The less well known Foreign Institutional Investors (FIIs) have been a key part of
India's growth story this decade. The term FIIs is most commonly used to refer the companies
that are established or incorporated outside India and are investing in the financial markets of
India by registering themselves with the Securities & Exchange Board of India (SEBI).
FIIs include overseas pension funds, mutual International Research Journal of Finance
and Economics - Issue 41 (2010) 213 funds, investment trusts, asset management companies,
nominee companies, banks, institutional portfolio managers, university funds, endowments,
foundations, charitable trusts, charitable societies, a trustee or power of attorney holder
incorporated or established outside India proposing to make proprietary investments on
behalf of a broad-based fund (i.e., fund having more than 20 investors with no single investor
holding more than 10% of the shares or units of the fund). Foreign Institutional Investment is
basically short-term in nature and mostly made in the financial markets.
Foreign Institutional Investors (FIIs) are allowed to invest in the primary and
secondary capital markets in India through the Portfolio Investment Scheme (PIS)
administered by the Reserve Bank of India (RBI).
The FIIs have been playing a significant role in the process of capital formation and
economic growth of the country. There has been a dramatic increase in net FII flows to India
over the period 2003-2007, and especially over the bull rally that climaxed in January 2008
when the Sensex reached a lifetime high of 21,206.77 points. FIIs invested US$17 billion in
Indian stocks in 2007 only. However, the onset of the recent global financial crisis saw FIIs
pulling out a record $13 billion (Rs 67,470) in 2008, the largest outflows since India opened
its doors to FIIs 15 years ago. The Economic Times has just reported that FII investment is
up, with the Indian Stock Market taking in $13 billion so far in 2009 from foreign
Total FII investment in 2012 (till July 13, 2012) stood at US$ 9.82 billion wherein
US$ 1.3 billion were infused during the first two weeks of July itself, according to
data released by capital market regulator, the Securities and Exchange Board of India
During July 3-13, 2012, FIIs were gross buyers of shares worth Rs 24,626 crore (US$
4.47 billion), while they sold equities amounting to Rs 17,270 crore (US$ 3.14
billion), translating into a net investment of US$ 1.3 billion
The foreign fund houses also infused US$ 309 million in the debt market in July 2012
taking the overall net investments by FIIs into debt markets to US$ 4.32 billion in
2012 (till July)
As on July 13, the number of registered FIIs in the country stood at 1,754 while the
total number of sub-accounts was 6,358
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Foreign Institutional Investment As defined by the European Union Foreign
Institutional Investment is an investment in a foreign stock market by the specialized
financial intermediaries managing savings collectively on behalf of investors, especially
small investors, towards specific objectives in term of risk, return and maturity of claims.
SEBI’s defination of fiis:-
Presently includes foreign pension funds, mutual funds, charitable / endowment /
university funds, asset management companies and other money managers operating on their
behalf in a foreign stock market.
Foreign institutional investment is liquid nature investment, which is motivated by
international portfolio diversification benefits for individuals and institutional investors in
History of fii
India opened its stock market to foreign investors in September 1992, and in 1993,
received portfolio investment from foreigners in the form of foreign institutional investment
in equities. This has become one of the main channels of FII in India for foreigners. Initially,
there were terms and conditions which restricted many FIIs to invest in India.
But in the course of time, in order to attract more investors, SEBI has simplified many
terms such as:-
The ceiling for overall investment of FII was increased 24% of the paid up capital of
Allowed foreign individuals and hedge funds to directly register as FII.
Investment in government securities was increased to US$5 billion.
Simplified registration norms.
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3. WHY FIIS REQUIRED?
FIIs contribute to the foreign exchange inflow as the funds from multilateral
finance institutions and FDI (Foreign direct investment) are insufficient. Following are the
some advantages of FIIs.
It lowers cost of capital, access to cheap global credit.
It supplements domestic savings and investments.
It leads to higher asset prices in the Indian market and has also led to considerable
amount of reforms in capital market and financial sector.
To get the knowledge of stock market.
To find out the relationship between the FIIs investment and stock market.
To know the volatility of BSE Sensex due to FIIs.
To study the behavioral pattern of FII in India during 2000 to 2010.
Important terms to know about fiis:
Sub-account: Sub-account includes those foreign corporations, foreign individuals,
and institutions, funds or portfolios established or incorporated outside India on
whose behalf investments are proposed to be made in India by a FII.
Designated Bank: Designated Bank means any bank in India which has been
authorized by the Reserve Bank of India to act as a banker to FII.
