Indian government has to
take initiative to create concrete infrastructure to overcome this problem which
will increase the inflow of foreign direct investment in India.
3. Rahul Singh et al (Aug. 2012) deliberate the “Behavioral Pattern of FDI
Inflows: Autoregressive Study” which diagnose the behavioral pattern of the
sectoral FDI inflows in Indian economy for the period 2002-2010. In the given
study thirteen different sectors has been used for the study which are
categorized by the Indian Government. The study revealed the unstable
behavior of sectors like telecommunication & construction. Sectors like
Automobile, Housing and Real estate demonstrate variances whereas some
sectors like electric equipments, transportation, chemical, drug and
pharmaceuticals food processing, cement & gypsum and metallurgical
industry reveal the constancy over the period of time during given period.
Also the study describes foreign investors’ prejudice in choosing some sectors
in relation to other sectors.

3
4. Syed Azhar & K. N. Marimuthu (Jan.2012) intended “An overview of Foreign
Direct Investment in India” which endeavors to analyze the FDI & its impact
on growth of India. The main objective of the given study was to identify the
various determinants of FDI and to understand the needs for FDI in India.
5. Prof. G. V. Bhavani Prasad & E. Hari Prasad Sharma (June 2012) proposed
the “Impact of FDI on Economic development of India”. This paper bring to a
close that Indian government had set the path for attracting the abundant open
flow of FDI with its globalization and liberalization policy. Opening Indian
economy to the world economy, relaxation of previous rigid norms for foreign
trade and enlarging the limit of FDI in various sectors are the main reasons of
ample growth in FDI inflows in India. Inflow of FDI adversely affected with
the reasons of Prohibition of FDI in some sectors and recent economic
slowdown. This flow boosts the exports and national income in positive way
which indications of macroeconomic performance of the nation. These foreign
investment inflows are to be diverted to manufacturing and infrastructure
sectors which will increase the national product at large.
6. Atrayee Ghosh Roy & Hendrik F. Van den Berg has studied “Foreign Direct
Investment and Economic Growth: A Time-Series Approach”. The given
research has often focused on how foreign direct investment (FDI) transfers
technology from developed economies to less developed economies. Most FDI
occurs between developed economies, however, and the country receiving the
greatest inflow of FDI is the United States. This paper examines whether such
FDI inflows have stimulated growth of the U.S. economy. This article
recognizes that most FDI moves between developed countries and that, in
recent years, the United States has been the largest recipient of FDI.
7. Ila Chaturvedi, (2011), studied the sector wise and country wise FDI inflow in
India. And found that Mauritius, Singapore, USA and UK are the countries
showing much interest to invest in India and maximum FDI has taken place in
the service sector, computer hardware and telecommunication sectors. The
given studies show the inflow of Foreign Direct Investment in India & its
impact on Indian Economy. Also it gives descriptive study of sectoral inflow
of FDI in India and its collision on the Indian development. Though it give the
trends and patterns of FDI inflow for India there is a need of Trend Analysis
which may help to bestow the enhanced analysis of FDI in India with respect
4
 to different sectors, wherein it may be used to avail the opportunity to invest in
India for foreign investor in future.

IMPORTANCE OF THE STUDY

It is commonly known that capital flows in developing economies like India have risen
sharply and has, therefore become a self propelling and dynamic factor in the accelerated
growth of economies. The impassioned advocacy of increased FDI flows is based on the
well worn arguments that FDI is a rich source of technology and know how; it can
stimulate the labor oriented export industries of India, promote technological change in the
industries and put India on a higher growth path. The excitement of FDI needs to be based
on analytical review of India’s needs, requirements and potential to participate in huge
investment flows.

The practical literature on the relationship between FDI and development is mixed.
Despite a number of studies and seeming contradictions, two consistent issues that
repeatedly arise are:

What are the motivations for FDI flows into India?

What are the economic and social implications of FDI flows in India?

A detailed study of FDI in India requires an examination of the determinants and the
impact of FDI on Indian Economy. Studying FDI flows will help to assess the nature and
the true extent to which the Indian Economy has globalised.

The study takes a closer look at the structure of Foreign Direct Investments into India. It
traces the development of India’s economic policy regarding FDI and the resulting
changes. The expansion of FDI in India has been followed by a rapid economic growth
and an increasing openness to the rest of the world. It is equally important to understand
why India has become one of the important beneficiaries of FDI in the world and what
drives the more recent progress of India towards FDI.

5
OBJECTIVES OF THE STUDY

Keeping in view the importance of FDI in the development of economies and the dynamic nature
of the topic, the present study focuses on the following objectives.

The primary objective of this study is to review why India has been a preferred destination for
FDI and study the impact of FDI on the Indian economy.

The sub objectives of the study are

 To review the major reasons for attracting FDI;

 To analyze the investment strategies in selecting the right investment projects;
 To study if the FDI investments have contributed to the positive growth in the standard of
living;
 To study the impact of FDI investments on the culture of the country.

Hypothesis
H01: The impact of FDI inflows on the movements of stock market is statistically insignificant.
Ha1: The impact of FDI inflows on the movements of stock market is statistically significant.
H02: The impact of FDI inflows on the movements of stock market is statistically insignificant.
Ha2: The impact of FDI inflows on the movements of stock market is statistically significant.

RESEARCH TYPES
1. To study the activities such as investments and sales by the FIIs in the recent past.
2. Analyze the trends of Foreign Institutional Inflows.
3. To Know the flow of FII and FDI in the Stock market.
4. Examine whether FIIs and FDI have any influence on Equity Stock Market.
5. To know the volatility of stocks due to FIIs and FDIs

6
 RESEARCH METHODOLOGY

Research Methodology is the procedure of collecting, analyzing and interpreting the data to
diagnose the problem and react to the opportunity in such a way where the costs can be minimized
and the desired level of accuracy can be achieved to arrive at a particular conclusion.

Data is collected through secondary sources like research reports and websites. The required data
have been collected from various sources i.e. World Investment Reports, Asian Development
Bank’s Reports, various Bulletins of Reserve Bank of India, publications from Ministry of
Commerce, Govt. of India, Economic and Social Survey of Asia and the Pacific, United Nations,
Asian Development Outlook, Country Reports on Economic Policy and Trade Practice- Bureau of
Economic and Business Affairs, U.S. Department of State and from websites of World Bank,
IMF, WTO, RBI, UNCTAD, EXIM Bank etc. Primary data cannot be taken because of limited
resources and the study being carried out from UK.

Source of data

Primary Sources: The primary data was collected through structured unbiased questionnaire
and personal interviews of investors. For this purpose questionnaire included were both open
ended & close ended & multiple-choice questions.

Secondary method: The secondary data collection method includes:

 Websites
 Journals
 Text books
Method Used For Analysis of Study
The methodology used for this purpose is Survey and Questionnaire Method. It is a time
consuming and expensive method and requires more administrative planning and supervision.
It is also subjective to interviewer bias or distortion.
Statistical Tools: MS-excel and pie and bar diagrams are used to analyze the
data.

7
LIMITATIONS

 The study focuses on FDI in India only.

 There are many determinants which determine the FDI in India. All the aspects may not be

covered in detail in the limited time given.

 FDI policies are dynamic nature in nature and subject to change very often.

 The study is based on secondary research where the data may not be authentic in all the cases.

 Primary Research is not carried out during the project, which is a major drawback.