Building Your Personal Brand on LinkedIn - Expert Planet- 2024
Me fdi and fii in india
2. Definition Of FDI
• FDI is that investment, which is made to serve the business
interests of the investor in a company, which is in a different nation
distinct from the investor’s country of origin.
• The parent enterprise through its foreign direct investment effort
seeks to exercise substantial “Control” over the foreign affiliate
company.
• Exp. - An American company taking a majority stake in a company
in India.
3. Types of FDI
• By direction
Inward
Outward
• By Target
Mergers and Acquisitions
Horizontal FDI
Vertical FDI
• By motive
Resource seeking
Market seeking
Efficiency seeking
4. Advantages of FDI
• Economic growth.
• Trade.
• Employment and skill levels.
• Technology diffusion and knowledge transfer.
• Linkages and spillover to domestic firms.
• Improved technology.
• Management expertise.
• Access to international markets.
5. Disadvantages
• Crowding of local industry.
• Loss of control.
• Repatriation of profits (dividends by investor).
• Effects on local culture/ sentiments- socio
cultural effects
7. Factors Affecting FDI
• Financial incentives (funds from local Govt.)
• Fiscal incentives (Exemption from import duties)
• Indirect incentives (Provides land and other
resources)
• Political stability.
• Market potential and accessibility.
• Large economy.
• Market Size.
8. India’s hottest destinations
1. Maharashtra
Maharashtra received the lion's share of the FDI $2.43
billion (Rs 11,154 crore), which is 35% of the total FDI
inflows in to the country,.
2. National Capital Region
NCR received $1.85 billion (Rs 8,476 crore) in FDI during the
period. The region accounted for 20% of the total FDI.
3. West Bengal, Sikkim, Andaman & Nicobar Islands
These states attracted the third highest FDI inflows worth
$1.416 billion (Rs 6,050 crore)
4. Karnataka - $936 million (Rs 4,333 crore)
5. Punjab, Haryana, Himachal Pradesh - $904 million (Rs
4,141 crore)
13. Definition of FII
• An investor or investment fund that is from or registered in a
country outside of the one in which it is currently investing.
• Institutional investors include hedge funds, insurance
companies, pension funds and mutual funds.
• The term is used most commonly in India to refer to outside
companies investing in the financial markets of India.
• International institutional investors must register with the
Securities and Exchange Board of India to participate in the
market.
• One of the major market regulations pertaining to FIIs involves
placing limits on FII ownership in Indian companies.
14. Contd….
• Hedge Funds:
An aggressively managed portfolio of investments that uses
advanced investment strategies such as leveraged, long, short
and derivative positions in both domestic and international
markets with the goal of generating high returns.
• Insurance Companies:
A company that offers insurance policies to the public, either
by selling directly to an individual or through another source
such as an employee's benefit plan.
An insurance company is usually comprised of multiple
insurance agents. An insurance company can specialize in one
type of insurance, such as life insurance, health insurance, or
auto insurance, or offer multiple types of insurance.
15. Contd….
• Pension Funds:
A fund established by an employer to facilitate and
organize the investment of employees' retirement funds
contributed by the employer and employees.
The pension fund is a common asset pool meant
to generate stable growth over the long term, and provide
pensions for employees when they reach the end of their
working years and commence retirement.
• Mutual Funds: An investment vehicle that is made up of a
pool of funds collected from many investors for the
purpose of investing in securities such as stocks, bonds,
money market instruments and similar assets.
16. Advantages Of FII
• Enhanced flows of equity capital:
FIIs have a greater appetite for equity than debt in their
asset structure. The opening up the economy to FIIs has
been in line with the accepted preference for non-debt
creating foreign inflows over foreign debt.
Enhanced flow of equity capital helps improve capital
structures and contributes towards building the investment
gap.
• Managing uncertainty and controlling risks:
FII inflows help in financial innovation and development
of hedging instruments. Also, it not only enhances
competition in financial markets, but also improves the
alignment of asset prices to fundamentals.
17. Contd….
• Equity market development aids economic development:
By increasing the availability of riskier long term capital
for projects, and increasing firm’s incentives to provide
more information about their operations, FIIs can help in
the process of economic development.
• Improved corporate governance:
FIIs constitute professional bodies of asset managers
and financial analysts, who, by contributing to better
understanding of firm’s operations, improve corporate
governance.
Bad corporate governance makes equity finance a costly
option. Also, institutionalization increases dividend
payouts, and enhances productivity growth.
