Model Limitations: Models used to evaluate market efficiency may have limitations or assumptions that don't accurately reflect real-world conditions, affecting portfolio construction decisions. These challenges influence investment decisions by prompting investors to: Seek out undervalued assets or market inefficiencies to exploit for potential profits. Evaluate the reliability and relevance of available information to make informed investment decisions. Consider transaction costs and liquidity constraints when constructing portfolios to optimize returns. Adjust portfolio strategies based on changing market conditions and new information. Diversify holdings to mitigate risks associated with market inefficiencies and uncertainties.

2. WHAT’S FDI
 Foreign direct investments (FDIs) are substantial, lasting investments made by a company or government into a foreign
concern.
 FDI investors typically take controlling positions in domestic firms or joint ventures and are actively involved in their
management.
 The top recipients of FDI over the past several years have been the United States and China.
 The U.S. and other Organization for Economic Co-operation and Development (OECD) countries have been the top
contributors to FDI beyond their borders.
For FDI, many things are analyzed before investing :
• political stability
• economic potential
• natural resources
• transparency
• efficiency of regulatory regimes
• the level of infrastructure and skills
• tax incentives
• tax regime

3. OVERVIEW OF GLOBAL TREND OF FDI
 Foreign direct investment (FDI) flows worldwide reached US $1.58 trillion in 2021, marking a 64% increase from the
remarkably low figures recorded in 2020.
 Amid the ongoing repercussions of the pandemic, the conflict between Russia and Ukraine took center stage in Ukraine.
 The largest 5,000 multinational enterprises (MNEs) in developed nations experienced a doubling in profitability to over 8% of
sales, as a result of the release of pent-up demand, low financing costs, and substantial government assistance.
 For the third year in a row, foreign direct investment (FDI) in Asia's developing countries reached an unprecedented peak,
surging to US $619 billion.
 The introduction of new tax regulations will impact the conventional methods employed by countries to encourage
international investment, such as offering low tax rates, fiscal incentives, and special economic zones.
 The growth of global equity investment was more moderate, indicating the restrained expansion of new project investments
and a shift towards international project finance that involves a smaller equity component and greater reliance on debt
financing
 Trends in taxation
o Tax holidays and reduced corporate income tax (CIT), are among the most frequent and widespread.
o Statutory rates of corporate income tax (CIT) have declined over the last three decades in a race to the bottom to attract
international investment.
o MNEs often pay significantly less tax on their foreign income because they can shift part of their profits to low-tax
jurisdictions. As a result, the actual tax rates faced by MNEs on their foreign income are about 15 %, significantly lower
than the headline rate.

4. TOP 10 FDI INFLOW COUNTRIES
S.NO. COUNTRY FDI INFLOW(2021)
(Millions of dollars)
FDI Inflow(2020)
(Millions of dollars)
YEAR-ON-YEAR
CHANGE (%)
1. United states 367 376 150 828 +143.57
2. China 180 957 149 342 +21.17
3. Hong Kong, China 134 710 140 696d
-4.25
4. Singapore 99 099 75 437 +31.37
5. Canada 59 676 23 176 +157.49
6. Brazil 50 367 28 318 +77.86
7. India 44 735 64 072 -30.18
8. South Africa 40 889b 3 062b
+1235.37
9. Russian Federation 38 240 10 410 +267.34
10. Mexico 31 621 27 934 +13.20
UNITED STATES
• United States, reinvested earnings reached $200 billion.(Highest
ever recorded). Component of FDI – profits retained in foreign
affiliates by multinational enterprises (MNEs).
• Inflows in the United States more than doubled, with much of the
increase accounted for by a surge in cross-border M&As.
• 18 cross-border M&As (boom FDI for us) sales of more than $10
billion in 2021, nine took place in the United States. :
o Alexion by AstraZeneca (United Kingdom) for $39 billion.
o Purchase of GE Capital Aviation Services by AerCap Holdings
(Ireland) for $31 billion.
o Purchase of Kansas City Southern by Canadian Pacific Railway
(Canada) for $31 billion.
o Acquisition of Speedway by Seven & I Holdings (Japan) for $21
billion.
CANADA
• FDI increased by 157 per cent to $60 billion(30 per cent
above the 10-year average before the pandemic).
• Reinvested earnings reached a record $29 billion, from
only $3 billion in 2020.
• Equity flows rose also, by 50 per cent to $25 billion.
• doubling of cross-border M&A sales to $29 billion.
• Sales – predominantly to MNEs from the United States –
increased in extractive industries ($7 billion) and services
($14.5 billion), mainly in information and communication
($7 billion) and finance and insurance ($4 billion).

