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A

SUMMER TRAINING PROJECT REPORT

ON

“IMPACT OF FII’S & FDI’S ON INDIAN STOCK MARKET”


SUBMITTED TO:-
KURUKSHETRA UNIVERSITY, KURUKSHETRA
IN THE PARTIAL FULFILLMENT OF DEGREE OF
“MASTER OF BUSINESS ADMINISTRATION”
2008-2010
UNDER THE GUIDENCE OF:
SUBMITTED BY:
MR. SANDEEP SAINI
SUNIL KUMAR
BRANCH MANAGER,
MBA
RELIANCE MONEY AMBALA
ROLLNO……….

MAHARAJA AGRASEN INSTITUTE OF MANAGEMENT AND

TECHNOLOGY

AFFILIATED TO KURUKSHETRA UNIVERSITY KURUKSHETRA

DECLARATION
I, SUNIL KUMAR of MBA III Semester, studying at MAHARAJA AGRESAIN INSTITUTE OF

MANAGEMENT &TECHNOLOGY, JAGADHARI, hereby declare that this project titled “Impact of

FII and FDI’s On Indian Stock Market.

” has been prepared by me in partial fulfilment of the requirements of the KURUKSHETRA

UNIVERISITY KURUKSHETRA MBA programme during 2008- 2010.


I further declare that this project has not been submitted earlier in any other
university or
institution for the award of any degree or diploma.
SUNIL KUMAR

ACKNOWLEDGEMENT
The satiation and euphonies that accompany the success completion of a task would be

incomplete without a mention of people who made it possible. So, with immense gratitude, I

acknowledge all those, whose guidance and encouragement served as a beacon light and

crowned my effort with success.


I thank Mr. ABHISHEK SIR, Faculty of MAHARAJA AGRESAIN INSTITUTE OF MANAGEMENT

& TECHNOLOGY, JAGADHARI and my project guide for his valuable guidance and suggestions,

and external guide Mr. Sandeep Saini center manager at reliance money Amballa which were

vital inputs towards the completion of the project. Lastly, I would like to thank all those who have

directly or indirectly helped me complete the project successfully.


SUNIL KUMAR

EXECUTIVE SUMMARY
Management ideas without any action based on them mean nothing. That is why practical

experience is vital for any management studies. Theoretical studies in the class room are not

sufficient to understand the functioning climate and the real problems coming in the way of

management. So, practical exposures are indispensable to such courses. Thus, practical

experience acts as a supplement to the classroom studies.

This

report deals with Impact of FII’s And FDI’s On Indian Stock Market. has been completed. I have

learnt a lot of new things which could never been learnt from theory classes. The next part

include whole of research process used for the project. It contains research methodology,

research objective, scope analysis and interpretation of the data, collected from secondary

resources. It also consists limitations of the study.

In this study I have collected data from secondary source. In this study in used

descriptive research design is used. This part includes observations analysis and discussion on

collected data then suggestions are given these are based are on the usefulness of the study,

applicability in the business industry, in decision making, in system development so far.

CONTENTS
INTRODUCTION
 F E A T U R E S O F
S T O C K M A R K E T
 O P E R A T I O N A L
D E F I N I T I O N S
LITERATURE REVIEW
RESERCH METHODOLOGY

 O B J E C T I V E S

 R E S E A R C H D E S I G N
 D A T A C O L L E C T I O N

 D A T A A N A L Y S I S

 S A M P L I N G P L A N

 S A M P L I N G D E S I G N

 S C O P E O F S T U D Y

 L I M I T A T I O N S O F

T H E S T U D Y
INDUSTRY PROFILE

 F O R E I G N

I N S T I T U T I O N A L

I N V E S T M E N T I N

I N D I A :

 M I L E S T O N E

 A C T S A N D R U L E

 I N V E S T M E N T

O P P O R T U N I T I E S

F O R F I I s
 B R I E F P R O F I L E

O F I M O R T A N T

I N S T I T U T I O N S

COMPANY PROFILE

FINDINGS AND DATA ANALYSIS

CONCLUSION

SUGGESTIONS & RECOMENDATIONS

BIBLIOGRAPHY
INTRODUCTION
A STOCK EXCHANGE is a platform where buyers and sellers of securities issued by

governments, finance institutions, corporate houses etc., meet and where trading of these

corporate securities take place. This is a market of speculation. If speculation of investors

become wrong than the investors loss. Nobody knows what will happen even after a second.

A Stock Exchange refers to the segments of the capital market where the securities issued by

corporate are trade. It is open auction market where buyers and sellers meet and involve

competitive prices of the securities. It reflects hopes aspiration fair of people regarding the

performance of the economy. I t provides necessary mobility to capital and direct flow of the

capital into possible and successful enterprise.

Since buying and selling of the different of securities take place on stock exchange. The prices of

particular securities reflect there demand and supply. In fact, stock exchange is said to be a

barometer of economy and financial health.

The stock market in India, Securities and Exchange Board of India (SEBI) is on the issue of

acceptance of hedge funds into Indian financial market. At the some time world wide trade shows

that hedge funds are important force to the reckoned with us. The impact of hedge funds activity

is new to the Indian financial investors (FII) flows volatility of the stock market. This is so because

hedge funds activity in Indian primary through participatory notes (PN) and the some is reflected

under FII inflows. Large stock operators and investment arms certain large corporate in India in

the period consideration used to use oversees body (OCB) as a mechanism to take exposure to

the India n market. OCB activity in the Indian context is pretty similar to funds trading historically

OCB flows also used to appear under the head of FII flows traditionally a large chunck of the PN

and OCB activity in India use to happen through the Mauritius route due to taxation benefits. With

the latest budget presented by the Indian government .(will become effective from 1st September

2004 ) reducing long term capital gains to zero and short term capital gains to 10 % the taxation

to Mauritious to exist .
STOCK EXCHANGE
A” STOCK EXCHANGE “is a platform where buyers and sellers of securities issued by
governments, finance institutions, corporate houses etc., meet and where trading of

These corporate securities take place. This is a market of speculation. If speculation of investors

become wrong than the investors loss. Nobody knows what will happen even after a second.
A Stock Exchange refers to the segments of the capital market where the securities issued by

corporate are trade. It is open auction market where buyers and sellers meet and involve

competitive prices of the securities. It reflects hopes aspiration fair of people regarding the

performance of the economy. I t provides necessary mobility to capital and direct flow of the

capital into possible and successful enterprise.

Since buying and selling of the different of securities take place ion stock exchange. The prices

of particularl securities reflect there demand and supply. In fact, stock exchange is said to be a

barometer of economy and financial health.

The stock exchange is the nerve center of capital market. The stock exchange discharges three

essential functions in the process of capital formation not in raising resources for the corporate

sector.
It provides places for sale and purchase of securities i.e. share, bonds etc. . . .
It [provides linkage between the saving of household sector and investment in
corporate
sector of economy.

It provides market quotation for shares debenture and bonds and serves as a role of barometer,

not only of the state of health of individual companies but also of the economy as a whole.

Therefore, by providing market place quotation of the prices of shares and bonds or sort of

collective judgment. Simultaneously reached by many buyers and sellers in the market stock

exchange serve the role of barometer, not only of the state of health of individual companies but

also of the nation’s economy as a whole.


FEATURES OF STOCK EXCHANGE

 I t i s t h e p l a c e

w h e r e l i s t e d

s e c u r i t i e s a r e
b o u g h t a n d s o l d .

 I t i s a n

a s s o c i a t i o n o f

p e r s o n s k n o w n a s

m e m b e r s .

 T r a d i n g i n

s e c u r i t i e s i s

a l l o w e d u n d e r
r u l e s a n d

r e g u l a t i o n s o f

s t o c k e x c h a n g e .

 M e m b e r s h i p i s

m u s t f o r

t r a n s a c t i n g

b u s i n e s s .

 I n v e s t o r s a n d
s p e c u l a t o r s , w h o

w a n t t o b u y a n d

s e l l s e c u r i t i e s ,

c a n d o s o t h r o u g h
members of stock exchange i.e. brokers

OPERATIONAL DEFINITIONS
STOCK MARKET:-

A STOCK EXCHANGE is a platform where buyers and sellers of securities issued by

governments, finance institutions, corporate houses etc., meet and where trading of these

corporate securities take place.


MUTUAL FUNDS: - A Mutual fund is a trust that pools the saving of a number of
investors who share a common financial goal.

FOREIGN DIRECT MARKET (FDI): - This category refers to international investment in which

the investor obtains a lasting interest in an enterprise in another country. Most concretely, it may

take the form of buying or constructing a factory in a foreign country or adding improvements to

such a facility, in the form of property, plants or equipment.

FOREIGN INSTITUTIONAL INVESTOR (FII):- An investor or investment fund that is from of or

registered in a country outside of the one in which it is currently investing. Foreign institutional

investors have made a sizable investment in Indian financial markets. There are currently about

1324 FIIs registered in India.

FOREIGN PORTFOLIO INVESTMENT (FPI):- FPI is a category of investment instruments that

are more easily traded, may be less permanent, and do not represent a controlling stake in an
enterprise. These include investments via equity instruments (stocks) or debt (bonds) of a foreign

enterprise that does not necessarily represent a long- term interest.