18. Disadvantages Of FII
• Problems of Inflation: 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.
• Problems for small investor:
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.
19. Contd….
• 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.
• Hot Money:
“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.
21. Areas effected by FII
Stock market
The FII’s profit from investing in emerging financial stock markets, say the
Indian stock Exchange. If the cap on FII is high then they can bring in lot of
funds in the countries 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. So this is how influencing FII can be, as is seen in the present
downtrend of the stock markets in India courtesy heavy FII selling.
Exchange Rates
The simple way of understanding is through Demand and Supply. If say US
imports from India it is creating a demand for Rupee thus the Indian rupee
appreciates w.r.t the dollar. If India imports then the dollar appreciates
w.r.t the Indian rupee.
22. contd
Exports & Imports:
The FII lead to appreciation of the currency, they lead to the exports
industry becoming uncompetitive due to the appreciation of the rupee.
For e.g. if 1 USD = Rs.40 and a soap costs 1 USD. Now when the rupee
appreciates 1 USD = Rs. 20, I will have to sell the same soap to the US for 2
US Dollars in order to sustain the same income that I have been making
i.e. Rs.40. Thus excess FII fund inflow in the country can also make a
negative impact on the economy of the country.
Inflation:
The huge amount 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 by the FII’s. This situation could lead to
excess liquidity
Thus there should be a limit to the FII inflow in the country.
23. Difference between FDI and FII
FDI FII
1. It is long-term investment 1. It is generally short-term investment
2. Investment in physical assets 2. Investment in financial assets
3. Aim is to increase enterprise capacity 3. Aim is to increase capital availability
or productivity or change
management control
4. Leads to technology transfer, access 4. FII results in only capital inflows
to markets and management inputs
5. FDI flows into the primary market
5. FII flows into the secondary market
6. Entry and exit is relatively difficult
6. Entry and exist is relatively easy
7. FDI is eligible for profits of the
company 7. FII is eligible for capital gain
8. Does not tend be speculative 8. Tends to be speculative
9. Direct impact on employment of 9. No direct impact on employment of
labour and wages labour and wages
10.Abiding interest in mgt. 10.Fleeting interest in mgt.
24. Terms related to FII
• Sub-account:
Includes those forgein corporations,
forgein individuals and institutions, funds or
portfolios established or incorporated outside
India on whose behalf investments are
proposed to be made in India by FII.
• Designated Bank:
Any bank in India which has been
authorized by the RBI of India to act as a
banker to FII.
25. Cont…
• Domestic Custodian:
It means any entity registered with SEBI to
carry or the activity of providing custodial
services in respect of securities.
26. Role of FIIs
• The Indian stock market has come of age and has
substantially aligned itself with the international
order.
• Market has also witnessed a growing trend of
‘institutionalization’ that may be considered as a
consequence of globalization.
• It is influence of the FIIs which changed the face
of the Indian stock markets. Screen based trading
and depository are realities today largely because
of FIIs
27. Cont…
• FIIs are the trendsetters in any market. They
were the first ones to identify the potential of
Indian technology stocks. When the rest of the
investors in these scrips, they exited the scrips
and booked profits.
• Rolling settlement was introduced at the
insistence of FIIs as they were uncomfortable
with the badla system.
• The FIIs are playing an important role in bringing
in funds needed by the equity market.
28. Cont…
• A positive contribution of the FIIs has been
their role in improving the stock market
infrastructure.
• Led to emergence of new system called the
depository system.
29. FDI & FII flows to India
SL. ITEM 2006-07 2007- 2008- 2009- 2010- 2010-11 2011-12
NO 08 09 10 11 (APRIL- (APRIL-
SEPTEMBER SEPTEMBER)
1 FDI 0.8 1.3 1.8 1.3 0.6 0.9 1.3
2 PROTFOLIO 0.7 2.2 -1.2 2.4 1.8 3.1 0.1
INVESTMENT
30. CAPITAL FLOWS IN 2011-12
CAPITAL FLOWS IN 2011-12
US$ BILLION
COMPONENT PERIOD 2010-11 2011-12
FDI TO INDIA APRIL-AUGUST 11.7 21.0
FIIs(net) APRIL-OCT. 14 27.5 0.6
ADRs/GDRs APRIL-AUGUST 1.5 0.3
ECBs APRIL-AUGUST 7.5 15.9
Approvals
NRI Deposits APRIL-AUGUST 1.9 2.1
(net)
SOURCE: www.rbi.org.in
31. Regulations
• The SEBI is a nodal agency for dealing with FIIs and
they have to obtain initial registration with SEBI.