5. 143.57 21.17
-4.25
31.37 157.49 77.86
-30.18
1235.37
267.34
13.2
-500
0
500
1000
1500
YEAR-ON-YEAR
CHANGE 2020 & 2021 (%)
SOUTH AFRICA
• FDI jumped to $42 billion due to a large corporate
reconfiguration in South Africa – a share exchange between
Naspers and Prosus in the third quarter of 2021.
• New project announcements included
• $4.6 billion clean energy project finance deal sponsored by
Hive Energy (United Kingdom).
• $1 billion greenfield project by Vantage Data Centers (United
States), with its first African campus.
REASONS:
• In January 2022, the World Bank approved South Africa’s
request for a USD 750 million development policy loan
to accelerate the country’s COVID-19 response.
• At COP 26 in November 2021, the governments of South
Africa, the United States, the United Kingdom, France,
Germany, and the European Union announced the
formation of the Just Energy Transition Partnership (JETP).
The main objective of this partnership is to expedite the
decarbonization of South Africa's economy, primarily its
electricity system, and aid in achieving the ambitious
emissions reduction targets outlined in the country's
Nationally Determined Contribution (NDC) through an
equitable and inclusive transition process. The partnership
will leverage an initial funding commitment of USD 8.5 Bn.

6. INDIA(2021)
• Inflows to India declined to $45 billion till December 2021(in
South Asia fell by 26 per cent, to $52 billion) .
• flurry of new international project finance deals were announced
in the country 108 projects, compared with 20 projects on
average for the last 10 years.
• largest number of projects (23) was in renewables. Large projects
include:
o Steel and cement plant for $13.5 billion by Arcelormittal
Nippon Steel (Japan).
INDIA FDI INFLOW YEAR IN YEAR
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
INFLOW
(Millions OF dollars)
o New car manufacturing facility by Suzuki Motor
(Japan) for $2.4 billion
• India has achieved a record-high annual FDI inflow of
USD 83.57 billion in the financial year 2021-22,
surpassing the previous year's FDI by USD 1.60 billion,
despite the military operation in Ukraine and the
COVID-19 pandemic. It's noteworthy that in 2014-2015,
FDI inflow in India was a mere 45.15 USD billion,
highlighting the significant progress made in attracting
foreign investments to the country.

7. 68%
26%
6%
FDI INFLOW 2022-23
Equity
Re-invested
earnings
Other capital
FDI inflow in 2022
• India's FDI inflows reached record levels during 2021-22. The total FDI inflows stood at US $
84.835 Billion, a 3% increase over the previous financial year. According to the World Investment
Report (UNCTAD) 2022, India was ranked seventh among the world's major FDI recipients in
2021-22, up from eight in 2020. Information and technology, telecommunication and
automobile were the major receivers of FDI in FY22.
• India's FDI inflows have increased 20 times from 2000-01 to 2021-22. According to the
Department for Promotion of Industry and Internal Trade (DPIIT), India's cumulative FDI inflow
stood at US $ 903.94 billion between April 2000 - December 2022; this was mainly due to the
government's efforts to improve the ease of doing business and relax FDI norms (related to food
processing sector):
I. Inclusion of food & agro-based processing units and cold chain as agricultural activity under
Priority Sector Lending (PSL) norms in April 2015.
II. As a measure towards of ease of doing business, the Food Safety and Standards Authority of
India (FSSAI) through notifications in 2016 has shifted from product-by-product approval to an
ingredient and additive based approval process.
III. A Special Food Processing Fund of Rs. 2000 crore was set up with National Bank for Agriculture
and Rural Development (NABARD) to provide affordable credit for investments in setting up
Mega Food Parks (MFP) as well as processing units in the MFPs. In 2019, the coverage of the
fund was extended to setting up of Agro Processing Clusters and individual manufacturing units
within them.