Domestic Custodian: Domestic Custodian means any entity registered with SEBI to
carry on the activity of providing custodial services in respect of securities.
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Broad Based Fund: Broad Based Fund means a fund established or incorporated
outside India, which has at least twenty investors with no single individual investor
holding more than 10% shares or units of the fund. Provided that if the fund has
institutional investor(s) it shall not be necessary for the fund to have twenty investors.
If the fund has an institutional investor holding more than 10% of shares or units in
the fund, then the institutional investor must itself be broad based fund.
4. EFFECT OF FII ON INDIAN ECONOMY
Let us study the positive and the negative side of this rise of investment by FII
one by one
It has been emphasized upon the fac that the stock market reform like improved
market transparency, automation, dematerialization and regulation on reporting and
disclosure standards were initiated because of the presence of the FIIs. But FII flows can
be considered both as the cause and the effect of the stock market reforms. The market
reforms were intiated because of presence of them and this in turn has led to increased
Enhanced flows of equity capital
FII are well known for a greater appetite for equity than debt in their asset
structure. For example, pension fund in the united kingdom and united states had 68 per
cent and 64 per cent, respectively, of their portfolios in equity in 1998. Not only it can
help in supplementing the domestic savings for the purpose of development projects like
building economic and social infrastructure but can also help in growth of rate of
investment, it boosts the production, employment and income of the host country.
Managing uncertainty and controlling risks
FIIS promote financial innovation and development of hedging instrument. These
because of their interest in hedging risls, are known to have contributed to the
development of zero- coupon bonds and index future.FIIs not only enhance competition
in financial markets, but also improve the alignment of asset prices to fundamentals. FIIs
in particular are known to have good information and low transaction costs. By aligning
asset prices closer to fundamentals, they stabilize markets. In addition, a variety of FIIs
with a variety of risk-return preferences also help in dampening volatility.
Improving capital markets
FIIs as professional bodies of asset managers and financial analysts enhance
competition and efficiency of financial markets. By increasing the availability of riskier
long term capital for projects, and increasing firms’ incentives to supply more
information about them, the FIIs can help in the process of economic development
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If we see the market trends of past few recent years it is quite evident that Indian
equity markets have become slaves of FIIs inflow and are dancing to their tune. And this
dependence has to a great extent caused a lot of trouble for the Indian economy. Some of
the factors are:
Potential capital outflows
“Hot money” refers to funds that are controlled by investors who actively seek
short-term returns. These investors scan the market for short-term, high interest rate
investment opportunities. “Hot money” can have economic and financial repercussions on
countries and banks. When money is injected into a country, the exchange rate for the
country gaining the money strengthens, while the exchange rate for the country losing the
money weakens. If money is withdrawn on short notice, the banking institution will
experience a shortage of funds.
Huge amounts of FII fund inflow into the country creates a lot of demand for
rupee, and the RBI pumps the amount of Rupee in the market as a result of demand
created. This situation leads to excess liquidity thereby leading to inflation where too
much money chases too few goods.
Problem to small investors
The FIIs profit from investing in emerging financial stock markets. If the cap on
FII is high then they can bring in huge amounts of funds in the country’s stock markets
and thus have great influence on the way the stock markets behaves, going up or down.
The FII buying pushes the stocks up and their selling shows the stock market the
downward path. This creates problems for the small retail investor, whose fortunes get
driven by the actions of the large FIIs.
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Adverse impact on exports
FII flows leading to appreciation of the currency may lead to the exports industry becoming
uncompetitive due to the appreciation of the rupee.
Influence of fii on indian market
Positive fundamentals combined with fast growing markets have made India an attractive
destination for foreign institutional investors (FIIs). Portfolio investments brought in by FIIs
have been the most dynamic source of capital to emerging markets in 1990s. At the same
time there is unease over the volatility in foreign institutional investment flows and its impact
on the stock market and the Indian economy.
Apart from the impact they create on the market, their holdings will influence firm
performance. For instance, when foreign institutional investors reduced their holdings in
Dr.Reddy’s Lab by 7% to less than 18%, the company dropped from a high of around US$30
to the current level of below US$15. This 50% drop is apparently because of concerns about
shrinking profit margins and financial performance. These instances made analysts to
generally claim that foreign portfolio investment has a short term investment horizon. Growth
is the only inclination for their investment.
Some major impact of FII on stock market:
They increased depth and breadth of the market.
They played major role in expanding securities business.
Their policy on focusing on fundamentals of share had caused efficient pricing
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5. INVESTMENTS BY FIIS
There are generally two ways to invest for FIIs.