• The SEBI initial registration is valid for 5 years. The RBI
general permission to FIIs will also hold good for five
years.
• FIIs can invest in all securities traded on primary and
secondary market.
• FIIs can repatriate capital gains, dividends, incomes
received by way of interest and any compensation
received towards sale/renouncement of rights
offering of shares.
32. Recent Statistics
• FDI inflows projected at $35 billion in 2011/12 against the
level of $23.4 billion in 2010-11.
• FII inflows projected to be $14 billion which is less than
half that of the last year i.e. $30.3 billion.
• FDI flows rose by 36% to US$23.69 billion during
January- October 2011.
• FDI rose by an impressive 56% to US$2.53 billion in
November 2011.
• The Govt. has approved 20 FDI proposals worth Rs
1,935.24 cr(US$ 384.5 million)
Source: www.ibef.org
33. RECENT NEWS
• India is a country that has been able to restore
investor confidence in its markets, even during the
toughest of times. Increase in capital inflows, foreign
direct investments (FDI) and overseas entities’
participation reflect the fact that Indian markets have
fared well in recent times.
• SEBI tries to soothe FIIs’ frayed nerves:
Sebi said that FII sub-accounts will not be allowed
to issue PNs(Participatory Notes) any further and the
18-month period to wind up derivatives positions
taken through the PN route will not be relaxed.
34. Cont…
• India’s finance ministry allows 26% FDI in Indian
airlines companies.
• Tax Caveat haunt FII investments.
• FII norms for commexes eased, single- branded
retail.
• Emirates airline may look at investing in India
carrier. (ET).
• FII investment inflows into the country in 2011
turned negative as foreign fund managers took
another Rs 1,636 crore off the table.
36. Impact FDI on Indian economy
Creates employment opportunity for domestic country.
Good relation between two countries.
Modern technology.
Inflow of foreign funds in Indian economy.
To provides the goods and services at best suitable
price.
It creates the competition among the domestic company
and MNC in this way domestic co.can increase their
efficiency.
Indian company get chance to work professional body.
Indian company get chance to work with world market
Leader Company.
Backward area can be developed.
Creating good capital market in India.
Government earns in the form of licenses fees,
37. Flow of FII on Indian stock market
Source: DIPPs In INR
YEAR ANNUAL RETURN FII INVESTMENTS IN EQUITIES
2001 -18 11970
2002 6 3629
2003 67 30459
2004 12 38965
2005 36 47181
2006 40 36540
2007 53 71486
2008 -54 -52987
2009 81 83424
2010 15.5 133526
2011 -25 -2812
38. FII investments
• Adopting a bullish stance on India, overseas
investors have pumped over Rs 14,000 cr. into
the Indian equity market in Feb, 2012.
• Foreign institutional investors(FIIs) were gross
buyers of shares worth Rs 15,362 cr., while they
sold equities amounting to Rs 14,104.50 cr.,
translating into a net investment of Rs 1,257.30
cr. (USD 258 million) till March 9, as per the data
available with market regulator SEBI.
39. Why encourage FII’s
• To enhance the Global liquidity into the equity
markets.
• Raise the price earning ratio.
• Built our reputation in the international
community.
• Instrumental in capital formation.
40. SHARE OF TOP INVESTING COUNTRIES FDI
EQUITY INFLOWS (Financial years):
Ranks Country % flows to % flows to india
India(upto- 2011) (till 2012)
1 Mauritius 42% 39%
2 Singapore 9% 10%
3 U.S.A 7% 6%
4 U.K. 5% 6%
5 Netherlands 4% 4%
6 Japan 4% 8%
7 Cyprus 4% 4%
8 Germany 2% 3%
9 U.A.E 2% 1%
10 France 1% 2%
Source: DIPP’s
42. India Vs China
INDIA CHINA
• India's per capita income is • China's per capita income
USD 440. is USD 990.
• India received USD 4.67 • China received USD 52.7
billion of FDI inflows in the billion of FDI inflows in the
same year. year 2002.
• FDI Inflows only • FDI flows contribute 3.5%
contributes to 0.8 percent of china’s GDP.
of India's GDP. • High-tech industries in
• India's high-tech industries China contributes to
claim for 2.3 percent of around 7.9 percent in the
Gross Domestic Product. GDP of the country.