8. IV. 100 percent Foreign Direct Investment (FDI) approval under automatic route has been permitted for the food processing
sector. (According to PIB).
V. 100% FDI is permitted under the automatic route in the food processing sector and 100% FDI under Government approval
route is allowed for retail trading, including through e-commerce, in respect of food product manufactured and/or produced
in India.
 FDI inflow during 2022-23(till Dec 2022) it’s seen a decline due to:
o For the past 18 months, we have been witnessing a global slowdown, and as a result, foreign inflows are having an
impact.
o Currently, the number of pending foreign direct investment (FDI) proposals from China is at its lowest [because Union
government in April 2020 made its prior approval mandatory for foreign investments from countries that share land
borders with India].
o The war in Ukraine, the energy crisis in Europe has led to a surge in prices which give rise to high inflation (IMF projected
that global inflation will rise to 8.8 percent in 2022 from 4.7 percent in 2021).
 Investments and equity inflows tend to increase during the last quarter of a financial year.
 Foreign direct investment (FDI) inflows are expected to improve in 2023-24, as per the Department for Promotion of Industry
and Internal Trade (DPIIT). There are a number of proposals in the pipeline, which are likely to materialize in the early months
of 2023-24.
 Many of these are connected to the production-linked incentive (PLI) scheme that incentivizes domestic manufacturing.
Keeping in view India’s vision of becoming ‘ATMA NIRBHAR’, Production Linked Incentive (PLI) Schemes for 14 key sectors
were announced with an outlay of Rs. 1.97 lakh crore to enhance India’s manufacturing capabilities and Exports

9. INVESTMENTS & DEVELOPMENTS IN INDIA
• India has become an attractive destination for FDI in recent years, influenced by various factors which have boosted FDI. India
ranked 37th in the Global Competitive Index (issued by IMD) ; the economy showed significant resilience during the
pandemic. India enter the top 40 for the first time, according to the GII (Global Innovation Index) 2022. These factors have
boosted FDI investments in India. Parameters which they follow :
1. Economic Performance.[ Domestic Economy, International Trade, International Investment, Employment, Prices]
2. Government Efficiency [Public Finance, Tax Policy, Institutional Framework, Business Legislation, Societal Framework].
3. Business Efficiency [Productivity & Efficiency, Labor Market, Finance, Management Practices, Attitudes and Values].
4. Infrastructure [Basic Infrastructure, Technological Infrastructure, Scientific Infrastructure, Health and Environment,
Education].
• Some of the recent investments are as follows:
o From April-June 2022, India’s Computer Software & Hardware industry received and FDI investments of US $ 3,427
million.
o In May 2022, India received FDI investments of RS 494 crore (US $ 61.91 million) in the Defence manufacturing sector.
o In May 2022, Italian financial services major Generali completed the acquisition of a 25% stake in Future Generali India
Insurance from Future Enterprises for RS 1,252.96 crore (US $ 161.92 million).
o In May 2022, GENWORKS Health secured a second round of funding worth RS 135 crore (US $ 17.44 million) from a
consortium of investors, including Somerset Indus Capital Partners, Morgan Stanley, through its funding arm Grand Vista,
Evolvence and Wipro GE.

10. S.NO Sector Amount of FDI Equity
inflow
(in USD billion)
% coverage
(in USD terms)
1. SERVICES SECTOR (Fin., Banking,
Insurance, Non Fin/Business,
100.71 16.1093
2. COMPUTER SOFTWARE & HARDWARE 93.59 14.9700
3. TELECOMMUNICATIONS 39.03 6.2429
4 TRADING 38.88 6.2199
5 AUTOMOBILE INDUSTRY 34.12 5.4574
6 CONSTRUCTION (INFRASTRUCTURE)
ACTIVITIES
29.20 4.6714
7 CONSTRUCTION DEVELOPMENT:
Townships, housing, built-up
26.31 4.2079
8 DRUGS & PHARMACEUTICALS 21.22 3.3949
9 CHEMICALS (OTHER THAN FERTILIZERS) 20.97 3.3539
10 METALLURGICAL INDUSTRIES 17.22 2.7546
11 HOTEL & TOURISM 16.66 2.6650
12 POWER 16.59 2.6519
13 NON-CONVENTIONAL ENERGY 13.28 2.1252
14 FOOD PROCESSING INDUSTRIES 11.79 1.8868
15 ELECTRICAL EQUIPMENTS 11.49 1.8392
GRAND TOTAL
(after all sectors including these 15)
625.27
SECTOR-WISE FDI EQUITY INFLOW FROM APRIL 2000 TO DECEMBER 2022
 The total FDI inflow into India from January to March 2022
stood at US $ 22.03 billion, while the FDI equity inflow for the
same period was US $ 15.59 billion. From April 2021-March
2022, India's computer software and hardware industry
attracted the highest FDI equity inflow amounting to US $
14.46 billion, followed by the automobile industry at US $ 6.99
billion, trading at US $ 4.53 billion and construction activities at
US $ 3.37 billion.
 In 2022-23(from April 22- December 22) The state that
received the highest FDI during this period was Maharashtra at
US $ 10.76 billion, followed by Karnataka (US $ 8.77 billion),
Gujarat (US $ 4.14 billion), Delhi (US $ 6.11 billion) and
Tamil Nadu (US $ 1.89 billion).
 Improve Ease of Doing Business and Ease of Living through:
o Simplification of procedures related to applications, renewals, inspections, filing records, etc. The process and data
forms need to be user friendly to only capture minimum and necessary information.
o Rationalization by repealing, amending or subsuming redundant laws.
o Digitization of services and interfaces to the businesses and citizens by creating online platforms thereby eliminating
manual forms and records. The National Single Window System (NSWS) by DPIIT is in the process of integrating the
business services across the States/UTs. Similarly, for citizen services, Umang platform by MeitY integrated about 21840
pan India e-Gov services ranging from Central to Local Government bodies.