100% investments could be in equity related instruments or up to 30% could be invested in
debt instruments i.e.70 (Equity Instruments): 30 (Debt Instruments)
Equity investment route:
In case of Equity route the FIIs can invest in the following instruments:
A. Securities in the primary and secondary market including shares which are unlisted,
listed or to be listed on a recognized stock exchange in India.
B. Units of schemes floated by the Unit Trust of India and other domestic mutual
funds,whether listed or not.
100% investment has to be made in debt securities only
100% debt route:
In case of Debt Route the FIIs can invest in the following instruments:
Debentures (Non Convertible Debentures, Partly Convertible Debentures etc.)
Dated government securities
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Other Debt Market Instruments.
It should be noted that foreign companies and individuals are not be eligible to invest
through the 100% debt route.
6. FOREIGN INVESTMENTS IN INDIA
From 1992, foreign institutional investors (FIIs) have been allowed to invest in all securities traded on
the primary and secondary markets, including shares, debentures and warrants issued by companies
which were listed or were to be listed on the stock exchanges in in India and in schemes floated by
domestic mutual funds. Foreign Institutional Investors (FIIs) registered with SEBI are eligible to
purchase shares and convertible debentures issued by Indian companies under the portfolio
investment scheme (PIS). In the Budget 2011-I2, the Government of India, for the first time,
permitted qualified foreign investors (QFIs), who meet the KYC norms, to directly invest in Indian
equity mutual fund (MF) schemes and in MF debt schemes that invest in infrastructure. It was for the
first time that this new class of investors was allowed to directly participate in the Indian capital
market. In January 2012, the Government expanded this scheme to allow QFIs to directly invest in
Indian equity markets. In the budget 2012-13, Government announced its intention to permit QFIs to
Foreign Institutional Investors (FIIs)
The monthly trend in FII investments in 2011–2012 (depicted in Table 7-1) shows that the net FII
investments were negative for certain months such as May 2011, August 2011, September 2011 and
November 2011. In February 2012, the net investment of ` 352,280 million (US $ 7,164) by FIIs was
the highest monthly net investment in 2011-12. The total net investment by FIIs in 2011-12 stood at
US $ 18,923 million, and it dried up in the first half of 2012-13 at US $ 8,020 million.
(US $ mn)
(US $ mn)
2011-12 9,212,850 8,275,620 937,250 18,923 140,482
APR-12 504,250 553,220 -48,970 -927 139,555
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MAY-12 598,000 565,780 32,220 597 140,152
JUN-12 634,750 622,950 11,800 209 140,361
JUL-12 675,200 538,560 136,640 2,463 142,824
AUG-12 599,510 488,820 110,690 1,996 144,820
SEP-12 829,694 630,857 198,840 3,682 148,502
AUG-SEP ‘12 3,841,397 3,400,172 441,234 8,020 148,502
Number of Foreign Institutional Investors (FIIs)
The net addition in the SEBI-registered FIIs failed to keep up the momentum that was seen in
2007–2008 and 2008–2009, where 322 and 316 FIIs, respectively, were added. There was a
net addition of 43 SEBI-registered FIIs in 2011–2012, which took their total number to 1,765
at the end of March 2012, compared to that of 1,722 at the end of March 2011.
Foreign Institutional Investments—Equity and Debt
In 2011–2012; the net FII investments in equity fell by 60.3 percent from last year to ` 437,380 million.
The net investments by FIIs in the debt segment grew by 37.6 percent in 2011–2012 with a
staggering all-time high of ` 217,750 million, compared to ` 363,190 in 2010–2011. During
April–September, 2012, the FIIs made net investments worth ` 57,428 million in debt while
net investments of ` 383,806 million were made in equity in the first half of 2012–2013.
in Debt (` mn)
in Equity (US $
(US $ mn)
2011-12 437,380 499,880 8,550 9,772
Apr-12 -11,091 -37,875 -203 -694
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May-12 -3,471 35,691 -64 654
Jun-12 -5,013 16,818 -92 308
Jul-12 102,727 33,917 1,881 621
Aug-12 108,039 2,652 1,979 49
Sep-12 192,615 6,225 3,528 114
Apr-Sep '12 383,806 57,428 7,029 1,052
FII Turnover – Equity and Derivatives
The gross turnover of FIIs in the equity market segment on the Indian stock exchanges (the
NSE and the BSE) accounted for ` 12,324,747 million in 2011–2012, which marked a year-
on-year fall of 14 percent. The total turnover of the FIIs in the equity market constituted 17.7
percent of the total turnover on the BSE and the NSE in 2011–2012, an improvement from
15.3 percent recorded in 2010–2011.