BULL MARKET: - A Bull market is a market that is consistently going up. It is a market where

there is optimism of further rise batter, business results and other positive factors. Bull Market

can sometimes continue for years, for investors this is the preferred market trend. However no

bull market can continue for very long.

BEAR MARKET: - Bear Market is a market that is showing a persistent downtrend. A


15-20% downward movement of the market generally termed as a bear market.

DIVERSIFICATION: - diversification is the technique of investing in unrelated business sectors

simultaneous so that risk that affects a particular sector does not affect your overall investment.

For example your portfolio of share includes sectors like Information Technology, Real estate

capital Goods, Autos etc.

Exchange rate of a nation's currency- Currency like other commodities rises or falls in "price"

with demand. When investors leave, they sell their holdings in a country's currency and as

demand falls, the "price" of that currency will also fall

ECONOMIES OF SCALE: - Produces are often able to enjoy considerable production cost

savings by buying inputs in bulk, mass-producing or retailing their end product. These lower

costs achieved through expanded production are called Economies of Scale.

DEBT/EQUITY RATIO-The debt/equity ratio measures the extent to which a firm's capital is

provided by lenders (through debt instruments such as fixed-return bonds) or owners (through

variable-return stocks). A greater reliance on financing through debt can mean greater

profitability for shareholders, but also greater risk in the event things go sour.

INTERNATIONAL MONETARY FUND-The IMF is an international organization of 186 member

countries, established in 1947 to promote international monetary cooperation, exchange stability,

and orderly exchange arrangements; to foster economic growth and high levels of employment;

and to provide temporary financial assistance to countries to help ease balance of payments

adjustment.

INSTITUTIONAL INVESTOR An organization whose primary purpose is to invest its own assets

or those held in trust by it for others. Includes pension funds, investment companies, insurance

companies, universities and banks.


INTEREST RATES-Interest rates have a powerful effect on the volume of a nation's money

supply. By raising interest rates, i.e., making the cost of borrowing money more expensive,

governments or banks can decrease the money supply. A decrease in the money supply tends to

be counter-inflationary, which makes a currency more valuable compared to other currencies.

MOST FAVORED NATION TREATMENT-The phrase "most favored nation" refers to the

obligation of the country receiving the investment to give that investment the same treatment as it

gives to investments from its "most favored" trading partner.

BALANCE OF PAYMENT-The Balance of Payments (BOP) is a statistical statement that

summarizes, for a specific period (typically a year or quarter), the economic transactions of an

economy with the rest of the world. It covers:


All the goods, services, factor income and current transfers an economy receives
from or
provides to the rest of the world
Capital transfers and changes in an economy's external financial claims and
liabilities

PORTFOLIO INVESTMENT – covers the acquisition and disposal of equity and debt securities

that cannot be classified under direct investment or reserve asset transactions. These securities

are tradable in organized financial markets.

FDI FLOWS AND STOCKS – Through direct investment flows the investors builds up a direct

investment stock (position), making part of the investor’s balance sheet. The FDI stock (position)

normally differs from accumulated flows because of revaluation (changes in prices or exchange

rates) and other adjustments like rescheduling or cancellation of loans, debt forgiveness or debt-

equity swaps with different values.


MULTINATIONAL COMPANIES (MNCs) – are incorporated or unincorporated
enterprises comprising parent enterprises and their foreign affiliates.

FOREIGN DIRECT INVESTOR – A foreign direct investor is an individual, an incorporated or

unincorporated public or private enterprise, a government, a group of related individuals, or a

group of related incorporated and/or unincorporated enterprises which have a direct investment

enterprise that is a subsidiary, associate or branch – operating in a country other than the

country or countries of residence of the direct investor or investors.


HOST ECONOMY – is the country that receives FDI or FPI from the foreign investor(s).
HOME ECONOMY – is the country of origin/residence of the company that invests in
the foreign economy/host economy.

SUBSIDIARY– is an incorporated enterprise in the host country in which the foreign investor

owns more than 50 per cent of the shareholder’s voting power or has the right to appoint or
remove a majority of the members of this enterprise’s administrative, management or supervisory

body.
EQUITY CAPITAL – comprises of equity in branches and ordinary shares in
subsidiaries
and associates.

Reinvested earnings – consist of the direct investor’s share of earnings not distributed as

dividends by subsidiaries or associates and earnings of branches not remitted to the direct

investor.
OTHER CAPITAL – covers inter-company debt (including short-term loans such as
trade credits) between direct investors and subsidiaries, branches and associates.
WTO – World Trade Organization.
LITERATURE REVIEW
Bruce A. Blonigen

This paper surveys the recent burgeoning literature that empirically examines the foreign direct

investment (FDI) decisions of multinational enterprises (MNEs) and the resulting aggregate

location of FDI across the world. The contribution of the paper is to evaluate what we can say

with relative confidence about FDI as a profession, given the evidence, and what we cannot have

much confidence in at this point. Suggestions are made for future research directions.
Hugo Rojas-Romagosa

Foreign Direct Investment (FDI) flows have increased substantially in the past two decades.

These developments have motivated the appearance of a large number of empirical papers that

test the expected benefits that FDI inflows are assumed to bring to the host countries. We survey

the recent theoretical and empirical literature, but restrict our attention to the productivity changes

that are induced by increased FDI inflows. We review both the aggregate productivity effects, as

well as the spillover effects of FDI on local firms.


Giorgio De Saints

This paper study the dynamics of expected stock return and volatility in emerging financial

market. We find clustering predict ability and persistence in conditional volatility and others have

documented for mature market. However, emerging market exhibit higher volatility and

conditional probability of large price changes then mature market exposure to high country
specific risk does not appear to be rewarded with higher expected return. We deduct a risk

reward relation in Latin America but not in Asia.

Karimullah:

The article examines the impact of foreign institutional investor s FII equity investment behavior

in the Indian stock market. It attempts to find out the two-way causality between foreign

institutional investors (FIIs) behavior and performance of Indian stock market for the period of

January 1997 to June 2007.this article seeks to examine the idea that financial liberalization

induces increased efficiency in the financial market as permission of FIIs equity investment is an

important example of financial liberalization. Return in the stock market is used as proxy for the

efficiency of the stock market in India .granger causality test has been applied to test the

bidirectional causality. Apart from net investment of FIIs, the purchase and sales behavior of FIIs

are analyzed separately. The results indicate that stock market performance is a major

determinant of both the FIIs purchase and sales behavior. But we did not find strong evidence

that the variations in the stock market indices are determined by FIIs investment behavior.
Blockholder, Market efficiency and managerial myopia:

This paper shows holders can add value even if they cannot interview in a firm’s operations.

Blockholders have strong incentive to monitor the firm’s fundamental value, since they can sell

their stakes upon bad news. By trading on their private information (following the “Wall Street

rule”) they cause prices to reflect fundamental value rather than current earnings. This in turn

encourages managers to invest for long term growth rather than short term profits. Contrary to

the view that the U.S.’s liquid markets and transient shareholders exacerbate myopia, this paper

shows that they can encourage investment.


Robert Lensink and Oliver Morrissey

This paper contributes to the literature on FDI and economic growth. We deviate from previous

studies by introducing measures of the volatility of FDI Inflows. As introduced into the model,

these are predicted to have a negative effect on growth. We estimate the standard model using

cross-section, panel data and instrumental variable techniques. Whilst all results are not entirely

robust, there is a consistent finding that FDI has a

positive effect on growth whereas volatility of FDI has a negative impact. The evidence for a

positive effect of FDI is not sensitive to which other explanatory variables are included. In

particular, it is not conditional on the level of human capital (as found in some previous studies).
There is a suggestion that it is not the volatility of FDI per se that retards growth but that such

volatility captures the growth-retarding effects of unobserved variables.


Foreign direct investment in Bangladesh; an analysis of perception of prospective
investors:

Bangladesh had gone through several major policy changes regarding the ownership and control

of industries with a view of promoting economic growth . one of the strategies the government of

Bangladesh (GOB) followed to accelerate economic growth was to attract foreign direct

investment (FDI) into country


OBJECTIVES OF THE STUDY
To know the performance of Indian stock market.

To know the impact of FIIs on Indian stock market.

To know the impact of FDIs on Indian stock market.


RESEARCH METHODOLOGY
Research Methodology has many dimensions, it include not only research methods but also

considers the logic behind the methods used in the context of the study and explains why only a

particular method of technique had been used so that research lend themselves to proper

evaluations. Thus in a way it is a written game plan for concluding research therefore in order to

solve research problem it is necessary to design a research methodology for the problem as the

same differ from problem to problem.


Research Design:

The research design is a pattern or an outline of a research project . It is a statement only the

essential of a study those provide the basic guidelines for the detail of the project. The present

study being conducted follows a descriptive research design has the data would be responses

from a simple containing g a large numbers of sources .It is a cross section of the situation

design of the descriptive studies including the nature and the analytical method.
Data Collection

After the research problem has been defied and the research design has been chalked out, the

task of date collection begins. Data can be collected from other primary or secondary sources.

