In the year 1992, it was financial distress that led to lacunae in India’s economic environment. At that time, our domestic resources i.e. the foreign exchange reserves were at all-time low. These were at such a low level that we were not even in a condition to pay our import bills for a week. It was then in Sep, 1992 the FII were allowed to invest in our nation. The Foreign Institutional Investment (FII) acted as a lifesaving herb for our economic health in general and stock market development in particular. Since then, it has been  continuously augmenting  our domestic resources, have increased the liquidity in our capital market which further led to reduction in cost of capital and stimulated the investment environment in economy. The FIIs are not easy to lure they invest only in country with higher returns. This fact makes it clear that FIIs are affected by stock returns. But at the same time, huge investment by FIIs found to affect the stock returns of a nation. So, the present study has been undertaken to analyse the impact of FII flows on stock market return of the selected companies in twelve different sectors namely automobile, cement fertiliser etc. Granger Causality Test has been applied on the monthly data of variables namely FIIP, FIIS, NFII and NSE return of the selected companies of different sectors for the period ranging from April 2004 to March 2014. Conversely to generalized behaviour in stock market, the FII has impacted the different sectors differently.

KEYWORDS: Foreign Institutional Investment, Economic Development, GARCH Test, Granger Causality Test, Market Returns.