Table 7-3: Gross Turnover of FIIs in Equity Market Segment of NSE and BSE
(US $ mn)
(US $ mn)
(US $ mn)
s (` mn)
s (US $
2006-07 4,550,232 104,387 4,595,466 105,425 9,145,698 209,812 57,946,24
2007-08 8,329,655 208,398 8,705,790 217,808 17,035,44
2008-09 5,396,976 105,927 6,129,276 120,300 11,526,25
2009-10 6,568,931 145,524 6,181,265 136,935 12,750,19
2010-11 7,715,649 172,803 6,614,442 148,140 14,330,09
2011-12 6,269,806 122,561 6,054,941 118,361 12,324,74
2,878,897 52,727 2,555,099 46,797 5,433,995 99,524 30,669,35
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The FII gross turnover in the F&O Segment of the NSE in 2011–2012 was ` 90,607,826 million, which was 14.5
percent of the turnover of the derivatives market (` 313,492,317 million) at the NSE. The share of the FIIs’ gross
turnover increased to 16.2 percent of the derivatives turnover on the NSE during the first half of 2012–2013
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Share of FIIs in NSE-Listed Companies
The FII ownership of shares in the various sectors of NSE-listed companies is depicted in
Table 7-6. At the end of March 2012, FIIs held the highest stake of 15.9 percent in the
banking sector, followed by FMCG and finance (9.4 percent and 8.4 percent, respectively).
The total percentage of shares held by FIIs across different sectors was 6 percent of the total
shares of the companies listed on the NSE as at the end of March 2012.
FII Share in Different Sectors of Companies Listed on NSE
Information Technology 7.3
Media & Entertainment 5.8
Total stake of FIIs in all the Sectors 6.0
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Private Equity (PE) Investments in India
Growth in PE deals in India
The PE investments gained momentum in the late nineties with the growth of Indian IT
companies and with the simultaneous global dot-com boom. Following the global IT boom,
the Indian IT sector was viewed as a prominent funding opportunity, and consequently, saw a
lot of venture capital coming into the country.
According to the Grant Thornton Report, 2011, there were 373 PE deals worth US $ 5 billion
(Chart 7-3) in 2012. However, in value terms, the PE deals showed a year-on-year decline of
18.1 percent. According to Emerging Market Private Equity Association (EMPEA), in India,
the PE investment as a percent to GDP fell to 0.3 percent in 2011 from 0.4 percent in 2010.
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PE Fundraising / Investments in BRIC Countries
According to the data reported by the Emerging Markets Private Equity Association
(EMPEA) in August 2012, among the BRIC economies, China and Brazil were seen to be the
most preferred destination for private equity players in 2011 compared to last year when
India was a preferred destination. In 2011, fundraising by private equity in China and Brazil
was US $ 16,619 million and US $ 7,079 million, respectively. However, Russia saw a
decline in the PE fundraising by around 83.5 percent in 2010. Other than India, all countries
saw a significant spurt in the PE fundraising in 2010
Private Equity Fund Raising in BRIC Countries
(in US $ mn)
Year Brazil Russia India China
2001 323 375 259 152
2002 270 100 142 105
2003 230 175 236 213
2004 480 200 706 311
2005 158 1,254 2,741 2,243
2006 2,098 222 2,884 4,279
2007 2,510 1,790 4,569 3,890
2008 3,589 880 7,710 14,461
2009 401 455 3,999 6,617
2010 1,078 75 3,268 7,509
2011 7,079 135 2,737 16,616
2012 (Jan - Jun) 675 82 1,225 3,977
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In 2011, China saw an increase of 14.6 percent in PE investments, followed by Russia where
PE investments rose by 4.2 percent. In contrast to the fundraising scenario in Brazil, the PE
investments fell by 46.5 percent, while India saw a minor fall of 0.8 percent in investments.
Private Equity Investments in BRIC Countries
(in US $ mn)
Year Brazil Russia India China
2001 281 77 320 1,575
2002 261 127 40 126
2003 321 113 456 1,667
2004 120 240 1,272 1,389
2005 474 240 1,377 2,991
2006 1,342 402 5,687 8,200
2007 5,285 805 9,905 9,458
2008 3,020 2,647 7,483 8,994
2009 989 217 4,011 6,288
2010 4,604 1,516 6,222 9,190
2011 2,461 1,579 6,172 10,529
2012 (Jan -
1,271 639 1,571 3,962
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The NRI turnover data at the NSE is depicted in Table 7-9. The NRI turnover at the cash
market of the NSE registered a year-on-year decline of 8.3 percent in 2011-2012,and stood at
` 97,386 million. In the derivatives market of the NSE, the total NRI turnover stood at `
159,005 million in 2011-2012, a year-on-year growth of 43.2 percent over 2010–2011.