The main source of obtaining necessary data for the study was Secondary Data. This study is

empirical in nature and hence secondary data is used to conduct the research. The data was

collected from the Internet by exploring the Secondary sources available on websites. Secondary

Data: The secondary data constitutes of daily FII flows data which was collected from Money

Control and Equity Master, the daily returns of SENSEX and NIFTY from BSE and NSE websites

respectively. The trends in FII flow from the RBI website and information on FII from SEBI.
Magazines and Bulletins: - NSE News Bulletins etc.
INTERNET: -
www.sebi.gov.in
wwwnse.co.in
www.moneycontrol.com

etc.

SAMPLING PLANNING

Sampling is an effective step in collection of primary and secondary data and has a great

influence on the quality of the results. The sampling plan includes population, sample size and

sample design.
DATA ANALYSIS:-
PLAN OF ANALYSIS

The data gathered from various sources were primarily studied and necessary data was sorted

out sequentially keeping in mind the procedure of the study. The analysis has been made by,

correlating the FII purchases, sales and net investment with equity market returns to identify

whether a relation exists between them. Findings are included which transmits the important

points, which were gathered from the study.


The data has been analyzed with the help of various graphs like bar graph etc.

SCOPE OF THE STUDY

The report examines The Impact of Foreign Institutional Investments and Foreign Direct

Investment on Equity Stock Market in India. The scope of the research comprises of information

derived from secondary data from various websites. The various information and statistics were

derived from the websites of BSE, NSE, Money Control, RBI and SEBI. Sensex and Nifty was a

natural choice for inclusion in the study, as it is the most popular market indices and widely used

by market participants for benchmarking.


LIMITATIONS OF THE STUDY

 A s t h e t i m e

a v a i l a b l e i s

l i m i t e d a n d t h e
s u b j e c t i s v e r y

v a s t .

 T h e s t u d y i s

g e n e r a l .

 I t i s m a i n l y

b a s e d o n t h e d a t a

a v a i l a b l e i n
v a r i o u s w e b s i t e s

& o t h e r s e c o n d a r y
sources ;

 T h e i n f e r e n c e s

m a d e i s p u r e l y

f r o m t h e p a s t

y e a r ’ s

p e r f o r m a n c e ;

 T h e r e i s n o
p a r t i c u l a r f o r m a t

f o r t h e s t u d y ;

 S u f f i c i e n t t i m e

i s n o t a v a i l a b l e

t o c o n d u c t a n i n -

d e p t h s t u d y ;
INDUSTRY PROFILE
INVESTMENT IN INDIAN MARKET

India is believed to be a good investment despite political uncertainty, bureaucratic hassles,

shortages of power and infrastructure deficiencies. India presents a vast potential for overseas

investment and is actively encouraging the entrance of foreign players into the market. No

company, of any size, aspiring to be a global player can, for long ignore this country, which is

expected to become one of the top three emerging economies.


Success in India

Success in India will depend on the correct estimation of the country's potential; underestimation

of its complexity or overestimation of its possibilities can lead to failure. While calculating, due

consideration should be given to the factor of the inherent difficulties and uncertainties of

functioning in the Indian system. Entering India's marketplace requires a well-designed plan

backed by serious thought and careful research. For those who take the time and look to India as

an opportunity for long-term growth, not short-term profit- the trip will be well worth the effort.
Market potential

India is the fifth largest economy in the world (ranking above France, Italy, the United Kingdom,

and Russia) and has the third largest GDP in the entire continent of Asia. It is also the second

largest among emerging nations. (These indicators are based on purchasing power parity). India

is also one of the few markets in the world, which offers high prospects for growth and earning
potential in practically all areas of business. Despite the practically unlimited possibilities in India

for overseas businesses, the world's most populous democracy has, until fairly recently, failed to

get the kind of enthusiastic attention generated by other emerging economies such as China.

Lack of enthusiasm among investors

The reason being, after independence from Britain 50 years ago, India developed a highly

protected, semi-socialist autarkic economy. Structural and bureaucratic impediments were

vigorously fostered, along with a distrust of foreign business. Even as today the climate in India

has seen a sea change, smashing barriers and actively seeking foreign investment, many

companies still see it as a difficult market. India is rightfully quoted to be an incomparable country

and is both frustrating and challenging at the same time. Foreign investors should be prepared to

take India as it is with all of its difficulties, contradictions and challenges.


Developing a basic understanding or potential of the Indian market

Envisaging and developing a Market Entry Strategy and implementing these strategies when

actually entering the market are three basic steps to make a successful entry into India. The

Indian middle class is large and growing; wages are low; many workers are well educated and

speak English; investors are optimistic and local stocks are up; despite political turmoil, the

country presses on with economic reforms. But there is still cause for worries- Infrastructure

hassles.

The rapid economic growth of the last few years has put heavy stress on India's infrastructure

facilities. The projections of further expansion in key areas could snap the already strained lines

of transportation unless massive programs of expansion and modernization are put in place.

Problems include power demand shortfall, port traffic capacity mismatch, poor road conditions

(only half of the country's roads are surfaced) and low telephone penetration.
Indian Bureaucracy

Although the Indian government is well aware of the need for reform and is pushing ahead in this

area, business still has to deal with an inefficient and sometimes still slow- moving bureaucracy.

Diverse Market

The Indian market is widely diverse. The country has 17 official languages, 6 major religions, and

ethnic diversity as wide as all of Europe. Thus, tastes and preferences differ greatly among

sections of consumers. Therefore, it is advisable to develop a good understanding of the Indian

market and overall economy before taking the plunge.


INTERNATIONAL PORTFOLIO FLOWS:
International portfolio flows, as opposed to foreign direct investment (FDI) flows, refer to capital

flows made by individuals or investors seeking to create an internationally diversified portfolio

rather than to acquire management control over foreign companies. Diversifying internationally

has long been known as a way to reduce the overall portfolio risk and even earn higher returns.

Investors in developed countries can effectively enhance their portfolio performance by adding

foreign stocks particularly those from emerging market countries where stock markets have

relatively low correlations with those in developed countries.

International portfolio flows are largely determined by the performance of the stock markets of

the host countries relative to world markets. With the opening of stock markets in various

emerging economies to foreign investors, investors in industrial countries have increasingly

sought to realize the potential for portfolio diversification that these markets present.

It is likely that for quite a few years to come, FII flows would increase with global integration. The

main question is whether capital flew in to these countries primarily as a result of changes in

global (largely US) factors or in response to events and indicators in the recipient countries like

its credit rating and domestic stock market return. The answer is mixed – both global and

country-specific factors seem to matter, with the latter being particularly important in the case of

Asian countries and for debt flows rather than equity flows.

FOREIGN INSTITUTIONAL INVESTMENT IN INDIA:


MILESTONES
 I n d i a e m b a r k e d
o n a p r o g r a m m e
o f e c o n o m i c
r e f o r m s i n t h e
e a r l y 1 9 9 0 s t o
t i e
over its balance of payment crisis and also as a step towards globalisation.
 A n i m p o r t a n t
m i l e s t o n e i n t h e
h i s t o r y o f I n d i a n
e c o n o m i c r e f o r m s
h a p p e n e d o n

September 14, 1992, when the FIIs (Foreign Institutional Investors) were allowed to invest in all

the securities traded on the primary and secondary markets, including shares, debentures and

warrants issued by companies which were listed or were to be listed the stock exchanges in India

and in the schemes floated by domestic mutual funds.


 I n i t i a l l y , t h e
h o l d i n g o f a
s i n g l e F I I a n d o f
a l l F I I s , N R I s
( N o n - R e s i d e n t
I n d i a ) n s
and OCBs (Overseas Corporate Bodies) in any company were subject to a limit of
5% and 24% of the company's total issued capital respectively.
 ( I n o r d e r t o
b r o a d b a s e t h e
F I I i n v e s t m e n t
a n d t o e n s u r e
t h a t s u c h a n
i n v e s t m e n t

would not become a camouflage for individual investment in the nature of FDI (Foreign Direct

Investment), a condition was laid down that the funds invested by FIIs had to have at least 50

participants with no one holding more than 5%. Ever since this day, the regulations on FII

investment have gone through enormous changes and have become more liberal over time.
 ( F r o m N o v e m b e r
1 9 9 6 , F I I s w e r e
a l l o w e d t o m a k e
1 0 0 % i n v e s t m e n t
i n d e b t

securities subject to specific approval from SEBI as a separate category of FIIs or sub-accounts

as 100% debt funds. Such investments were, of course, subjected to the fund-specific ceiling

prescribed by SEBI and had to be within an overall ceiling of US $ 1.5 billion. The investments

were, however, restricted to the debt instruments of companies listed or to be listed on the stock

exchanges.
 I n 1 9 9 7 , t h e
a g g r e g a t e l i m i t
o n i n v e s t m e n t b y
a l l F I I s w a s
a l l o w e d t o b e
r a i s e d

from 24% to 30% by the Board of Directors of individual companies by passing a resolution in

their meeting and by a special resolution to that effect in the company's General Body meeting.

