Since 1990-91, Government of India started liberalization and economic reforms with a view of bringing about substantial economic growth and move towards The globalization. As a part of this liberalization process, the Government under its New Industrial Policy liberalized its foreign investment policy recognizing the growing importance of FDI as an instrument of foreign capital flow and technological development. Government, for the first time, permitted foreign institutional investors to invest in Indian capital market through portfolio investments. From September 14, 1992 with suitable restrictions, FIIs were permitted to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India.
Since then FIIs are investing in the different sections of Indian capital Market. FIIs invest huge amount in different sections of Indian capital market and there trades make a significant impact in the movement of stock market as well as in the growth of the economy.
The study of the impact of FIIs trades in Indian Capital market is of vital importance for investors as well as economists.