NRI Turnover at NSE
Year Cash Market
(US $ mn)
(US $ mn)
2007-08 85,443 2,138 39,464 987
2008-09 50,161 985 30,190 593
2009-10 103,546 2,294 42,646 945
2010-11 106,180 2,378 111,052 2,487
2011-12 97,386 1,904 159,005 3,108
7. TOP FIIS IN INDIA
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Top 10 FIIs in india based on m-cap as on september 2005.
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Top 10 Flls In India Based On M-Cap As
On Sept '05
Market Capitalization of Investments as in
December 2005 in US $ Billion*
Morgan Stanley 2.42
Merrill Lynch 2.31
Goldman Sachs 2.26
*Based on holdings of more then 1% and above in Individual companies.
Sources Exchanges and company web sites.
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The top 10 investments by Foreign Institutional
Investors (FII) in India
Companies Investment value in Billion$
- December 05
Market cap* as on
Jan 04 2006
Trailing PE as on
January 04, 2006*
Infosys 7.90 83790 38.6
6.30 129541 14.1
Bharti Tele 2.60 65198 29.7
HDFC 3.20 30962 27.4
ONGC 2.80 169108 11.5
Satyam 2.00 24752 29.3
HDFC Bank 2.30 22889 30.3
SBI 1.60 48322 10.5
BHEL 1.60 35086 30.3
8. MARKET DESIGN IN INDIA FOR FOREIGN
Entities eligible to invest under FII route:
1) As FII
an institution established or incorporated outside India as a pension fund, mutual fund,
investment trust, insurance company or reinsurance company;
an International or Multilateral Organization or an agency thereof or a Foreign
Governmental Agency, Sovereign Wealth Fund or a Foreign Central Bank;
an asset management company, investment manager or advisor, bank or institutional
portfolio manager, established or incorporated outside India and proposing to make
investments in India on behalf of broad based funds and its proprietary funds, if any;
a Trustee of a trust established outside India, and proposing to make investments in
India on behalf of broad based funds and its proprietary funds, if any
university fund, endowments, foundations or charitable trusts or charitable
societies‘broad based fund” means a fund established or incorporated outside India,
which has at least twenty investor with no single individual investor holding more hat
fort-nine per cet of the shares or units of the fund .
2) As Sub-accounts:
Sub-account refers to any person who is resident outside India on whose behalf
investments are proposed to be made in India by a foreign institutional investor, and who is
registered as a sub-account under the SEBI (FII) Regulations, 1995.
The applicant for a sub-account can fall into any of the following categories:
Broad-based fund or portfolio that is broad-based, incorporated, or established outside
Proprietary fund of a registered foreign institutional investor.
Foreign individual who has a networth of not less than US $ 50 million, holds a valid
passport of a foreign country for a period of at least ﬁ ve years, holds a certiﬁ cate of
good standing from a bank, and is the client of the FII for a period of at least three
Foreign corporate that has its securities listed on a stock exchange outside India,
having an asset base of not less than US $ 2 billion and having an average net proﬁ t
of not less than US $ 50 million during the three ﬁ anancial years preceding the date
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A non-resident Indian shall not be eligible to invest as a sub-account.
3) Domestic Entities
A domestic portfolio manager or a domestic asset management company shall also be eligible
to be registered as FII to manage the funds of sub-accounts.
An FII can invest only in the following:
Securities in the primary and secondary markets including shares, debentures, and
warrants of companies, unlisted, listed, or to be listed on a recognized stock
exchange in India
Units of schemes ﬂ oated by domestic mutual funds including the Unit Trust of
India, whether listed or not listed on a recognized stock exchange, or units of
schemes ﬂ oated by a Collective Investment Scheme
Dated government securities
Derivatives traded on a recognized stock exchange
Indian Depository Receipts
In case a foreign institutional investor or a sub-account holds equity shares in a
company whose shares are not listed on any recognized stock exchange, and continues to
hold the shares after the initial public offering and the listing thereof, such shares would be
subject to a lock-in for the same period, if any is applicable to the shares held by a foreign
direct investor placed in a similar position, under the policy of the central government
relating to foreign direct investment that is currently in force.The total investments in equity
and equity-related instruments (including fully convertible debentures, convertible portion of
partially convertible debentures, and tradable warrants) made by an FII in India, whether on
its own account or on account of its sub-accounts, should not be less than 70 percent of the
aggregate of all the investments of the FII in India, made on its own account and on account
of its sub-accounts.