43. Strengths of India And China
INDIA CHINA
• India has skilled and • China has a bigger market
efficient manpower. size than India.
• Talented management • Offers easy accessibility
system. to export market.
• Rule of law. • Government incentives.
• Transparent system of • Developed infrastructure.
work. • Cost-effectiveness.
• Cultural affinity and • Macro-economic climate
regulatory environment.
44. Caveat for FII investment in
India
However, the FII activities come with a caveat. When the FII find that the markets
are performing badly, they will quickly cash out to save their positions.
Maruti Suzuki shares jumped over 2 per cent as theReserve Bank of India removed
the company from the caution list for FII investment, dealers said.
In a press release, the central bank said the aggregate shareholding in Maruti
Suzuki by foreign institutional investors under the Portfolio Investment Scheme
has gone below the prescribed trigger limit and restrictions placed earlier on
purchase of its shares were withdrawn.
In August as the stock markets fell on the news of the problems with Greece
financial situation and the down rating of US credit rating, the FII’s have been
selling heavily. This means that the investment will be sent out of the country.
45. Contd..
Mid-cap and small cap indices have recorded higher gains, rising by 14.4 per cent
and 17 per cent respectively.
The sectors that were so far sluggish are now the biggest gainers. Capital goods,
metals, real estate and banking sectors saw their respective indices surge by the
high twenties.
The capital goods index rose 28 per cent while metals, real estate and banking
witnessed a jump in the range of 23-25 per cent.
The information technology (IT) and fast moving consumer goods indices traded
flat.
Mutual funds, domestic institutions and FIIs too have gained. FIIs remained more
or less invested in the market in 2011 and have been entering at attractive levels
leading to a rally in the market.
Experts, however say that the market is getting into a phase where it is in an
overbought position and any bad news could possibly lead to a reversal in the
rally.
46. FII and FDI connection
The relationship between FII and FDI (Foreign Direct
Investment) is intertwined.
In 1998 – 1999 a number of reforms were initiated, that were
designed specifically for attracting FDI. In India FDI is allowed
through FII’s.
This is done through private equity, preferential allotment,
joint ventures and capital market operations.
47. Contd..
The only industries in which FDI isn’t allowed are arms,
railways, coal, nuclear and mining. 100% financing by FDI is
allowed in infrastructural projects such as construction of the
bridges and the tunnels.
In the financial sector, insurance and banking operations can
have foreign investors.
Even though the current financial crisis is affecting the
markets, it will be some time before the markets will rise
again.
48. Why India?
• Liberal, largest democracy, political stability.
• Second largest emerging market.
• Skilled and competitive labor force.
• Highest rates of return on investment.
• One hundred of the fortune 500 have R&D
facilities in India.
• Second largest group of software developers
after the U.S.
• Lists 6,500 companies on the BSE
49. Cont……
• World’s fourth largest economy and second
largest pharmaceutical industry.
• Growth over the past few years averaging 8%.
• Destination for business process outsourcing,
knowledge processing etc.
• Second largest English speaking, scientific,
technical and executive manpower.
• Low costs and tax exemptions in SEZ.
•
50. Recommendations for India
India should open more sectors to FDI to boost
foreign cash inflows unlike China.
• Chinese government has opened more sectors to foreign direct
investment (FDI) to increase the foreign investment flows in side the
country which has seen some drop in last month due to ongoing global
economic slowdown and euro zone debt crisis.China’s FDI dropped nearly
9.76% to USD 8.76 billion in November which has prompted the Chinese
government to take this decision .
The new sectors such as energy-saving and
environment-friendly technologies, new-generation
information technology, biotechnology, high-end
equipment manufacturing, alternative energy,
advanced materials and alternative fuel cars should
be opened for FDI by India .
51. Contd..
Recently Indian Government failed to approve FDI in
multi brand retail and current policy paralysis by the
government who is hurting the FDI in India. During this
time, China’s move to allow FDI in more sectors is
definitely a confidence booster for the global investors
who bet on emerging markets for more return.
India should follow the same step to attract more FDI
inside the country which will also support its
continuously depreciating currency.
52. Conclusion
There is little doubt that FII
inflows have significantly grown in
importance over the last few years. In
the absence of any other substantial
form of capital inflows, the potential ill
effects of a reduction in the FII flows
into the Indian economy can be severe.
Thus, while it does not indicate that FII
inflows are per-se bad, there is
possibly a need to gear up macro-