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Foreign portfolio investment in india

Foreign portfolio investment in india

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  • Payment / Deduction of Taxes Branch will deduct Capital Gains Tax at the applicable rates and the sale proceeds net of taxes will be credited to the PIS account after receipt of funds from the Broker.    
  • The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) jointly unveiled norms enabling exchange-traded interest rate futures (IRF) on Wednesday. The regulations, which were being developed by a joint committee of SEBI and RBI for over a year, also allow banks to participate in IRFs.
  • Now it can be seen that the index of openness of foreign portfolio flows is at 0.8700, which in a way can represent that about eighty seven percent of the foreign portfolio account has liberalized in the Indian scenario.

Transcript

  • 1.
    • Group no:-5
    • Pradeep kumar -26
    • Salil raibole-27  
    • Rajnish Jakhar-28
    • Rishabh Sood-29
    • Rishika Mittal-30
    • Sachin Lakade-32
  • 2.
    • The Foreign Exchange Management Act 2000 defines Foreign Portfolio Investment as buying and selling of shares, convertible debentures of Indian companies, and units of domestic mutual funds at any of the Indian stock exchanges
    • It is the passive holding of securities such as foreign stocks, bonds, or other financial assets ,none of which entails active management or control of the securities issues by the investor,
  • 3.
    • In 1992, India opened up its economy and allowed foreign portfolio investment in its domestic stock market
    • Since then ,FPI has emerged as a major source of private capital inflow in this country
    • India is more dependent upon FPI than FDI as a source of foreign investment.
    • During 1992 -2005 more than 50 percent of foreign investment in India came from FPI.
    February 20, 2010 FDI & FPI
  • 4.
    • In Three Broad Ways
      • Inflow of FPI can provide a developing non – debt creating source of foreign investment.
      • FPI can induce financial resources to flow from capital – abundant countries, where expected returns are low, to capital scarce countries where expected returns are high.
      • FPI affects the economy through its various linkage effects via the domestic capital market.
    •  
  • 5.
    • Ways of Foreign Institutional Investments
        • Foreign Organization set up to invest in India
      • GDRs/ADRs
        • Raising money from abroad through issue of shares abroad
      • Offshore Funds
        • Funds raised outside India to be invested here
  • 6.  
  • 7. February 20, 2010 FDI & FPI
  • 8.
    • FIIs have invested more than Rs 145,000 crore rupees in the Indian stock market
    • In 1990-helped India to mitigate its foreign exchange shortage and build high level of foreign exchange reserves.
  • 9.
    • Tax rates on interest or dividends
    • Interest rates
    • Exchange rates
    • P.I is the part of capital account on BOP
    February 20, 2010 FDI & FPI
  • 10.
    • Applicant should have track record, professional competence,  financial  soundness, experience, general reputation of fairness and integrity;
    • The applicant should be regulated by an appropriate foreign regulatory authority in the same capacity/category where registration is sought from SEBI.
    • Registration with authorities, which are responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor.
    • The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India.
  • 11.
    • Applicant must be legally permitted to invest in securities outside the country or its in-corporation / establishment.
    • The applicant must be a "fit and proper" person.
    • The applicant has to appoint a local custodian and enter into an agreement with the custodian. Besides it also has to appoint a designated bank to route its transactions.
    • Payment of registration fee of US $ 5,000.00
  • 12.
    • RBI has granted permission to SEBI registered (FIIs) invest in India under Portfolio investment scheme.
    • All FIIs and their sub-accounts taken together cannot acquire more than24% of the paid up capital of an Indian economy
    • Investment by individual FIIs cannot exceed 10% of paid up capital.  Investment by foreign registered as sub accounts of FII cannot exceed 5% of paid up capital
    February 20, 2010 FDI & FPI
  • 13.
    • Non Resident Indian (NRIs) and Persons of Indian Origin (PIOs) can purchase/sell shares/convertible debentures of Indian companies on Stock Exchanges under Portfolio Investment Scheme.
    • For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment.
    • All sale/purchase transactions are to be routed through the designated branch.
    • An NRI or a PIO can purchase shares up to 5% of the paid up capital of an Indian company. All NRIs/PIOs taken together cannot purchase more than 10% of the paid up value of the company.
  • 14.
    • This limit can be increased by the Indian company to 24% by passing a General Body resolution).
    • The sale proceeds of the repatriable investments can be credited to the NRE/NRO etc. accounts of the NRI/PIO whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.
    • The sale of shares will be subject to payment of applicable taxes.
  • 15.
    • PIS is a scheme of Reserve Bank of India defined in schedule 3 of Foreign Exchange Management Act 2000.
    • It allows NRIs to purchase or sell shares/debentures of Indian companies on a recognized stock exchange by routing such purchase/sale transactions through their account with Bank Branch
    • An NRI/PIO can purchase share up to 5% of the paid up capital of the Indian company
