Title: A comparative analysis of determinants of foreign institutional flows to Indian equity and debt markets

Authors: Rajeev Matha; Raghavendra Acharya; E. Geetha; S.P. Shivaprasad

Addresses: Government First Grade College, Sedam – 58522, India ' VIT-AP School of Business, VIT-AP University, Amaravati. Andhra Pradesh, 522237, India ' Department of Commerce, Manipal Academy of Higher Education, Manipal. Karnataka, 576104, India ' School of Business, RV University, Bengaluru, 560098, India

Abstract: The volatile foreign institutional investment (FII) flow has an implicit effect on the stability of forex rates, stock prices, fiscal and monetary policies. Understanding the drivers of the FII flow to the equity and debt market is essential to manage future capital flows and prevent imbalances. The study examines determinants of FII flows to Indian equity and debt markets for the period 2011 to 2021 using autoregressive distributed lag model (ARDL) approach. The results indicated that the estimated coefficient of domestic stock returns positively impacted FII debt outflow. Stock returns of other emerging markets negatively impacted FII debt outflow and positively influenced FII equity inflow. US stock returns negatively impacted FII debt outflow and equity inflow in the long run. The study findings have useful implications not only for investors but also for regulators and policymakers to regulate capital flows and prevent imbalances through credible investment policies.

Keywords: FII flow; equity returns; forex rates; ARDL approach; cointegration; bond yields.

DOI: 10.1504/AAJFA.2025.144765

Afro-Asian Journal of Finance and Accounting, 2025 Vol.15 No.2, pp.221 - 242

Received: 25 Jun 2022
Received in revised form: 23 Feb 2023
Accepted: 02 May 2023
Published online: 03 Mar 2025 *

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