However, this is not applicable to any investment of the FII either on its own account
or on behalf of its sub-accounts in debt securities that are unlisted or listed or to be listed on
any stock exchange, if the prior approval of the SEBI has been obtained for such investments.
Further, the SEBI, while granting approval for the investments, may impose such conditions
as are necessary with respect to the maximum amount that can be invested in the debt
securities by the FII on its own account or through its sub-accounts. A foreign corporate or
individual shall not be eligible to invest through the 100 percent debt route.
Investments made by FIIs in security receipts issued by securitization companies or
asset reconstruction companies under the Securitization and Reconstruction of Financial
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Assets and Enforcement of Security Interest Act, 2002 are not eligible for the investment
limits mentioned above. No FII can invest in security receipts on behalf of its sub-accounts.
FII Investment in secondary markets:
The SEBI regulations provide that a foreign institutional investor or sub-account can
transact in the Indian securities market only on the basis of taking and giving delivery
of securities purchased or sold. However, this does not apply to any transactions in
derivatives on a recognized stock exchange.
Further, in December 2007, the SEBI permitted FIIs and sub-accounts to enter into
short selling transactions only in accordance with the framework speciﬁed by SEBI.
No transaction on the stock exchange can be carried forward and the transaction in
securities would be only through a stock broker who has been granted a certiﬁcate by
They have also been allowed to lend or borrow securities in accordance with the
framework speciﬁed by the SEBI in this regard.
The purchase of equity shares of each company by a, FII investing on its own account
should not exceed 10 percent of the total issued capital of that company. For an FII
investing in equity shares of a company on behalf of its sub-accounts, the investment
on behalf of each such sub-account should not exceed 10 percent of the total issued
capital of that company. In the case of foreign corporates or individuals, each of such
sub-accounts should not invest more than ﬁve percent of the total issued capital of the
company in which such investments are made.
A foreign institutional investor can issue or otherwise deal in offshore derivative
instruments, directly or indirectly, wherein the offshore derivative instruments are
issued only to those persons who are regulated by an appropriate foreign regulatory
authority, and the ODIs are issued after compliance with ‘know your client’ norms.
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9. GENERAL OBLIGATIONS AND RESPONSIBILITIES
Certain general obligations and responsibilities relating to appointment of domestic
custodians, designated bank, investment advice in publicly accessible media etc. have been
laid down on the FIIs operating in the country in the SEBI, FII Regulations 1995.
Appointment of domestic custodian
A Foreign Institutional Investor or a global custodian acting on behalf of the Foreign
Institutional Investor, shall enter into an agreement with a domestic custodian to act as
custodian of securities for the Foreign Institutional Investor.
The Foreign Institutional Investor shall ensure that the domestic custodian takes steps
monitoring of investments of the Foreign Institutional Investor in India;
reporting to the Board on a daily basis the transactions entered into by the
Foreign Institutional Investor;
preservation for five years of records relating to his activities as a Foreign
Institutional Investor; and
furnishing such information to the Board as may be called for by the Board
with regard to the activities of the Foreign Institutional Investor and as may be
relevant for the purpose of this regulation
A Foreign Institutional Investor may appoint more than one domestic custodian with
prior approval of the Board, but only one custodian may be appointed for a single
sub- account of a Foreign Institutional Investor.
Appointment of designated bank
A Foreign Institutional Investor shall appoint a branch of a bank approved by the
Reserve Bank of India for opening of foreign currency denominated accounts and special
non-resident rupee accounts.
Maintenance of proper books of accounts, records, etc.
Every Foreign Institutional Investor shall keep or maintain, as the case may be, the
following books of accounts, records and documents, namely:
true and fair accounts relating to remittance of initial corpus for buying,
selling and realising capital gains of investment made from the corpus;
accounts of remittances to India for investments in India and realising
capital gains on investments made from such remittances;
bank statement of accounts;
contract notes relating to purchase and sale of securities; and
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communication from and to the domestic custodian regarding investments
The Foreign Institutional Investor shall intimate to the Board in writing the place
where such books, records and documents will be kept or maintained.
Preservation of books of accounts, records, etc.
