FII is allowed to enter into our country only through stock exchanges either in the form of equity or debt. Thus it makes an impact on the rise or fall of SENSEX, since FII is allowed to be purchased or sold daily. The daily transaction of FII is the reason behind the volatility in the stock markets and has strong impact on the various macro-economic variables and the economy as a whole. Thus, the paper attempts to analyze the impact of variation in FII on Sensex and to study the degree of relationship between them in various FII movement scenarios.