Assessing the Role of Foreign Institutional Investor Outflows in Triggering Systemic Declines in the Indian Stock Market

Abstract

This empirical study investigates whether outflows of Foreign Institutional Investors (FIIs) act as a significant catalyst for systemic declines in the Indian stock market. Utilizing secondary quantitative data on FII net flows alongside major index movements (Sensex and Nifty 50), the research assesses patterns between FII withdrawal periods and market downturns over recent years. The study adopts statistical correlation analysis, temporal comparisons, and volatility measures to examine the extent to which FII outflows coincide with negative market trends. Preliminary findings indicate a significant association between sustained FII outflows and declines in broad market indices, although causality is not unidirectional—domestic institutional investors (DIIs) and other macroeconomic factors also play mitigating roles.