 ( F r o m t h e y e a r
1 9 9 8 , t h e F I I
i n v e s t m e n t s w e r e
a l s o a l l o w e d i n
t h e d a e t d
government securities, treasury bills and money market instruments.
 ( I n 2 0 0 0 , t h e
f o r e i g n
c o r p o r a t e s a n d
h i g h n e t w o r t h
i n d i v i d u a l s w e r e
a l s o a l l o w e d
to invest as sub-accounts of SEBI-registered FIIs. FIIs were also permitted to seek SEBI

registration in respect of sub-accounts. This was made more liberal to include the domestic

portfolio managers or domestic asset management companies.


 ( 4 0 % b e c a m e
t h e c e i l i n g o n
a g g r e g a t e F I I
p o r t f o l i o
i n v e s t m e n t i n
M a r c h 2 0 0 0 .
 ( T h i s w a s
s u b s e q u e n t l y
r a i s e d t o 4 9 % o n
M a r c h 8 , 2 0 0 1
a n d t o t h e
s p e c i f i c
sectoral cap in September 2001.
 ( A s a m o v e
t o w a r d s f u r t h e r
l i b e r a l i z a t i o n a
c o m m i t t e e w a s
s e t u p o n M a r c h
1 3 ,
2002 to identify the sectors in which FIIs portfolio investments will not be subject
to the sectoral limits for FDI.
 ( L a t e r , o n
D e c e m b e r 2 7 ,
2 0 0 2 t h e
c o m m i t t e e w a s
r e c o n s t i t u t e d a n d
c a m e o u t

with recommendations in June 2004. The committee had proposed that, 'In general, FII

investment ceilings, if any, may be reckoned over and above prescribed FDI sectoral caps. The

24 per cent limit on FII investment imposed in 1992 when allowing FII inflows was exclusive of

the FDI limit. The suggested measure will be in conformity with this original stipulation.' The

committee also has recommended that the special procedure for raising FII investments beyond

24 per cent up to the FDI limit in a company may be dispensed with by amending the relevant

regulations.
 ( M e a n w h i l e , t h e
i n c r e a s e i n
i n v e s t m e n t
c e i l i n g f o r F I I s
i n d e b t f u n d s
f r o m U S $ 1

billion to US $ 1.75 billion has been notified in 2004. The SEBI also has reduced the turnaround

time for processing of FII applications for registrations from 13 working days to 7 working days

except in the case of banks and subsidiaries.


 A l l t h e s e a r e
i n d i c a t i o n s f o r
t h e c o u n t r y ' s
c o n t i n u o u s
e f f o r t s t o
m o b i l i z e m o r e

foreign investment through portfolio investment by FIIs. The FII portfolio flows have also been on

the rise since September 1992. Their investments have always been net positive, but for 1998-

99, when their sales were more than their purchase

ACTS AND RULES


FII registration and investment are mainly governed by SEBI (FII) Regulations, 1995.
ELIGIBILITY FOR REGISTRATION AS FII: Following entities / funds are eligible to

get registered as FII:

1. Pension Funds

2. Mutual Funds

3. Insurance Companies

4. Investment Trusts

5. Banks

6. University Fund s

7. Endowments

8. Foundations

9. Charitable Trusts / Charitable Societies

Further, following entities proposing to invest on behalf of broad based funds(a fund established

or incorporated outside India, which has at least twenty investors with no single individual

investor holding more than 10% shares or units of the fund) , are also

eligible to be registered as FIIs:

1. Asset Management Companies

2. Institutional Portfolio Managers

3. Trustees

4. Power of Attorney Holders


INVESTMENT OPPORTUNITIES FOR FIIs
The following financial instruments are available for FII investments
a) Securities in primary and secondary markets including shares, debentures and
warrants
of companies, unlisted, listed or to be listed on a recognized stock exchange in India;

b) Units of mutual funds;

c) Dated Government Securities;

d) Derivatives traded on a recognized stock exchange;

e) Commercial papers.

Investment limits on equity investments


a) FII, on its own behalf, shall not invest in equity more than 10% of total issued
capital
of an Indian company.
b) Investment on behalf of each sub-account shall not exceed 10% of total issued
capital
of an India company.
c) For the sub-account registered under Foreign Companies/Individual category, the
investment limit is fixed at 5% of issued capital.
These limits are within overall limit of 24% / 49 % / or the sectoral caps a prescribed
by
Government of India / Reserve Bank of India.
Investment limits on debt investments
The FII investments in debt securities are governed by the policy if the Government
of
India. Currently following limits are in effect:
 For FII investments in Government debt, currently following limits are applicable:
For corporate debt the investment limit is fixed at US $ 500 million.
TAXATION
The taxation norms available to a FII is shown in the table below.
Nature of Income
Tax Rate
Long-term capital gains
10%
Short-term capital gains
30%
Dividend Income
Nil
Interest Income
20%
Long term capital gain: Capital gain on sale of securities held for a period of more
than
one year.
Short term capital gain: Capital gain on sale of securities held for a period of less
than
one year.

BRIEF PROFILE OF IMPORTANT INSTITUTIONS:


A brief profile of important institutions included in the study is given below.
RESERVE BANK OF INDIA

India's Central Bank - the RBI - was established on 1 April 1935 and was nationalized on 1

January 1949. Some of its main objectives are regulating the issue of bank notes, managing

India's foreign exchange reserves, operating India's currency and credit system with a view to
securing monetary stability and developing India's financial structure in line with national socio-

economic objectives and policies.

The RBI acts as a banker to Central/State governments, commercial banks, state cooperative

banks and some financial institutions. It formulates and administers monetary policy with a view

to promoting stability of prices while encouraging higher production through appropriate

deployment of credit. The RBI plays an important role in maintaining the exchange value of the

Rupee and acts as an agent of the government in respect of India's membership of IMF. The RBI

also performs a variety of developmental and promotional functions.

The first concern of a central bank is the maintenance of a soundly based commercial banking

structure. While this concern has grown to comprehend the operations of all financial institutions,

including the several groups of non-bank financial intermediaries, the commercial banks remain

the core of the banking system. A central bank must also cooperate closely with the national

government. Indeed, most governments and central banks have become intimately associated in

the formulation of policy.

They are often responsible for formulating and implementing monetary and credit policies,

usually in cooperation with the government. they have been established specifically to lead or

regulate the banking system.

SECURITUIES AND EXCHANGE BOARD OF INDIA

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government

of India through an executive resolution, and was subsequently upgraded as a fully autonomous

body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board

of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and

autonomous regulatory board with defined responsibilities, to cover both development &

regulation of the market, and independent powers has been set up.
The basic objectives of the Board were identified as:

To protect the interests of investors in securities;

To promote the development of Securities Market;

To regulate the securities market and

For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to the

fulfillment of its objectives with commendable zeal and dexterity. The improvements in the
securities markets like capitalization requirements, margining, establishment of clearing

corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the

eligibility criteria, the code of obligations and the code of conduct for different intermediaries like,

bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers,

credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk

management systems for Clearing houses of stock exchanges, surveillance system etc. which

has made dealing in securities both safe and transparent to the end investor.
Another significant event is the approval of trading in stock indices (like S&P CNX
Nifty
& Sensex) in 2000. A market Index is a convenient and effective product because of
the

following reasons:

It acts as a barometer for market behavior;

It is used to benchmark portfolio performance;

It is used in derivative instruments like index futures and index options;

It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also

to diversify the trading products, so that there is an increase in number of traders including

banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact

through the Exchanges. In this context the introduction of derivatives trading through Indian

Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.


BOMBAY STOCK EXCHANGE:

Of the 22 stock exchanges in the country, Mumbai's (earlier known as Bombay), Bombay Stock

Exchange is the largest, with over 6,000 stocks listed. The BSE accounts for over two thirds of

the total trading volume in the country. Established in 1875, the exchange is also the oldest in

Asia. Among the twenty-two Stock Exchanges recognized by the Government of India under the

Securities Contracts (Regulation) Act, 1956, it was the first one to be recognized and it is the only

one that had the privilege of getting permanent recognition ab-initio.

Approximately 70,000 deals are executed on a daily basis, giving it one of the highest per hour

rates of trading in the world. There are around 3,500 companies in the country which are listed

and have a serious trading volume. The market capitalization of the BSE is Rs.5 trillion. The BSE

`Sensex' is a widely used market index for the BSE.


The main aims and objectives of the BSE are to provide a market place for the purchase and

sale of security evidencing the ownership of business property or of a public or business debt. It

aims to promote, develop and maintain a well-regulated market for dealing in securities and to

safeguard the interest of members and the investing public having dealings on the Exchange. It

helps industrial development of the country through efficient resource mobilization. To establish

and promote honorable and just practices in securities transactions


BSE Sensex
The BSE Sensex is a value-weighted index composed of 30 companies with the base
April 1979 = 100. It has grown by more than four times from January 1990 till date.
The

set of companies in the index is essentially fixed. These companies account for
around
one-fifth of the market capitalization of the BSE.
NATIONAL STOCK EXCHANGE OF INDIA

The National Stock Exchange of India Limited has genesis in the report of the High Powered

Study Group on Establishment of New Stock Exchanges, which recommended promotion of a

National Stock Exchange by financial institutions (FIs) to provide access to investors from all

across the country on an equal footing. Based on the recommendations, NSE was promoted by

leading Financial Institutions at the behest of the Government of India and was incorporated in

November 1992 as a tax-paying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in

April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June

1994. The Capital Market (Equities) segment commenced operations in November 1994 and

operations in Derivatives segment commenced in June 2000.


