Many of the developing countries, including India, restricted the flow of foreign capital till the early 1990s. Later on the serious current account deficit and other development issues have forced these countries to open their doors for foreign investments. In the present Indian scenario Foreign Institutional Investments (FII) has emerged as a major source of capital for emerging market economies including India. The huge investment by the Foreign Institutional Investors (FIIs) is generally considered as the major reason for the movements in the Indian stock market. This paper analyses the dynamic relation between FII and Indian stock market movements. The present study was conducted by taking the daily data of FII flow and market return for a period of 12 years from 1st April 2004 to 31st March 2016. The study with the help of VAR approach and Granger Causality Test reveals that investment activities of FIIs have an impact on the movements of the Indian stock market.