Page 54 - IILMGSM Journal_Management Perspective
P. 54
1 .642** .649** .814** .706** .399** .451** .282 .155
CD .642** 1 .949** .882** .828** .886** .901** .594** -.056
CP .649** .949** 1 .867** .816** .877** .897** .556** .004
MIBOR .814** .882** .867** 1 .886** .726** .769** .525** -.020
TBILL .706** .828** .816** .886** 1 .780** .807** .673** -.204
PLR .794** .886** .871** .983** .956** 1 .970** .598** -.093
DR .764** .870** .856** .951** .986** .970** 1 .638** -.143
NIFTY .282 .594** .556** .525** .673** .738** .765** 1 -.655**
ER .155 -.056 .004 -.020 -.204 -.334* -.250 -.655** 1
** Significant at the 0.01 level (2-tailed).
* Significant at the 0.05 level.
Moreover money market, credit market and the G sec to be the greatest in the period 2000-2004 hinting
market are negatively and significantly correlated towards increasing integration. The capital market is
with the capital market (NIFTY) and the foreign found to be negatively and significantly correlated
exchange market (ER). As the interest rates in the with the all the interest rates in the first and the
economy rise, the discount factor used in evaluation second sub periods. There is complete turnaround in
of investment decision rises making the returns from the third sub period where the correlation turns
the capital market less lucrative. Consequently, the positive. This can be attributed to the special
demand falls and the result is the negative macroeconomic situations that prevailed in this
correlation. In case of the interest rates and the period wherein NIFTY touched new heights which
foreign exchange market the negative correlation were beyond market expectations in spite of the
stands justified if one looks at the interest rate parity tightening monetary policy adopted by the central
theory which connects the interest rates, spot rates bank. After 2000 the capital and the foreign exchange
and the forward rates. market have become negatively related. This is the
Although the correlation coefficient between NIFTY impact of the liberalization policy which opened up
and ER is low (r = 0.146) and statistically the economy to the foreign investors and allowed
insignificant during the total period of the study, it complete current account convertibility and partial
has increased in the later part of the study period capital account convertibility. The tax advantage (no
primarily due to increasing FII flows. tax on long term capital gain in the equity segment)
given to FIIs in 2003 had a major positive impact on
From the correlation analysis it can be inferred that the inflows. In the first sub period (consisting of six
money market, G sec market, the credit market have and a half years) the FII inflow was approximately
a strong co movement among them which was seen US $ 14156 million which increased to the US $
(53)
CD .642** 1 .949** .882** .828** .886** .901** .594** -.056
CP .649** .949** 1 .867** .816** .877** .897** .556** .004
MIBOR .814** .882** .867** 1 .886** .726** .769** .525** -.020
TBILL .706** .828** .816** .886** 1 .780** .807** .673** -.204
PLR .794** .886** .871** .983** .956** 1 .970** .598** -.093
DR .764** .870** .856** .951** .986** .970** 1 .638** -.143
NIFTY .282 .594** .556** .525** .673** .738** .765** 1 -.655**
ER .155 -.056 .004 -.020 -.204 -.334* -.250 -.655** 1
** Significant at the 0.01 level (2-tailed).
* Significant at the 0.05 level.
Moreover money market, credit market and the G sec to be the greatest in the period 2000-2004 hinting
market are negatively and significantly correlated towards increasing integration. The capital market is
with the capital market (NIFTY) and the foreign found to be negatively and significantly correlated
exchange market (ER). As the interest rates in the with the all the interest rates in the first and the
economy rise, the discount factor used in evaluation second sub periods. There is complete turnaround in
of investment decision rises making the returns from the third sub period where the correlation turns
the capital market less lucrative. Consequently, the positive. This can be attributed to the special
demand falls and the result is the negative macroeconomic situations that prevailed in this
correlation. In case of the interest rates and the period wherein NIFTY touched new heights which
foreign exchange market the negative correlation were beyond market expectations in spite of the
stands justified if one looks at the interest rate parity tightening monetary policy adopted by the central
theory which connects the interest rates, spot rates bank. After 2000 the capital and the foreign exchange
and the forward rates. market have become negatively related. This is the
Although the correlation coefficient between NIFTY impact of the liberalization policy which opened up
and ER is low (r = 0.146) and statistically the economy to the foreign investors and allowed
insignificant during the total period of the study, it complete current account convertibility and partial
has increased in the later part of the study period capital account convertibility. The tax advantage (no
primarily due to increasing FII flows. tax on long term capital gain in the equity segment)
given to FIIs in 2003 had a major positive impact on
From the correlation analysis it can be inferred that the inflows. In the first sub period (consisting of six
money market, G sec market, the credit market have and a half years) the FII inflow was approximately
a strong co movement among them which was seen US $ 14156 million which increased to the US $
(53)
