ACADEMIC YEAR
2015-2016
PROJECT REPORT ON
FOREIGN INSTITUTIONAL INVESTMENTS (FIIs)
RIDDHI DANI
1510708
B.COM (BANKING & INSURANCE)
TYBCBI
SEM VI
CENTRAL BANKING
PROF. RAJASHRI DESHPANDE
1
INDEX
PG
SR.N
O
CONTENTS
INTRODUCTION
3-4
INFORMATION
5-8
CONCLUSION
REFERENCE
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NO
INTRODUCTION
The economies like India, which are growing very rapidly, are becoming hot
favorite investment destinations for the foreign institutional investors. These
markets have the potential to grow in the near future .
This is the prime reason behind the growing interests of the foreign investors.
The promise of rapid growth of the investable fund is tempting the investors and
so they are coming in huge numbers to these countries.
The money, which is coming through the foreign institutional investment is
referred as hot money because the money can be taken out from the market at
anytime by these investors.
The foreign investment market was not so developed in the past. But once the
globalization took the whole world in its grip, the diversified global market
became united. Because of this the investment sector became very strong and at
the same time allowed the foreigners to enter the national financial market.
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At the same time the developing countries understood the value of foreign
investment and allowed the foreign direct investment and foreign institutional
investment in their financial markets. Although the foreign direct investments
are long term investments but the foreign institutional investments are
unpredictable. The Securities and Exchange Board of India looks after the
foriegn institutional investments in India. SEBI has imposed several rules and
regulations on these investments.
earlier first rate hike and a subsequent upward path in rates that is steeper than
the gentle climb currently factored into futures markets.
But in our view not all EMs face equal risks in this respect. India in particular
appears better placed than most to weather future bouts of Fed-related market
turbulence. Since the 'taper fears' last summer some EMs have made efforts to
strengthen their macro economies and reduce external balances, efforts that
have been reflected in a drop in their current account deficit (ex-China) from
3% of GDP to around 1% now.
Of those economies that have made significant improvements to macro
imbalances, none in our view has made better progress than India. Should
severe market tremors due to Fed tightening worries return next year, then India
will inevitably feel some of the fall-out. However, we doubt very much that the
country will be at the epicenter of international investors' EM concerns as it was
last year.
What if the dollar strengthens?
It has to be admitted that the trend towards a stronger US dollar has in the past
proved a headwind for EM equities, which has only managed to outperform the
global benchmark on about 33% of occasions in a rising dollar environment. A
weaker local currency will add to inflation pressures, may increase energy
subsidies and may also put upward pressure on local interest rates.
But in India's case, the external financing need is now quite modest and should
not prove that difficult to finance, while domestic inflation is clearly on a
downward trend. And although the RBI appears to be in no hurry to move on
interest rates, the next move is clearly down, not up. So in the Indian Rupee's
case, there is perhaps less to fear from a rising dollar in coming months than is
the case for some other EM currencies.
A gradually rising dollar is unlikely to prompt a mass exodus of FII flows,
especially from countries like India that currently possess good fundamentals
and a strong secular domestic growth story. As long as the Indian economy
remains on a cyclical recovery track and the government persists with its reform
agenda, we believe the start of US interest rate normalisation by the Fed in 2015
poses only a limited threat to India's capital account.
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CONCLUSION
Nowadays FIIs are the major contributors to the stockmarkets. The pros of
allowing FIIs to invest in the Indian markets far outweigh the cons.
Simply banning participatory notes cannot be a solution.
It is upto the policy makers of India to allow FIIs to operate and provide them
with more opportunities and reasons to invest in Indian markets.
The entry of FIIs is expected to bring that much needed capital. However,as
most of the purchases by FIIs are on secondarymarket,their direct contribution
to investment may not be very significant.Yet, FIIs contribute indirectly in a
number of ways towards increasing capital formation in the host country like
India. Increased participation of foreign investors increases the potentially
available capital for investment and thus lowers the cost of capital
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REFERENCE
www.economictimes.com
Business standards
www.indianexpress.com
www.slideshare.com
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