S&P CNX Nifty

S&P CNX Nifty is a well-diversified 50 stock index accounting for 23 sectors of the economy. It is

used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and

index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is

a joint venture between NSE and CRISIL. IISL is India's first specialized company focused upon

the index as a core product. IISL have a consulting and licensing agreement with Standard &

Poor's (S&P), who are world leaders in index services.


The average total traded value for the last six months of all Nifty stocks is
approximately
58% of the traded value of all stocks on the NSE

Nifty stocks represent about 60% of the total market capitalization as on March 31, 2005.

Impact cost of the S&P CNX Nifty for a portfolio size of Rs.5 million is 0.07%

S&P CNX Nifty is professionally maintained and is ideal for derivatives trading.
INTRODUCTION TO THE COMPANY
The Reliance – Anil Dhirubhai Ambani Group is among India’s top three private sector business
houses on all major financial parameters, with a market capitalisation of Rs 100,000 crore (US$
22 billion), net assets in excess of Rs 31,500 crore (US$ 7 billion), and net worth to the tune of
Rs 27,500 crore (US$ 6 billion).
Reliance Money Limited has been promoted by Reliance Capital Limited a part of Anil Dhirubhai
Ambani Group with the Net-worth – Rs. 4500 cr., amongst the top 3 banking & financial services
companies in the private sector.
BOARD OF DIRECTORS
Anil DhiruBhai Ambani, Chairman
Amitabh Jhunjhunwala, Vice-Chairman
Rajendra Chitale, Independent Director
Shri C. P. Jain
Reliance ADA Group Structure
Reliance money is a part of the reliance Anil Dhirubai Ambani Group and is promoted by

Reliance capital, the fastest growing private sector financial services company in India, ranked

amongst the top 3 private sector financial companies in terms of net worth.

Reliance money is a comprehensive financial solution provider that enables you to carry out

trading and investment activities in a secure, cost-effective and convenient manner. Through

reliance money, you can invest in a wide range of asset classes from Equity,
Reliance Capital
Reliance

Life

Insurance
Reliance
General Insurance
Reliance
Money
Reliance
Consumer
Finance
Reliance
Mutual fund
Mutual Fund

Equity and commodity Derivatives, Mutual Funds, insurance products, IPO’s to


availing
services of Money Transfer & Money changing.

Reliance Money offers the convenience of on-line and offline transactions through a variety of

means, including its Portal, Call & Transact, Transaction Kiosks and at it’s network of affiliates.
Some key steps of the company that are as…..

“Success is a journey, not a destination.” If we look for examples to prove this quote then we can

find many but there is none like that of Reliance Money. The company which is today known as

the largest financial service provider of India.


Success sutras of Reliance Money:

The success story of the company is driven by 8 success sutras adopted by it namely trust,

integrity, dedication, commitment, enterprise, hard work and team play, learning and innovation,

empathy and humility. These are the values that bind success with Reliance Money.
Vision of Reliance Money

To achieve & sustain market leadership, Reliance Money shall aim for complete customer

satisfaction, by combining its human and technological resources, to provide world class quality

services. In the process Reliance Money shall strive to meet and exceed customer's satisfaction

and set industry standards.


Mission statement:

“Our mission is to be a leading and preferred service provider to our customers, and we aim to

achieve this leadership position by building an innovative, enterprising , and technology driven

organization which will set the highest standards of service and business ethics.”

Reliance Capital has interests in asset management and mutual funds, life and general

insurance, private equity and proprietary investments, stock broking, depository services,

distribution of financial products, consumer finance and other activities in financial services.

Reliance Mutual Fund is India's no.1 Mutual Fund. Reliance Life Insurance is India's fastest

growing life insurance company and among the top 4 private sector insurers. Reliance General

Insurance is India's fastest growing general insurance company and the top 3 private sector

insurers. Reliance Money is the largest brokerage and distributor of financial products in India
with more than 2.5 million customers and the largest distribution network. Reliance Consumer

finance has a loan book of over Rs. 8,000 crores


at
the
end
of
June
2008.
Reliance Capital has a net worth of Rs.6,862 crores (US$ 1.6 billion) and total assets
of
Rs. 19,940 crores (US$ 4.6 billion) as of June 30, 2008 and over 26,000 employees.

Money has increased its market share among private financial companies to nearly Convenient &

effective – Anytime & anywhere financial transaction capability. Launched in April 2007. It

provides the Flat fees system. It has 2.2 million customers in 1 year of official launch. It has over

5,000 outlets across 700 towns/cities. Average daily turnover – in excess of Rs 2,000 crores.

Considering the entire life market, including the Rs. 12,890 crores booked by life insurance

Corporation, Reliance life insurance market share works out to around 6.25% . The life insurance

market continuous to be dominated by LIC which has about 67% share this only a marginal dip

from its 73% share in end-July. These comparisons are only for first year or new business

premium.

The gap between Reliance life insurance and the second-in-line private insurer is vast. In fact,

this scenario has led some analysts to wonder if the company is not a trifle too aggressive. But

others say this has more to do with the companies’ customer-centric focus, its pan-India

presence and superior risk management and investment strategies. Reliance Money is not,

however, resting on its laurels.


Company’s customer centric approach will be studied during the training period and the finding of

the research work will definitely focus on the present condition & future requirement (if any)

relating to products of company.

Thus, Reliance Money provides a comprehensive platform, offering an investment

avenue for a wide range of asset classes. Its endeavor is to change the way India transacts

in financial market and avails financial services. Reliance Money offers a single window

facility, enabling you to access amongst others, Equities, Equity and Commodity

derivatives, Offshore Investments, IPO’s, Mutual Funds, Life Insurance and General

Insurance products.

Advantages offered by Reliance money over other companies:

Cost Effective
Convenience

Security

Single Window for Multiple Products

3 in 1 Integrated Access

Demat Account with Reliance Capital


PRODUCT OFFERING

Trading Portal (with almost negligible brokerage )

Equity Broking

Commodity Broking

Derivatives ( Futures & Options )

Offshore Investments (Contract For Differences)

D-Mat Account.

Financial Products

Mutual Funds

Life Insurance

ULIP plan

Money Back Plan

General Insurance

Vehicle/Motor Insurance

Health Insurance

House insurance

IPO’s

Value-Added ServicesORGANIZATIONAL STRUCTURE


National Level
:
National Head
Zonal Level
:
Zonal Head
Regional Level
:
Regional head
Divisional level
:
Cluster Head
Branch Level
:
Center Manager
Area Level
:
Business Development Executives & Freelancers
SALES METHODOLOGY
PERFORMANCE OF INDIAN STOCK MARKET
Indices : sensex For the period : from year 1991 To year 2008
year Open
High
low
close
Price/earnings Price/book
value
Dividend
yield
199
1
1027.38 19554.81.2
9
947.14
1908.85 22.30
3.58
1.24
199
2
1957.33 4546.58
1945.48 2615.37 36.19
6.35
.80
199
3
2617.78 3459.07
1980.6
3346.06 31.78
4.81
.98
199
4
3436.87 4643.31
3405.88 3926.90 45.45
6.07
.68
199
5
3910.16 3943.66
2891.45 3110.49 23.63
3.81
1.13
199
6
3114.08 4131.22
2713.12 3085.20 16.07
3.02
1.50
199
7
3096.65 4605.41
3096.65 3658.98 14.45
2.80
1.52
199
8
3658.34 4322.00
2741.22 3055.41 13.00
2.25
1.80
199
9
3064.95 5150.99
3042.25 5005.82 17.35
3.07
1.38
200
0
9209.54 6150.69
3491.55 3972.12 24.48
3.81
1.14
200
1
3990.65 4462.11
2594.87 3262.33 17.60
2.51
1.83
200
2
3262.01 3758.27
2828.48 3377.28 15.22
2.30
2.14
200
3
3383.85 5920.76
2904.44 5838.96 15.02
2.49
2.14
200
4
5872.48 6617.15
4227.50 6602.69 17.26
3.28
2.01
200
5
6626.8
9442.98
6069.33 9397.93 16.21
3.94
1.58
200
6
9422.49 14035.30
8799.01 13786.9
1
20.18
4.75
1.35
200
7
83827.7
7
20498.11
12316.1
0
20286.9
9
22.25
5.32
1.10
200
8
20325.2
7
21206.77
14677.2
4
16481.2
0
22.44
5.71
.98
PERFORMANCE OF AUTO SECTOR
Indices: AUTO For the period :From year 2000 to 2008
year
Open
High
Low
close
2000
0.00
0.00
0.00
21.12
2001
0.00
0.00
0.00
755.55
2002
0.00
0.00
0.00
1015.62
2003
0.00
0.00
0.00
2533.79
2004
--
2871.63
0.00
2836.39
2005
2852.05
4299.07
2525.72
4256.45
2006
4251.97
5843.51
3959.66
5518.50
2007
5604.44
5881.83
4435.21
5667.45
2008
5671.41
5796.87
4063.38
4548.08
PERFORMANCE OF POWER SECTOR
Indices: POWER For the period :From year 2005 to 2008
Year
Open
High
low
close
Price/earnings Price/book
value
Dividend
yield
2005 --
0.00
0.00
1457.9
1
0.00
0.00
0.00
2006 --
0.00
0.00
2048.4
3
0.00
0.00
0.00
2007 4395.76 4729.00 4023.09 4548.8
5
6.35
1.08
.10
2008 4584.38 4929.34 2896.47 3281.2
9
34.40
5.90
.73
FOREIGN INVESTMENT FLOWS IN INDIA:
One of the most important distinctions between Portfolio and Direct investment to have emerged
from this young era of globalisation is that portfolio investment can be much more volatile.