Subject to the provisions of any other law, for the time being in force, every Foreign
Institutional Investor shall preserve the books of accounts, records and documents specified
in regulation 18 for a minimum
Information to the Board period of five years.
Every Foreign Institutional Investor shall, as and when required by the Board or the
Reserve Bank of India, submit to the Board or the Reserve Bank of India, as the case may be,
any information, record or documents in relation to his activities as a Foreign Institutional
Investor as the Board or as the Reserve Bank of India may require.
Allocation of Funds:
The SEBI registered FII should restrict allocation of its investment between equities
and debt in the Indian Capital Market in the ratio 70:30. The FII may form a 100 % debt fund
and get such fund registered with SEBI. Investment in debt securities by FIIs are subject to
limits if any stipulated by SEBI in this regard.
Private Placement with FIIs
SEBI registered FIIs have been permitted to purchase shares/convertible debentures of
an Indian company through offer/private placement subject to the ceiling of 10% of the paid
up capital of the Indian company for individual FII/sub account and 24% for all FIIs/sub
accounts put together. Indian company is permitted to issue such shares provided that:
In the case of public offer, the price of shares to be issued is not less than the price at
which shares are issued to residents and
In the case of issue by private placement, the price is not less than the price arrived at
in terms of SEBI guidelines issued by the erstwhile Controller of Capital issues as
applicable. Purchases can also be made of Partially Convertible debentures, Fully
Convertible debentures, Rights/Renunciations/Warrants/Units of Domestic Mutual
Risk management forward cover & Cancellation and Rebooking
Authorized Dealer Banks can offer forward cover to FIIs to the extent of total inward
remittance of liquidated investment. Rebooking of cancelled forward contracts is allowed up
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to a limit of 2 % of the market value of the entire investment of FIIs in equity and/or debt in
India. The limit for calculating the eligibility for rebooking will be based upon market value
of the portfolio as at the beginning of the ﬁ nancial year (April-March). The outstanding
contracts have to be duly supported by underlying exposure at all times. The AD Category –I
bank has to ensure that (i) that total forward contracts outstanding doesn’t exceed the market
value of portfolio and (ii) forward contracts permitted to be rebooked doesn’t exceed 2 % of
the market value as determined at the beginning of the ﬁ nancial year. The monitoring of
forward cover is to be done on a fortnightly basis.
FII Position Limits In Derivatives Contracts
The SEBI-registered FIIs are allowed to trade in all exchange-traded derivative
contracts on the stock exchanges in India, subject to the position limits as prescribed by the
SEBI from time to time. The clearing corporation monitors the open positions of the FII/sub-
accounts of the FII for each underlying security and index, against the position limits speciﬁ
ed at the level of the FII/sub-accounts of the FII, respectively, at the end of each trading day.
Monitoring of investment position by RBI
The Reserve Bank of India (RBI) monitors the investment position of FIIs in listed
Indian Companies, reported by Custodian Banks on a daily basis in Form LEC(FII).
When the total holdings of FIIs/NRIs under the Scheme reach the trigger limit, which
is 2 % below the applicable limit. Reserve Bank issues a notice to all the designated branches
of an Authorised Dealer banks stating that any further purchases of shares of the particular
Indian company will require prior approval of Reserve Bank. (For companies with paid-up
capital of Rs.1,000 crore and above, the trigger limit is 0.5 % below the applicable limit).
RBI gives case-by case approvals to FIIs for purchase of shares of companies included in the
Caution List. This is done on ﬁ rst-come-ﬁ rst served basis.
Once the shareholding by FIIs/NRIs reaches the overall ceiling/sectoral cap/statutory
limit, Reserve Bank puts the company on the Ban List. Once a company is placed on the Ban
List, no FIor NRI can purchase the shares of the company under the Portfolio Investment
SEBI registered FIIs/sub-accounts are allowed to keep with the trading member/clearing
member amount sufﬁ cient to cover the margins prescribed by the exchange/Clearing House
and such amounts as may be considered to meet the immediate needs.
Reporting of FII Investments
An FII may invest in a particular share issue of an Indian company under either the FDI
scheme or the Portfolio Investment Scheme. The AD Category-I banks have to ensure that
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the FIIs who are purchasing the shares by debit to the Special Non-Resident Rupee Account
report these details separately in the Form LEC (FII).