  • 16.
    • All NRIs/PIOs taken together cannot purchase more than 10% of the paid up value of the company.
    • It can be increased up to 24% by passing a general body resolution.
    • Investment can be repatriable or non-repatriable in nature .
    • In order to invest on a repatriable basis, investor must have an NRI or FCNR bank account in India
  • 17.
    • the amount representing investment should be received by inward remittance through normal banking channels or by debit to NRE Account/FCNR account of the NRI.
    • The dividend/interest of units may be remitted through normal banking channels or credited to NCR/FCNR account of the investor.
  • 18.
    • Through private arrangements with the approval of the RBI.
    • sale or transfer of shares and debentures of Indian companies to other NRIs
      •   No permission is required from RBI, however transferee would require permission for purchase of the shares.
      • Short-selling or selling the shares bought by NRI investors before delivery is prohibited.
  • 19.
    • Investors under the PIS are liable to pay Capital Gains Tax on their investments which depends on the tenure of their stocks.
    • Prevailing rates are deducted at source by the designated bank.
  • 20.
    • A NRI can operate the PIS through only one selected branch.
    • To operate from more than one branch, special permission from the RBI is required.
    • Documents required by designated banks to apply for the PIS.
        • PIS application form
        • RPI or NRI Form, with details of shares bought from the primary market
        • Tariff Sheet of the PIS
        • Demat Account opening form
  • 21.
    • NRIs can approach, PNB’s any of the following branches
    • RBI had allotted specific code to the banks dealing in PIS.
    Sr No Name of Branch Code allotted by RBI 1 PNB House, Fort, Mumbai – 400 001 4401 2 ECE House, K.G.Marg, New Delhi-110 001 4402 3 Brabourne Road, Kolkata 4403
  • 22.
    • PIS (NRE) Account
      • Application for PIS
      • Letter of Authority for operating the account
      • Acceptance of Fee Schedule for PIS
      • Form RPI (with Repatriation benefits)
      • Annexure-I (For shares purchased through Primary Market as NRI on Repatriable basis)
      • Nomination Form ‘DA-1’
  • 23.
    • PIS (NRO) Account  
      • Application for PIS
      • Letter of Authority for operating the account
      • Acceptance of Fee Schedule for PIS
      • Form NPI (without Repatriation benefits)
      • Annexure-II (Shares purchased as NRI through Primary Market on non-repatriation basis)
      • Annexure-III (Shares purchased through Primary/Secondary Market during resident status/received in inheritance)
      • Nomination Form ‘DA-1’.
  • 24.
    • India’s foreign investment policies allow FDI up to 26 per cent and FII of (an additional) 23 per cent in stock exchanges. Under the regulation.
    • FIIs and the NRIs are allowed to invest in Indian Depository Receipts (IDRs)
    • FPI have been allowed to trade in IRFs, but limits have been put in place to keep their influence under check
  • 25.
    • Portfolio flows as a non-debt creating investment flow has increased its share in the total foreign investment flows.
    • During the year 2003-04 these flows’ share in the capital flows touched an all time high of about 67.8 percent
  • 26.
    • Funds that are created abroad specifically targeting investment in India
    • Examples:
      • 3i India Infrastructure Fund
      • CC Art Limited
      • Urban Infrastructure Real Estate Fund
      • Tara Feeder Fund
      • India Optima Fund
      • CNC India Investments, I L.P
  • 27.  
  • 28.  
  • 29.  
  • 30.  
  • 31. No. 44: Foreign Investment Inflows (US $ million) Item 2003-04 2004-05 2005-06 2006-07 2007-08 (P) 2008-09 (P) 1 10 11 12 13 14 15 A. Direct Investment (I+II+III) 4,322 6,051 8,961 22,826 34,835 35,180   I. Equity (a+b+c+d+e) 2,229 3,778 5,975 16,481 26,864 27,995   a. Government (SIA/FIPB) 928 1,062 1,126 2,156 2,298 4,699   b. RBI 534 1,258 2,233 7,151 17,127 17,998   c. NRI — — — — — —   d. Acquisition of shares * 735 930 2,181 6,278 5,148 4,632   e. Equity capital of unincorporated bodies # 32 528 435 896 2,291 666   II. Reinvested earnings + 1,460 1,904 2,760 5,828 7,679 6,428   III. Other capital ++ 633 369 226 517 292 757 B. Portfolio Investment (a+b+c) 11,377 9,315 12,492 7,003 27,271 – 13,855   a. GDRs/ADRs # # 459 613 2,552 3,776 6,645 1,162   b. FIIs ** 10,918 8,686 9,926 3,225 20,328 – 15,017   c. Offshore funds and others — 16 14 2 298 — Total (A+B) 15,699 15,366 21,453 29,829 62,106 21,325
  • 32.
    • Helped in mitigating foreign exchange shortages
    • Have a strong influence on the Indian stock market.
    • Stock market depth(ratio of stock market capitalization to GDP)
    • Development of secondary market took place, however primary market has not shown any significant effect.
  • 33.
    • Rapid growth of private placements markets which are preferred due to:
    • can be tailored to specific needs of entrepreneurs
    • Issuing securities not under regulation till recent past.
    • Withdrawal of domestic retail investors from stock markets.(1.37% of total household savings)
  • 34.
    • Irregularities, uncertainties and lack of protection measures result in decline
    • FIIs also much less active due to prolonged lock in period for the primary markets.
  • 35.
    • Beneficial if well functioning stock markets support the economic development of the country.
    • Impose significant fiscal cost on economy as has to maintain the value of rupee in a very narrow band.
    • Have to ensure the attractivenss for the investors
  • 36.
    • THANK YOU