Unless movements in domestic stock market were stabilised, the behaviour of foreign institutional investors would be adversely impacted through its returns in the stock market.
This would affect the real economy in the long run, the study said. It says a study on the determinants of foreign institutional investment in India carried out by the Institute of Economic Growth (IEG).
The study shows a positive association of FII with returns on BSE, inflation in the US and a negative association with inflation in India, return on S&P 500, ex-ante risk on BSE and ex-ante risk on S&P 500. It also shows that FII inflows react more to bad news than to good news.
