Effects of Macro Economic Indicators on Foreign Portfolio Investments

In this study, both institutional and retail investors were observed making exits and entries based on macroeconomic data, utilizing measurable indicators such as GDP, inflation, bank rates, foreign exchange rates, trade volume on the national stock exchange, and portfolio investments. Employing a Vector Error Correction Model (VECM) in an econometric analysis, the study found a significant association between macroeconomic indicators and portfolio investments in India. Investors followed a discernible pattern of entering and exiting markets, with economic growth fostering greater investments. Notably, GDP, NSE Volume, and bank rates were identified as variables impacting foreign portfolio investments. In the long run, GDP positively affected foreign portfolio investments, while inflation and foreign exchange rates exhibited a detrimental influence, leading to decreased portfolio investments. Foreign Institutional Investors, prioritizing profits over business operations, focused on market sentiments, directing investments towards economies with potential performance and resulting in a higher volume of capital inflow. Overall, the study concludes that a robust economic condition attracts superior foreign portfolio investments.