Indian stock market has seen an unprecedented growth in the last few years. Since year 2002, Indian market has grown from a much volatile conditions to growth phenomena; this has been due to not only the domestic market but also the international investors. FIIs investment is considered to be one of the key influencing factors after the economic fundamentals. From 1993 reforms in the Indian Capital market on liberalisation of the FII flows has a considerable impact on Indian stock market. The main objective of the study is to test index volatility of Indian stock market in the contest of FII?s net investment in equity and for this two net change in indices have been considered i.e. BSE Sensex and SandP CNX Nifty on annual basis from January 2000 to December 2011. The empirical result found through statistical tests like correlation, regression and t-test which reveals that significant relation between all three variables and result found that 2008 and 2011 were one of the worst years for Indian markets which make it the worst performer in Asia. Global financial recession in 2007 and slowing growth, rising inflation, and policy paralysis have blown the Indian markets off course in 2011. In 2008, the sub-prime crisis and Lehman brothers collapse crippled the global markets when 2011 saw high inflation rate dampening the market spirit. The Great Indian Dream seems to be coming to a close as most of the FIIs are pulling out of Indian markets. The FIIs were net sellers in year 2008 and 2011, pulling out their positions form the Indian market which leads to conclude that the FII is one of the key movers on volatility of Indian stock market and FII?s investment is not negligible for Indian Capital Market.