11. S.NO. Countries FDI
outflow(2021)
(Millions of
dollars)
FDI
outflow(2020)
(Millions of
dollars)
YEAR-ON-YEAR
CHANGE (%)
1 United States 403 101 234 919 +71.59
2 Germany 151 690 60 624 +150.21
3 Japan 146 782 95 666 +53.43
4 China 145 190 153 710 -5.54
5 United Kingdom 107 741 -65 363 +264.84
6 Canada 89 874 46 527 +93.16
7 Hong Kong, China 87 450d 100 715 -13.17
8 Russian Federation 63 602 6 778 +838.36
9 Ireland 61 979 -44 997 +237.74
10 Korea, Republic of 61 000 35 000 +74.28571
UNITED STATES
 Increased their investment abroad by 72 per cent, to $403 billion.
 Outflows from the United States to Mexico almost tripled (to $11
billion), and to Singapore they increased significantly ($25 billion).
 By industry, the biggest rises were in wholesale trade (to $38 billion
from -$1 billion) and finance (to $39 billion from -$30 billion).
 Amazon (United States) stood out as the most active foreign
investor in 2021, with $20 billion worth of investments.
 CGrowth Capital (United States) sponsored the construction of a
refinery in the Bahamas for $262 million.
 Cross-border M&As rose in information and technology as ICOA
(United States) acquired iBG, a provider of custom computer
programming services, for $185 million.
TOP 10 OUTFLOW COUNTRIES
-200
0
200
400
600
800
1000
YEAR-ON-YEAR
CHANGE (%)
RUSSIAN FEDERATION
• Outward FDI flows increased to $64 billion from $7 billion, mostly
directed to Cyprus
UNITED KINGDOM
• Investment abroad to $108 billion from -$65 billion in 2020 (mainly
reinvested earnings).
• In Mozambique, saw a jump in greenfield projects; for example, Globeleq
Generation (United Kingdom) plans to build power plants for $2 billion.
IRELAND
• Outflows increase to $62 billion from -$45 billion in 2020, mainly owing to
several large acquisitions such as.
o purchase of GE Capital Aviation Services (United States) by AerCap
Holdings for $31 billion.

12. In the report, traced trends of FDI all over the world are:
 Green field investment
 International project finance
 Cross-border M&As.
Green field investment
 Targeting primary sector projects is the result of
continued low international investment in agriculture
and – in extractives – a shift from Greenfield projects
by individual investors to international project finance
investments that allow risk sharing among multiple
investors.
 Greenfield projects, leading was Electronics and
electrical equipment was value of US $ 120 Billion
(2021) with growth rate of 156% & Food, beverages
and tobacco was value US $ 19 Billion (2021) with
growth rate of 9%.
Trends of FDI by type and sector:
International Project Finance Trends
 Rise of projects led by domestic sponsors was even higher
(90 %) than internationally sponsored deals.
 Long-term financing conditions favored both types,
recovery stimulus packages benefitted domestic markets
more than international ones.
 Investment in renewable energy has been the main engine
of growth in international project finance with value of US $
502 billion growth rate of 154% , number of 1193 growth
rate of 49%.Six projects were worth more than US $10
billion, including the largest, the US $74 billion
construction in Australia of a 50 GW green energy hub
over 15,000 square km that could convert wind and solar
power into green fuels, sponsored by Intercontinental
Energy Corp (United States), CWP Europe SARL
(Luxembourg) and Mirning Green Energy (Australia).

