FII is good too!


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FII is good too!

  1. 1. FOREIGN INSTITUTIONAL INVESTORS ( FIIs) by Group 1B Amit Soni (07927848) Goldi Sharma (07927863 )
  2. 2. OUTLINE <ul><li>Introduction: Foreign Investment </li></ul><ul><li>FIIs </li></ul><ul><li>FIIs in India </li></ul><ul><li>Participatory Notes </li></ul><ul><li>Pros of FII </li></ul><ul><li>Conclusion </li></ul><ul><li>References </li></ul>
  3. 3. INTRODUCTION Investments made by residents of a country in financial assets and production processes of another country Foreign Investments
  4. 4. Foreign Entity wants to enter in the Indian Market Foreign Direct Investment (FDI) Portfolio Investment Scheme ( PIS)->FII But HOW?
  5. 5. Ref: Handbook of Statistics of Indian Economy 2006, RBI:
  6. 6. FIIs Who are they ? Institutions like pension funds ,mutual funds, investment trusts, asset management companies, nominees companies and incorporated portfolio managers
  7. 7. FIIs Where they can invest? Under securities such as shares, debentures and warrants issued by Indian companies which are listed /to be listed on the Stock exchange in India The schemes floated by domestic mutual funds, traded on the primary and secondary markets. In government securities including treasury bills and debt securities of Indian companies.
  8. 8. INVESTMENT LIMITS FOR FII <ul><li>Ceiling for overall investment for FIIs : 24 per cent of the paid up capital of the Indian company </li></ul><ul><li>Can be raised up to the sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company </li></ul>
  9. 9. FIIs in INDIA <ul><li>The Indian financial market was opened to the foreign institutional investors in 1992 to widen and broaden the Indian capital market. </li></ul><ul><li>The net investment by FIIs in India has been positive every year except in 1998-99. </li></ul><ul><li>During the last seven years, there has been a phenomenal increase in the portfolio investment by FIIs in the Indian market </li></ul><ul><li>Several factors are responsible for increasing confidence of FIIs on the Indian stock market which include </li></ul><ul><li>strong macro-economic fundamentals of the economy </li></ul><ul><li>transparent regulatory system </li></ul><ul><li>abolition of long-term capital gains tax </li></ul><ul><li>encouraging corporate results </li></ul>
  10. 10. Ref: SEBI, Annual Report 2005-2006
  11. 11. Ref: SEBI, Annual Report 2005-2006
  12. 12. Ref: SEBI, Annual Report 2005-2006
  13. 13. PROS of FII <ul><li>Enhanced flows of equity capital </li></ul><ul><li>A greater appetite for equity than debt in their asset structure. </li></ul><ul><li>Opening up the economy to FIIs is in line with the accepted preference for non-debt creating foreign inflows over foreign debt </li></ul><ul><li>Improve corporate capital structures. </li></ul><ul><li>Contribute in bridging the investment gap. </li></ul>
  14. 14. Equity-87% Debt-13% Ref: SEBI, Annual Report 2005-2006
  15. 15. Equity : 96% Debt: 4% Ref: SEBI, Annual Report 2005-2006
  16. 16. Ref: SEBI, Annual Report 2005-2006
  17. 17. PROS of FII <ul><li>B. Managing uncertainty and controlling risks </li></ul><ul><li>Promote financial innovation and development of hedging instruments </li></ul><ul><li>Not only enhance competition in financial markets, but also improve the alignment of asset prices to fundamentals. </li></ul>
  18. 18. <ul><li>C. Improving capital markets </li></ul><ul><li>FIIs as professional bodies of asset managers and financial analysts enhance competition and efficiency of financial markets </li></ul><ul><li>Equity market development aids economic development. By increasing the availability of riskier long term capital for projects, and increasing firms’ incentives to provide more information about their operations, FIIs can help in the process of economic development. </li></ul>
  19. 19. <ul><li>D. Improved corporate governance </li></ul><ul><li>FIIs constitute professional bodies of asset managers and financial analysts, who, by contributing to better understanding of firms’ operations, improve corporate governance. </li></ul><ul><li>Bad corporate governance makes equity finance a costly option. </li></ul><ul><li>Institutionalization increases dividend payouts, and enhances productivity growth. </li></ul>
  20. 20. PARTICIPATORY NOTES <ul><li>Simple derivative instruments that foreign investors not registered with Securities & Exchange Board of India (SEBI) use to trade in Indian markets </li></ul><ul><li>These investors place their order through brokerage houses </li></ul><ul><li>The brokerage houses then repatriate the dividends and capital gains back to these entities. </li></ul><ul><li>In this case, the broker acts like an exchange: it executes the trade and uses its internal accounts to settle the trade. </li></ul><ul><li>They keep the investor’s name anonymous. </li></ul>
  21. 21. CONCLUSION <ul><li>Nowadays FIIs are the major contributors to the stock markets. The pros of allowing FIIs to invest in the Indian markets far outweigh the cons. </li></ul><ul><li>Simply banning participatory notes cannot be a solution. </li></ul><ul><li>It is up to the policy makers of India to allow FIIs to operate and provide them with more opportunities and reasons to invest in Indian markets. </li></ul>
  22. 22. REFERENCES <ul><li>Annual Report 2005-2006, SEBI, </li></ul><ul><li>Handbook of Statistics of Indian Economy 2006, RBI, </li></ul><ul><li>Indian Public Finance Statistics 2006-2007, Government of India, Ministry of Finance, Department of Economic Affairs, Economic Division, </li></ul><ul><li>Investment commission Report, Government of India, Ministry of Finance, Department of Economic Affairs, February 2006 </li></ul><ul><li>Paper for Discussion on Offshore Derivatives, SEBI, </li></ul>
  23. 23. <ul><li>Report of the Committee of liberalization on Foreign Institutional Investment, Government of India, Ministry of Finance, Department of Economic Affairs, June 2004 </li></ul><ul><li>Report of the Expert on Encouraging FII flow, Government of India, Ministry of finance, Department of Economic Affairs, New Delhi, 2005 </li></ul><ul><li>Report on Issues in Participatory Notes, SEBI, </li></ul><ul><li>“ Trades Dominates Foreign Policy in India”, Grant Thorton, by Samuel Shah, www.Grant </li></ul><ul><li>Working paper No.19, “The Dynamics of Foreign portfolio Inflows and Equity Returns in India”, Amit Batra, Indian Council For Research on International Economic Affairs, Sep 2003 </li></ul>