FIIs started investing in India in 1993 after the Indian stock market opened to foreign investors. FIIs must register with SEBI and comply with RBI regulations. They can include pension funds, mutual funds, insurance companies, banks, and more. FIIs bring foreign currency into India which increases rupee liquidity and lowers borrowing costs, fueling economic growth. However, they also introduce volatility in stock prices as they buy and sell large numbers of shares. Massive withdrawals of funds by FIIs have contributed to crashes of the Indian stock market.

1. FII
Subitted by
Anil Vishnu B

2. How FII started in India?
• India opened its stock market to foreign
investors in september 1992.
• since 1993,received portfolio investment
from foreigners in the form FII in equities
• In order to trade in Indian equity market
foreign corporation need to register with
SEBI as FII and shall comply with the
Exchange Control Regulations of RBI.

3. Objectives of SEBI
• To protect the interest of the investors in
securities
• To promote the development of securities
market
• To regulate the securities market .

4. WHO CAN BE REGISTERED AS AN FII?
• Pension Funds
• Mutual Funds
• Insurance Companies
• Investment Trusts
• Banks
• University Funds
• Foundations
• Charitable Trusts / Charitable Societies

5. • In 1993, 12 FIIs got registered
• At the end of 1996-97, 439 FIIs were
registered
• In 2001, there were 482 foreign investors
registered with Sebi.
• The number increased to 489 in 2002 and to
517 and 637 in 2003 and 2004 respectively.
• The total number should be around 1540.

6. Where FII can invest?
• Securities in primary and secondary markets
including shares, unlisted, listed or to be listed
on a recognized stock exchange in India;

7. • FIIs Investments.
• Appreciation of the rupee :
• Higher forex reserves .
• Creating wealth .
• Direct effect on Inflation.

8. • Appreciation of the Rupee: Taking a closer look at the funds
flow, FIIs bring dollars to India which get converted into rupees in the inter-bank
foreign exchange market. As the supply of dollars increase, the law of demand-
supply starts operating and the rupee appreciates vice versa the dollar .
• Higher forex reserves :So, higher foreign (dollar) inflows into
India usually translate into more rupee liquidity in the system. This
increases the money supply and facilitates easy availability of credit
(loans) from banks

9. • Creating wealth: FII flows also aid in lowering the cost of borrowings.
The easy availability of credit and the lower borrowing costs increase consumption
demand for housing, durables, cars and real-estate. This higher demand often
leads to greater public and corporate investments, resulting in higher economic
growth .
• Direct effect on Inflation :This positive wealth effect also often
leads to higher consumption and greater demand for other asset classes such as
gold, real-estate etc., which, in turn, fuels economic growth and inflation. Higher
FII flows can, thus, be seen to help create wealth through higher asset prices

10. Why there is need of FII ?
• FII flows supplements and augmented
domestic savings and domestic investment
without increasing the foreign debt of our
country
• Capital inflows to the equity market increase
stock prices and encourage the investment by
Indian firms

11. Impact Of FIIs On Indian Markets
• In the past four years there has been more than $41 trillion
worth of FII funds invested in India.
• The present downfall of the market too is influenced as these
FIIs are taking out some of their invested money.
• For long-term value investors, there’s little because for worry
but short term traders are adversely getting affected by the
role of FIIs are playing at the present.

12. Why FII called good friend for good time –
volatile in nature
• In the Indian stock markets movement of the
stock depends on the limited no of stocks
• As FIIs purchase and sell these stocks there is
a high degree of volatility in the stock market
• If any set of development encourages outflow
of capital that will increase the vulnerability of
the situation in the stock market

13. How they perform
The degree of volatility can be attributed to the following
reasons:
• The increase in investment by FIIs increases stock indices the
stock prices and encourages further investment . In this event
when any correction takes place the stock prices decline and
there will be pull out by the FIIs in a large numbers as earning
per share declines
• The FIIs manipulate the situation of boom in such a manner
that they wait till the index rises up to a certain height and
exit at an appropriate time. This tendency increases the
volatility further

14. FIIs as major cause of market crash
( Jan 21 to Jan 29 2008)
• The Indian capital markets have been left
reeling under the impact of liquidity crunch
caused by multiple factors
• It began with two mega issues of reliance
power and future capital holdings, which drew
out huge amounts of money from the market
• FIIs bowed out from the capital market with
more than Rs 10000 crore

15. There are several reasons on FIIs selling
• The swings in the market forced several FIIs to withdraw from India and invest their
dollars in other emerging markets. Some of the other markets include Uruguay, Russia,
the Ukraine, and several other former Soviet countries. Though there have been swing’s
in the past too but FII response this time was different because of margin pressures
back home as even they have to provide regular returns to their investors.
• The Indian markets are not seen as a good short-term bet any more. India is seen as a
good investment for the medium to long term. FIIs seem to fear the pace of growth and
the fundamentals of the markets.
• Most FIIs are looking at corporate governance and execution abilities, which could be
significant drivers in creating a strong portfolio of Indian stocks. Recent action taken by
the market regulator indicates that the Indian government would like to moderate the
inflow of FII money.

16. The Indian stock markets have really come of age there were so many
developments in the last 15 years that make the markets on par with the developed
markets.
The foreign capital is free and unpredictable and is always on the look out of
profits Flls frequently move investments, and those swings can be expected to
bring severe price fluctuations resulting in increasing volatility.
The growth of institutional investors in the market is having its own advantages as well
as its own share of problems on the brighter side almost always purchase stocks on the
basis of fundamentals.

17. FII affecting the Exchange Rates
• FII need to maintain an account with the RBI for all the transactions.
• How the value of one currency goes up (appreciates) or goes down against the
other currency
• FII’s for every dollar that they bring into the country, there is a demand for
rupee
• Exchange rate was 1 USD = Rs 40, it could become 1 USD = Rs 39 after they
invests.
• When FII withdraw the capital from the markets, they need to earn back the
(USD)
• always a gain for FII whenever the currency of the country invested in
appreciates w.r.t the home currency
• Similarly when rupee depreciates w.r.t US Dollar and exchange rate becomes 1
USD = Rs. 80 I get only 0.5 Dollar and I lose 0.5 of the 1 USD invested.

18. FII and Inflation
• Too much money chases too few goods
• Huge amount of FII fund inflow A lot of demand for rupee
• RBI pumps the amount of Rupee in the market
• This situation could lead to excess liquidity
• Thus there should be a limit to the FII inflow in the country.
FII and Local companies: FII bring lot of funds to the country’ markets leading to
free availability of funds for the local companies in need of funds to carry on
expansion in their production capacities or starting new ventures.

19. FII and Exports
• FII lead to appreciation of the currency
• 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
• 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.