13.  Investment in industrial real estate Large projects include the construction of a steel and cement manufacturing plant in
India for US $14 billion and the construction of a 960 -hectare pharmaceutical park in Vietnam for US $10 billion.
Cross-border M&As
 Information and communication and pharmaceuticals remained in the top ranking as the pandemic pushed up activity in
the digital and health sectors.
 M&A sales in transportation and storage rose more than seven-fold to a record US $53 billion, mainly because of a single
large deal in which Canadian Pacific Railway acquired Kansas City Southern (United States) for US $31 billion. Large
divestments were recorded in the electric and electrical equipment sector. For example, PPL (United States) sold its
Bristol-based electric power distributor to National Grid (United Kingdom) for US $20 billion.
International trend of MNC’s
Transnationality index (TNI) of the top 100 MNEs was weighed down by corporate restructuring operations and
reconfigurations carried out by several firms in the ranking.
For example:
o Spin-off of its truck unit by Daimler (Germany) led to a 17 % decrease in its foreign assets. Daimler had restructured into a
holding company containing a car division, a truck unit and a financial services arm in 2019, but weak synergy between the two
manufacturing businesses and a diverging geographical focus led to the spin-off.
o General Electric (United States) continued its decade-long restructuring, selling its Capital Aviation Services to AERCAP (Ireland)
for US $30 billion and announcing it will further split into three companies focused on health care, energy and aviation process
of reorganizing a company's management, finances, and operations to improve the efficiency and effectiveness of the company

14.  Privatization is increased in many countries like Brazil which allowed and reduced state stake from 61% to 45% and Angolia
also did .
 In china, number of sectors restricted or prohibited for foreign investors was reduced from 33 to 31.These two sectors are:
o Automobile Manufacturing: foreign companies are no longer subject to a 50% investment cap on the manufacture of all
complete passenger vehicles, including internal combustion engine vehicles, and they are no longer required to cap the
number of joint ventures in China for the same production line at two.
o Satellite Television Broadcast Ground Receiving Facilities: FDI Negative List also deletes the manufacture of satellite
television broadcast ground receiving facilities and critical components.
• Reasons why some investment is terminated :
o In china, M&A was terminated because of delays in receiving approval from the host country.
TAX HOLIDAYS
• Tax holidays of up to five years are the incentive most utilized worldwide. This overall trend is largely influenced by African
countries, which overwhelmingly favor the use of short-term tax holidays (75 %). By contrast, longer tax holidays of up to 10
years are the most common among countries of Latin America and the Caribbean (62 %). Tax holidays of over 10 years are
much less common in developing countries (20 %) and LDCs (11 %), than in developed countries (40 %).
NATIONAL INVESTMENT POLICIES & TAXATION SYSTEM

15. Global minimum corporate tax
 MNEs have found it easier to separate their profits from actual economic activities and move them to low-tax locations due
to digitalization, which has led to a significant rise in such opportunities. To address this issue, BEPS participants decided in
2020 to adopt a two-pillar approach aimed at linking profits with value-added activities.
 The reform of international corporate tax rules consists of two pillars:
o Pillar 1 revolves around the allocation of taxing authority over the largest multinational enterprises to the jurisdictions
where they earn their profits. The central component of this strategy is the creation of a multilateral convention, which
is currently being refined through technical discussions within the Inclusive Framework.
o Pillar 2 includes provisions that seek to curb the possibility of base erosion and profit shifting, thereby guaranteeing that
the most substantial multinational corporate entities pay a minimum corporate tax rate. This threshold will apply to
companies with yearly revenues exceeding €750 million.
 The new tax regime will cover 90 % of the global economy and add US $150 billion to countries tax revenue.
Global Minimum Tax impact on Indian tax policy
• India experiences an annual tax revenue loss of roughly US $10 billion due to tax abuse resulting from profit shifting, making it
the second-largest such loss in Asia. To combat the issue of foreign corporations evading taxes, India has implemented various
measures, such as equalization levy, SEP rules, and the latest digital services tax.
• As India's current corporate tax rate is higher than the proposed global minimum of 15 percent, fears of a reduction in foreign
direct investment are unwarranted, especially since the Confederation of Indian Industry considers India to be among the top
three choices for FDI. However, Indian outbound structures that involve low-taxed foreign subsidiaries may be affected, and
tax may be levied on such income in India under the income inclusion rule.