Investment by FIIs under Portfolio Investment Scheme
The RBI has given general permission to SEBI-registered FIIs/sub-accounts to invest under
the Portfolio Investment Scheme (PIS).
i. The total holding of each FII/sub-account under this scheme should not exceed 10
percent of the total paidup capital or 10 percent of the paid-up value of each series of
convertible debentures issued by the Indian company.
ii. The total holding of all the FIIs/sub-accounts put together should not exceed 24
percent of the paid-up capital or the paid-up value of each series of convertible
debentures. This limit of 24 percent can be increased to the sectoral cap/statutory limit
as applicable to the Indian company concerned, by passing a resolution of its Board of
Directors, followed by a special resolution to that effect by its General Body.
iii. A domestic asset management company or portfolio manager who is registered with
the SEBI as an FII for managing the funds of a sub-account can make investments
under the scheme on behalf of:
A person resident outside India who is a citizen of a foreign state; or
A corporate body registered outside India.
iv. However, such investment should be made out of the funds raised, collected, or
brought from outside through a normal banking channel. The investments by such
entities should not exceed 5 percent of the total paid-up equity capital or 5 percent of
the paid-up value of each series of convertible debentures issued by an Indian
company, and should also not exceed the overall ceiling speciﬁ ed for FIIs.
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9. PARTICIPATORY NOTES
Participatory notes are instruments used by foreign funds / investors who are not registered
with the SEBI but are interested in taking exposure in Indian securities Participatory notes are
generally issued overseas by the associates of India-based foreign brokerages.3 FIIs that do
not wish to register with the SEBI but would like to take exposure in Indian securities also
use the participatory notes. Brokers buy or sell securities on behalf of their clients on their
proprietary account and issue such notes in favour of such foreign investors.
Participatory Notes are simple derivative instruments that investors not registered in India or
Mauritius use to trade in Indian markets. These investors place their order through brokerage
houses that have Mauritius-based FII accounts. The brokerage houses then repatriate the
dividends and capital gains back to these entities. In this case, the broker acts like an
exchange: it executes the trade and uses its internal accounts to settle the trade. They keep the
investor’s name anonymous.
That is why capital market regulators dislike P-notes.
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10. SURVEY REPORT
1) Are u aware of FII activity?
Yes 35 70.0
No 15 30.0
Total 50 1000.0
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Above graph indicates that 35 person say Yes and 15 person say No out of 50 person.
2) To what extend does FII investment affect buying decision of stocks?
Large extend 28 10.0
Moderate has 7 36.0
Total 35 70.0
missing 15 30.0
Total 50 100.0
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3) What according to you are the benefit of fii investment?
Improved liquidity 24 48.0
Economic growth 8 16.0
Stability of the markets 1 2.0
Influencecing decesion s
of domestic investors
Total 35 70.0
missing 15 30.0
Total 50 100.0
4. What in your opinion are the problems associated with FII
investment in India?
Increase in stock price 5 10.0
Volatility 18 36.0
Inflation 3 6.0
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Change in interest rate 3 6.0
increase in paricipatory
total 35 70.0
missing 15 30.0
Total 50 100.0
5) The framework for regulation of fii must modified?
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Strongly agree 7 14.0
Agree 14 28.0
Neutral 10 20.0
Disagree 2 4.0
Strongly disagree 2 4.0
Missing 15 30.0
Total 50 100.0
6) Which form of foreign inflow is better for the country?
FDI 12 24.0
FII 9 18.0
export 14 28.0
Missing 35 70.0
Total 50 100.0
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7) Is indian stock market affected by fii investment?
Yes 35 70.0
No - -
Total 35 70.0
Missing 15 30.0
Total 50 1000.0
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8) Do u think that govt reform need to be support domestic retailer so that they face
Yes 31 62.0
No 4 8.0
total 35 70.0
Missing 15 30.0
Total 50 1000.0
Foreign Institutional Investors are very much needed for India. They are necessary for
the continuous development of our country. The economy of our country has shown a better
performance and has led to the economic growth due to the FIIs. Though there are threats
from the Foreign Institutional Investments we should be positive and see the future
of our country. In last 50 years, India has developed a strong and professionally competent
technical, marketing and business manpower in Livestock production and Information
This is an added advantage over many developing countries of Asia and Africa.
Availability of competent and comparatively low-cost manpower in India is a great asset
which is attracting foreign investors. As a result of stagnancy or in some cases reduction in
agricultural production, demand for several inputs like machinery and equipment, feeds,
pharmaceuticals etc. has reduced in some countries of America and Europe.
It is therefore not surprising that these business enterprises have focused their
attention to emerging Asian markets, particularly India and China. India is in a better position
as it has a strong technical manpower base and large number of English speaking population
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