TABLE: Foreign Investment Flows in India


Year
A. Direct
Investment
B. Portfolio
Investment
Total (A + B)
(US $ million)
(US $ million)
(US $ million)
1990-91
97
6
103
1991-92
129
4
133
1992-93
315
244
559
1993-94
586
3567
4153
1994-95
1314
3824
5138
1995-96
2144
2748
4892
1996-97
2821
3312
6133
1997-98
3557
1828
5385
1998-99
2462
61
2523
1999-00
2155
3026
5181
2000-01
4029
2760
6789
2001-02
6131
2021
8152
2002-03
4660
979
5639
2003-04
4675
11377
16052
From a net foreign investment inflow of US $ 5.3 billion in 1997-98, such inflows declined to US $
2.4 billion in 1998-99. This is because of the lower portfolio inflows, as a result of which the net
investment has dropped. The changes in the investment conditions in a country or region can
lead to dramatic swings in portfolio investment. For a country on the rise, in other words for
developing countries, FPI can bring about rapid development, helping an emerging economy
move quickly to take advantage of economic opportunity, creating many new jobs and significant
wealth. However, when a country's economic situation takes a downturn, sometimes just by
failing to meet the expectations of international investors, the large flow of money into a country
can turn into a stampede away from it.
CHART: FOREIGN INVESTMENT FLOWS
0
2000
4000
6000
8000
10000
12000
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
Y E A R
FPI
F DI

FOREIGN PORTFOLIO FLOWS TO INDIA


Foreign portfolio investments have been allowed in India on the basis of the
recommendations of the Narasimham committee which stated:
The committee would also suggest that the capital markets should be gradually opened up to
foreign portfolio investments and simultaneously efforts should be initiated to improve the depth
of the market by facilitating the issue of new types of equities and innovative debt instruments.’
(Narasimham committee report)
Prior to 1992, only non-resident Indians (NRIs) and Overseas corporate bodies (OCBs) were
allowed to undertake portfolio investment in India. Only on September 14, 1992 the Government
of India issued guidelines on FII investments in India which was followed by a notification by
Securities and Exchange Board of India (SEBI) three years later in November 1995.
TRENDS IN FII INVESTMENT IN INDIA
TABLE: Trends in FII investment
Year
FII PURCHASEFII SALES
FII NET
FII NET
CUM FII NET
in crores
in crores
in crores
US$ million US$ million
1993-94 5593
466
5126
1634
1638
1994-95 7631
2835
4796
1528
3167
1995-96 9694
2752
6942
2036
5202
1996-97 15554
6979
8575
2432
7634
1997-98 18695
12737
5958
1649
9284
1998-99 16115
17699
-1584
-386
8898
1999-00 56856
46734
10122
2339
11237
2000-01 74051
64116
9934
2160
13396
2001-02 49920
41165
8755
1846
15242
2002-03 47060
44371
2689
562
15804
2003-04 144858
99094
45765
9949
25754
Source: Reserve Bank of India Annual Report 2004
INFERENCE: The investments by FIIs have been registering a steady growth since the
opening of the Indian capital markets in September 1992. Their investments have
always
been net positive, but for 1998-99, when their sales were more than their purchases.
It can be observed from the above table that the portfolio investment inflows have always been
on the increase. But the years 2001-02 and 2002-03 saw some reversal in the trend. From a net
inflow of US $ 2.1 billion in 2000-01, such inflows declined to US $ 1.8 billion in 2001-02, and
further dropped to US $ 0.562 billion in 2002-03. The decline is because of the lower portfolio
inflows, as a result of which the net investment has dropped in these years. However, this
decline witnessed a sharp reversal in the year 2003- 04. FIIs have made a net investment of Rs.
45,764 crores during this year registering a growth of 1602% over the previous year, creating a
record in the history of FII investment in India. Gross purchases in this year amounted to
Rs.144,857 crores, a growth rate of 208% compared to the year before. This trend continued in
April 2004, only to suffer reversal again during May and June 2004, when the net investment
became negative. Fortunately, the year from July 2004 has been seeing a net positive portfolio
flows by FIIs. As of September 2004, the net FII portfolio investment stands at US $ 27,637
million. If it is so, then increasing the FII investment cap per se will not be helpful. The country
has to work on specific measures to encourage more FII investments. The analysis of data
indicates that there has been substantial divestment by the FIIs during the year 1998-99. The
maximum outflow was during the months of May and June 1998 (almost US$430 millions).
TABLE: Monthly Trends of FIIs for the Year 1998-99
Month
Purchases
Sales
Net
Net
(Rs mn)
(Rs mn)
(Rs mn)
(US$ mn)
Apr-98
11422
11756
-335
-8.4
May-98
8253
13284
-5031
-124.3
Jun-98
8023
16072
-8049
-190.5
Jul-98
13098
12154
944
22.2
Aug-98
7932
11783
-3851
-90.1
Sep-98
14381
12458
1923
45.2
Oct-98
10737
16470
-5733
-135.4
Nov-98
10391
9845
546
12.9
Dec-98
11089
8789
2300
104.8
Jan-99
16355
11894
4462
104.8
Feb-99
16477
13084
3393
79.8
Mar-99
25207
23973
1233
29
A major factor which led to continuous outflow of funds during the middle and end of the year
1998 was the worsening outlook on the emerging markets. Credit worthiness of almost all the
South-east Asian nations was severely damaged by the crises which started in July 1997. As a
result, the FIIs were facing heavy redemption pressures from the Emerging Markets Funds. The
stock markets in all these countries fell continuously from March 1998 till about September 1998.
The integration of the Indian capital markets with the international markets thus spilled over to
Indian markets as well. However, the net outflow from the Indian markets was much lower than
the other Asian countries. A further indication of the integration of the Indian markets can be
seen from the upsurge in the valuations and funds inflows during the first quarter of 1999, when
all the other Asian countries have also seen rising trend in stocks indices.
The sluggishness in investment in the emerging markets was exacerbated by the fact that
hroughout 1998-99, US and European markets showed historically high valuations, and the
expectations of further rise because of the strong economic indicators there which led to reduced
allocations elsewhere.
CHART : GROWTH OF FII INVESTMENTS IN INDIA
INFERENCE: The trickle of FII flows to India that began in January 1993 has gradually

expanded to an average monthly inflow of close to Rs. 1900 crores during the first six months of

2001. By June 2001, over 500 FIIs were registered with SEBI. The total amount of FII investment

in India had accumulated to a formidable sum of over Rs.50,000 crores during this time. In terms

of market capitalization too, the share of FIIs has steadily climbed to about 9% of the total market

capitalization of BSE (which, in turn, accounts for over 90% of the total market capitalization in

India).
TABLE: CORRELATION OF FII WITH NIFTY
MONTH
GROSS PURCHASES GROSS SALES
NET INVESTMENT
APRIL
-0.308891015
-0.486299015
-0.122510317
MAY
-0.203839618
-0.226174846
0.127555673
JUNE
0.40719847
0.013881057
0.556762421
JULY
0.231397721
-0.008199745
0.352195939
AUGUST
-0.296292834
-0.009987101
-0.288696993
SEPTEMBER 0.631541276
0.478957403
0.377141924
OCTOBER
-0.107835133
-0.303940405
0.118451125
NOVEMBER 0.103856902
0.232269601
-0.020576251
DECEMBER -0.689594568
-0.692805116
-0.496878284
JANUARY
-0.02034654
-0.57330261
0.64885866
FEBRUARY 0.124176605
-0.056354197
0.233709555
MARCH
0.419911809
-0.255570154
0.483718703
FII flows and contemporaneous stock returns are strongly correlated in India. The correlation

coefficients between different measures of FII flows and market returns on the Bombay Stock

Exchange during different sample periods are shown in Table above. While the correlations are

quite high throughout the sample period, they exhibit a significant rise since the beginning of the

