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Foreign portfolio investments in india
- 1. FOREIGN PORTFOLIO INVESTMENTS IN INDIA CAUSES AND IMPACT Reema D’Souza- PG14069 Sneha Singh- PG14083 Akanksha Gandhi- PG14091 Shweta Ghag- PG14097 Chaitra Mhatre- PG14101
- 2. Foreign Portfolio Investment • FPI is securities and other financial assets passively held by foreign investors • Origin of FPI • After the Second World War, developing countries made efforts to achieve rapid economic growth and to alleviate problems of poverty and unemployment • Rapid growth of international trade.
- 3. • The developing countries faced shortage of capital. • Capital flows in the form of foreign aid • Developing countries faced difficulty in implementing the conditionality’s of undertaking from IMF and World Bank Foreign Portfolio Investment
- 4. Foreign Investment in India Foreign Capital Investment in India Foreign Direct Investment Foreign Portfolio Investment • The foreign direct investment (FDI) is the investment in the construction of physical capital in the capital- importing country. • FPI is securities and other financial assets passively held by foreign investors
- 5. Foreign Portfolio Investment • FPI does not provide the investor with direct ownership of financial assets, and thus no direct management of a company. • It is relatively liquid, depending on the volatility of the market invested in. • Involves short-term positions in financial assets of international markets, and is similar to investing in domestic securities.
- 6. Foreign Portfolio Investment Categories of FPI • Category I (Low Risk) which would include Government and entities like Foreign Central banks, Sovereign wealth Funds, Multilateral Organizations, etc. • Category II (Moderate Risk) which would include Regulated entities such as banks, Pension Funds, Insurance Companies, Mutual Funds, Investment Trusts, Asset Management Companies, University related endowments (already registered with SEBI) • Category III (High Risk) which would include all other FPIs not eligible to be included in the above two categories
- 7. Foreign Portfolio Investment Foreign Portfolio Investment FII GDRs/ADRs Offshore Funds • FII: Investments made by foreign institutions like pension funds, foreign mutual funds etc. in the financial markets. • GDRs and ADRs: They are instruments which signify the purchase of share of Indian companies by foreign investors or American investors respectively • Off-shore funds: The schemes of mutual funds that are launched in the foreign country
- 8. Composition of FPI Depository Receipts: • A Depository Receipt (DR) is a financial instrument representing certain securities (e.g. shares, bonds etc.) • Securities are deposited with the domestic custodian bank and DR’s are issued by depository bank in targeted country. • Depository receipts are negotiable security.
- 9. 1992- 93 1993- 94 1994- 95 1995- 96 1996- 97 1997- 98 1998- 99 1999- 00 2000- 01 2001- 02 2002- 03 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 GDR/ ADR 240 1520 2082 683 1366 645 270 768 831 477 600 459 613 2552 3776 8769 240 1520 2082 683 1366 645 270 768 831 477 600 459 613 2552 3776 8769 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 US$Million Year GDR/ ADR in India
- 10. Financial Institution Investment: • A foreign institutional investor (FII) is a person or a group of people operating or registered in a country that’s not their domicile. • Foreign institutional investor groups often operate as hedge funds, pension funds, insurance companies, and mutual funds. • FII’s in India are regulated by SEBI. • India has changed its foreign investor laws to allow FIIs to own up to 100% of Indian companies in certain industries.
- 11. 1992- 93 1993- 94 1994- 95 1995- 96 1996- 97 1997- 98 1998- 99 1999- 00 2000- 01 2001- 02 2002- 03 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 FII - - 1 1665 1503 2009 1926 979 -390 2135 1847 1505 377 10918 8686 9926 3225 20328 1 1665 1503 2009 1926 979 -390 2135 1847 1505 377 10918 8686 9926 3225 20328 -5000 0 5000 10000 15000 20000 25000 US$Million Year Financial Institutional Investment - India
- 12. Offshore Funds & Others: • An offshore fund refers to a mutual fund that invests its assets abroad and not in domicile country. • Offshore funds offer investors access to international markets and major exchanges. • In India a few companies that have offshore mutual funds are Reliance, Kotak and TATA.
- 13. 1990- 91 1991- 92 1992- 93 1993- 94 1994- 95 1995- 96 1996- 97 1997- 98 1998- 99 1999- 00 2000- 01 2001- 02 2002- 03 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 OFF 6 4 3 382 239 56 20 204 59 123 82 39 2 0 16 14 2 298 6 4 3 382 239 56 20 204 59 123 82 39 2 0 16 14 2 298 0 50 100 150 200 250 300 350 400 450 US$Million Year Offshore Funds & Others
- 14. -5000 0 5000 10000 15000 20000 25000 30000 35000 US$Million Year Composition of FPI - India FII GDR/ ADR Offshore funds and Others FPI
- 15. Benefits of FPI • Portfolio Diversification • International Credit • Benefit from Exchange Rate • Access to bigger market
- 16. • 1992-Indian government allowed the foreign investors to invest in the financial markets SEBI regulations-encourage FIIs to invest in India ADR/GDRs helps to overcome limitations Indian companies like Reliance, Kotak and TATA started having offshore mutual funds • In 1993-94 FII investment has increased consistently from 1.6 billion dollars to approximately 127.8 billion dollars till December 2011 • In 1996-97 the share of ADR/GDR flows was 41 % and that of FII flows was 58%. • In 1997-98 and 1998-99 there was a reversal in FII investment due to the impact of the Asian crisis. • In1999-2000 FII flows to the Indian economy revived but again dipped to 2.77 billion dollars in 2002-03. TRENDS IN FPI
- 17. • In 2001-02 international financial markets were also taking measures to attract firms in the emerging markets to list on their stock exchanges-resulted investment flowing into India through the ADR/GDR route • In 2003-04 FIIs flows were up to 10.9 billion dollars increase in the limit of investment by FIIs in the securities of the Indian companies increase in the number of sectors in which the investment could be made • In 2007-08 the share of ADR/GDR flows was 24% and that of FII flows was 75%. • In 2009-10 FII flows accounted for 89% of the total flows while ADR/GDR flows were 10% of the total flows but no investment on account of offshore funds.
- 19. NET PORTFOLIO INVESTMENTS -100000 -50000 0 50000 100000 150000 200000 2000-01 2008-09 2009-10 2010-11 NET PORTFOLIO INVESTMENTS(IN CRORES)
- 20. SECTOR WISE FPI/FII INVESTMENTS 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 Automobiles & Auto Components Total Financial Services Banks Other Financial Services1 Capital Goods Chemicals & Petrochemicals Construction Materials Food, Beverages & Tobacco Household & Personal Products Pharmaceuticals & Biotechnology Telecom Services Sector wise FPI/FII investments( IN CRORES) Debt Equity
- 21. FPI Impacts on Indian Economy •Stock Market •Currency Rate •Inflation
- 22. FPI Investments (INR Crore) 45,765 66,179 -45,811 142,658 51,649 -100000 -50000 0 50000 100000 150000 200000 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15** Series3
- 23. 4% 5% 7% 19% -1% -4% 12% 6% -10% 3% 0% -15% -10% -5% 0% 5% 10% 15% 20% 25% 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Change in the Indian Currency Rate
- 24. 5.57% 6.53% 5.51% 9.70% 14.97% 9.47% 6.49% 11.17% 9.13% 5.86% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Historic Inflation India (CPI) – by year
- 25. 0 53% 28% 5% -2% 21% 1% -2% 12% 28% -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Change in Closing Stock Price (NSE)