1999-00. The calculations show that there exists a relationship between FIIs and Nifty since 6 out

of 12 months show positive correlation in the case of Gross Purchass and 8 out of 12 months

indicate a positive correlation in the case of Net FII Investment and Nifty.
TABLE : CORRELATION OF FII WITH SENSEX
MONTH
GROSS PURCHASES GROSS SALES NET INVESTMENT
APRIL
-0.267580403
-0.509025858
-0.076211493
MAY
-0.184653959
-0.224809346
0.1484205
JUNE
0.405635894
-0.004710378
0.575995013
JULY
0.291205286
0.045396684
0.353391901
AUGUST
-0.315900375
-0.033391574
-0.301709231
SEPTEMBER 0.661834837
0.506184274
0.389776394
OCTOBER
-0.067640059
-0.311421901
0.18995454
NOVEMBER 0.083505749
0.244942636
-0.057919794
DECEMBER -0.666663184
-0.688620778
-0.46494095
JANUARY
0.02201209
-0.551509386
0.679227006
FEBRUARY 0.00689661
-0.170243004
0.149373722
MARCH
0.417854257
-0.250893125
0.479619465

The behaviour of the foreign portfolio investors matched the behaviour of Sensex during this

period. Net FII investment in the Indian capital markets started fluctuating sharply during April

and it turned negative. Net FII investment in the Indian stock market was positive from May to

July. During this period, the Sensex and net FII investment showed very high degree of

correlation. For the month of June showed a correlation as high as 0.60. The months of

September, October, November and December shows a declining trend, the FII investment

reversed from that day. On the whole, there exists a relationship between FIIs and Sensex since

7 out of 12 months show positive correlation in the case of Gross Purchases and 8 out of 12

months indicate a positive correlation in the case of Net FII Investment and Sensex.
TABLE: COEFFECIENT OF DETERMINATION OF FII WITH NIFTY
MONTH
GROSS PURCHASES GROSS SALES
NET INVESTMENT
APRIL
0.095413659
0.236486732
0.015009
MAY
0.04155059
0.051155061
0.01627
JUNE
0.165810594
0.000192684
0.309984
JULY
0.053544905
6.72358E-05
0.124042
AUGUST
0.087789444
9.97422E-05
0.083346
SEPTEMBER 0.398844383
0.229400194
0.142236
OCTOBER
0.011628416
0.09237977
0.014031
NOVEMBER 0.010786256
0.053949168
0.000423
DECEMBER 0.475540669
0.479978929
0.246888
JANUARY
0.000413982
0.328675883
0.421018
FEBRUARY 0.015419829
0.003175796
0.05462
MARCH
0.176325927
0.065316104
0.233984

Coefficient of Determination (R2), ranges from 0 - 1, is always part of the standard regression

output, the important measure of goodness of fit. R2 = correlation coefficient (r) squared, since

the range of r is from -1 to +1, squaring r forces R2 to fall between 0 and 1. R2 in the above table

gives the percentage (%) of the total variation in Nifty that is explained by the regression

equation, or explained by FIIs. During the month of January the total variation in Nifty explained

by FII amounted to 42% and the remaining 58% is explained by other factors which influence

Nifty.
TABLE : COEFFECIENT OF DETERMINATION OF FII WITH SENSEX
MONTH
GROSS PURCHASES GROSS SALES
NET INVESTMENT
APRIL
0.071599272
0.259107325
0.005808
MAY
0.034097085
0.050539242
0.022029
JUNE
0.164540479
2.21877E-05
0.33177
JULY
0.084800519
0.002060859
0.124886
AUGUST
0.099793047
0.001114997
0.091028
SEPTEMBER 0.438025352
0.256222519
0.151926
OCTOBER
0.004575178
0.0969836
0.036083
NOVEMBER 0.00697321
0.059996895
0.003355
DECEMBER 0.444439801
0.474198576
0.21617
JANUARY
0.000484532
0.304162603
0.461349
FEBRUARY 4.75632E-05
0.028982681
0.022313
MARCH
0.17460218
0.06294736
0.230035
Similarly, in the case of FII and Sensex we have R2 = .46, indicating that variation in FII explains

about 46% of the variation in Sensex. 54% of the variation in Sensex is unexplained by FII,

explainable by other factors, omitted variables, random variation, etc. We shouldn't put too much

emphasis on R2, t-stat are more important. However, R2, or some other measure of goodness of

fit is expected in reported empirical results.


Share of top investing countries in FDI Approvals
Rank Country
Aug.199
1 to
march20
02
%of
total
approval
s
2002
-03
2003
-04
2004
-05
2005-
06(April
Jan.)
Cumulative
approvals
aug 1991
to Jan 2006
% of
total
approvals
till Jan
2006
1
U.S.A.
56,631
24.71
818
881
779
260
59394
22.92
2
Mauritius 32,919
14.37
1432 1572 2838 3565
42340
16.34
3
U.K.
21,396
9.34
1819 590
1178 1019
26011
10.04
4
Japan
10794
4.71
566
345
172
73
11955
4.61
5
SouthKore
a
9,798
4.28
29
65
15
64
9975
3.85
6
Germany
8,976
3.92
292
172
177
222
9843
3.80
7
Netherlan
ds
8618
3.76
315
628
76
117
9758
3.77
8
Australia
6,768
2.95
47
34
39
40
6931
2.67
9
France
6,28
2.72
323
37
71
94
6756
2.61
10
Singapore 7,943
3.47
330
369
578
164
9387
3.62
FDI
appro
vals
229,150
7,90
4
6,224 8,728 7112
259,118
Share of top investing countries in FDI inflow in India
Rank Country
Aug.199
1 to
march20
02
%of
total
approval
s
2002-
03
2003-
04
2004-
05
2005-
06(April
Jan.)
Cumulativ
e FDI
inflows to
Jan 2006
aug 1991
to Jan
2006
% of
total
appr
ovals
till
Jan
2006
1
Mauritius 27446
29.64
3766
2609
5141
9120
48112
36.9
0

2
U.S.A.
12248
13.23
1504
1658
3055
1705
20183
15.4
8
3
U.K.
4263
4.60
1617
769
458
1645
8757
6.72
4
Japan
5099
5.51
1971
360
575
669
8680
6.66
5
Netherlan
ds
3856
4.61
836
2247
1217
329
8489
6.51
6
Germany
3455
3.73
684
373
663
1302
6481
4.97
7
Singapore 1997
2.16
180
172
822
1013
4186
3.21
8
France
1947
2.10
534
176
537
63
3259
2.50
9
South
korea
2189
2.36
188
110
157
257
2903
2.23
10
Switzerlan
d
1299
1.30
437
207
353
332
2530
1.94
Total
FDI
inflo
w
92611
14932 12117 17138 19356
156154
Sources of FDI inflows in India
Top 10 countries have accounted for more than a half of India’s FDI approvals during 1991-95,
while is share increased to about 70% over 2004-05. this able shows ranking of cumulative
investment approved during the period 1991 to January 2006 reveals that USA was the largest
investor in India with an investment of Rs. 59394crores Netherlands , France and Singapore
follows in that order . but the share of USA has been declining , whereas the shares of Mauritius
has been increasing from past few years . it has b increased by more than 80% in2004-05
compared to 2003-04 , mainly due to FDI being routed through Mauritius , as it has a double
Taxation avoidance treaty with India . in terms of FDI inflow into the country , Mauritius topped
the list with90% share of total FDI inflows , whereas USA holds the 2nd position with 15.48% of
total FDI inflows in India . thus in terms of FDI inflows Mauritius is way ahead from UK ,Japan
Netherlands Germany , Singapore ,France South Korea and Switzerland follows in that order
.South Korea who holds2.23%share Australia who holds 8th positioning FDI approvals with
2.65% share ,does not figure in top 10 countries in FDI inflows . O the other hand , Switzerland ,
which does not come in FDI approvals holds holds 10th position in FDI inflows with 1.94%
share .Above table shows that FDI inflows from all countries have been increased in 2004-05
Total FDI and FDI in ICT Sector
Year
FDI inflow
Amount in Rs.
Cr.
Growth in FDI Amount in Rs. Cr.
FDI in ICT
sector
Growth in FDI
in ICT
1991-92
409
351
1992-93
1094
167.48
675
92.31
1993-94
2018
84.46
2380
252.59
1994-95
4312
113.68
4132
73.61
1995-96
6916
60.39
6750
63.36
1996-97
9654
39.59
9211
36.46
1997-98
13548
40.34
11817
28.29
1998-99
12343
-8.89
8644
-26.85
1999-00
10311
-16.46
7271
-15.88
2000-01
12645
22.64
10323
41.97
2001-02
19361
53.11
14419
39.68
2002-03
14932
-22.88
8423
-41.58
2003-04
121117
-18.85
6703
-20.42
2004-05
17138
41.44
3869
-42.28
Under consideration , it has been observed that there are some fluctuations in the growth rate
both in positive rates. From 1991-92 to 1997-98 , there has been a steady growth in FDI inflow
but it drastically fall is again noticed in 2002-03 and 2003-04.The most probable reasons behind
these alarming downfalls is the result of various asian crise and sanctions amposed on India as a
cosequence of nuclear explosion test by government of India that cast a shadow on FDI inflows
to India during the period 1998-2000. further there seems a declining trend in FDI in the period
2001-4 . This trend was felt across the world ( 108 countries according to world investment report
2003 ) as the world was experiencing an economic slowdown . Reduction in M&As( merger and
acquisitions ) was the major reason and also the war in Iraq and SARS had a negative impact on
global capital flows in 2003. In 2004 , global FDI inflows began to recover after the stock of
previous year .

The statistical description in terms of mean, standard deviation , minimum ,


maximum and coefficient of variance shows:
FDI inflows
FDI in ICT
Mean
9771
6783
Std. dev.
6005
4133
Min
409
351
Max
19361
14419
CV%
61.45
60.93
AAGR
42.77
37.02
The CV% is almost equal as seen in above tables ,which represents that the variability in
the FDI inflows and FDI in ICT sector is approximately similar . This depicts that
whenever there is a change in the FDI inflows , the FDI in ICT as also affected.
Year Wise FDI inflows into Infrastructure sector during April 2000 to December
2007
(In US$ million)
Year
amt.
2000-01
292.37
2001-02
1902.26
2002-03
347.33
2003-04
388.37
2004-05
456.00
2005-06
914.04
2006-07
2179.39
Total
10575.56

FINDINGS:
It is an accepted fact now that FIIs have significant influence on the movements of the stock

market indexes in India. If one looks at the total FII trade in equity in India and its relationship

with the stock market major indexes like Sensex and Nifty, it shows a steadily growing influence

of FIIs in the domestic stock market.

FIIs and the movements of Sensex are quite closely correlated in India and FIIs wield significant

influence on the movement of Sensex. NSE also observes that in the Indian stock markets FIIs

have a disproportionately high level of influence on the market sentiments and price trends. This

is so because other market participants perceive the FIIs to be infallible in their assessment of

the market and tend to follow the decisions taken by FIIs. This ‘herd instinct’ displayed by other

market participants amplifies the importance of FIIs in the domestic stock market in India.

Results of this study show that not only the FIIs are the major players in the domestic stock

market in India, but their influence on the domestic markets is also growing. Data on trading

activity of FIIs and domestic stock market turnover suggest that FII’s are becoming more

important at the margin as an increasingly higher share of stock market turnover is accounted for

by FII trading. Moreover, the findings of this study also indicate that Foreign Institutional

Investors have emerged as the most dominant investor group in the domestic stock market in

India. Particularly, in the companies that constitute the Bombay Stock Market Sensitivity Index

(Sensex) and NSE Nifty, their level of control is very high. Dominant position of FIIs in the

Sensex companies, it is not surprising that FIIs are in a position to influence the movement of

Sensex and Nifty in a significant way. Since FIIs are dominating the Indian Market, individual

investors are forced to accept the dictates of major FIIs and hence join the group by entering the

Mutual Fund group. Many Mutual Funds floated specific funds for the sectors favoured by the

FIIs. An implication of MFs gaining strength in the Indian stock market could be that unlike

individual investors, whose monies they manage, MFs can create market trends whereas the

small individual investors can only follow the trends. The situation becomes quite difficult if the

funds gain a vested interest in certain sectors by floating sector specific funds. One can even

venture to say that the behavior of MFs in India has turned the very logic that
mutual funds invest wisely on the basis of well-researched strategies and individual investors do

not have the time and resources to study and monitor corporate performance, upside down.

Thus, the entry of FIIs has not resulted in greater depth in Indian stock market; instead it led to

focussing on only a few sectors. Ultimately to provide a level playing field, even the domestic

investors had to be offered lower rates of capital gains tax.

While it can be expected that foreign affiliated mutual funds would follow the investment pattern

of FIIs, it is important to note that many domestic ones also followed FIIs. The sectors favoured

by FIIs account for a substantial portion of the net assets under control of many Mutual Funds.

The Mutual funds are gaining prominence in the Indian Stock market and that the share of

foreign affiliated MFs is growing, a number of Indian funds are following the investment strategies

of the foreign ones.

On the other hand if FII investments constitute a large share of the equity capital of a financial

entity, an FII pullout, even if driven by development outside the country can have significant

implications for the financial health of what is an important institution in the financial sector of this

country.

Similarly, if any set of developments encourages an unusually high outflow of FII capital from the

market, it can impact adversely on the value of the rupee and set of speculation in the currency

that can in special circumstances result in a currency crisis. There are now too many instances of

such effects worldwide for it be dismissed on the ground that India's reserves are adequate to

manage the situation.

FII investments, seem to have influenced the Indian stock market to a considerable extent. FIIs

are interested in the Indian stock market increases its vulnerability to fluctuations. Analysis

suggested a strong influence of FII investment on the Sensex and Nifty index. This finding takes

quite further the general understanding that net FII investments influences stock prices in India

as it traces the relationship


CONCLUSION
In this study I tried to find out the impact of FDIs and FIIs on Indian Stock Market .the important

result of this study is that the foreign investment is determined by stock market return. But foreign

investment is not a major factor for the stock market boom in India the FII are increasingly

dominant in the stock market. The domestic investors and domestic companies remain not so

dominant. There is therefore the fear of sudden outflows of the foreign capital and this may be a

trigger a third stock market scam as most regulatory changes re being made only as a follow up

of an adverse event.
SUGGESTIONS AND RECOMENDATIONS
Some of the steps that can be taken to help influence the choices made by foreign
institutional investors include:
 T h e G o v e r n m e n t s h o u l d c u t
i t s f i s c a l d e f i c i t s , w h i c h
w o u l d r e s u l t i n
s t r e n g t h e n i n g t h e
economy as a whole.
 C r e a t i n g i n f r a s t r u c t u r e a n d o t h e r
f a c i l i t i e s t o a t t r a c t f o r e i g n
i n v e s t m e n t . A s d e s c r i b e d

earlier, an array of services can help promote foreign institutional investment in India, ranging

from basic services such as the provision of electricity and clean water, to fair and effective

dispute resolution systems.


 T h e a b i l i t y o f g o v e r n m e n t s
t o p r e v e n t o r r e d u c e f i n a n c i a l
c r i s e s a l s o h a s a g r e a t

impact on the growth of capital flows. Steps to address these crises include strengthening

banking supervision, requiring more transparency in international financial transactions and

ensuring adequate supervision and regulation of financial markets.


 A n a t t e m p t s h o u l d b e m a d e t o
b r i n g d o w n t h e i n f l a t i o n l e v e l t o
a t t r a c t m o r e f o r e i g n
institutional investments into India.
 T h e B a n k i n g s y s t e m n e e d s t o b e
s t r e n g t h e n e d w h i c h c o u l d b e
a c h i e v e d b y r e d u c i n g
the number of Non Performing Assets.
 T h e F I I s i n v e s t m e n t s , t h o u g h s h o w n
a n i n c r e a s i n g t r e n d o v e r t i m e , a r e s t i l l
f a r b e l o w

the permissible limits. One such measure in this line could be the newly announced INDONEXT,

the platform for trading the small and mid-cap companies, which might bring some focus on

these companies and hopefully add some liquidity and volume to their trading, which may attract

some further investments in them by FIIs.


 T h e f a c t i s t h a t d e v e l o p i n g c o u n t r y
l i k e I n d i a h a s i t s o w n c o m p u l s i o n s
a r i s i n g o u t o f

the very state of their social, political and economic development. To attract portfolio investments

and retain their confidence, the host countries have to follow stable macro- economic policies,
 T h e p r o v i s i o n f o r c l e a r p r o c e d u r e s
m u s t b e f o l l o w e d i n t h e e v e n t o f
d i s p u t e s b e t w e e n
investors and host governments, to ensure that rules are adhered to and that
arbitration
may be established by mutual consent.
 C o u n t r i e s m a y i m p o s e t h e s e k i n d s
o f m e a s u r e s l i k e e x p r o p r i a t i o n ,
d o m e s t i c c o n t e n t
requirements, restrictions on capital outflows of short term investments, etc with the

intention of protecting domestic industries from international competition and promoting their

economic development, but this usually leads to misallocation of resources away from the natural

economic capabilities of nations.


 T h e r e h a s b e e n a
s i g n i f i c a n t s h i f t i n t h e
c h a r a c t e r o f g l o b a l c a p i t a l
f l o w s t o t h e

developing countries in recent years in that the predominance of private account capital transfer

and especially portfolio investments (FPI) increased considerably. In order to attract portfolio

investments which prefer liquidity, it has been advocated to develop stock markets.
BIBLIOGRAPHY
BOOKS:-

Business environment (Suresh Bedi)

The Journal of Amity Management Analyst (Jan. June 2007)

The Journal of Business ,vol.59,no.3, 383-403.

The Journal of Finance India

Apeejay journal of management and technology.(Jan 2009)

JIMS 8M April June 2007


INTERNET:-
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www.indianinfoline.com

www.onlinestockholding

www.moneycontrol.com

www.mastercapitalindia.com

www.financialexpress.com/news

www.en.wikipedia.org.wiki/stock_market

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impact of fii and fdi on indian stock market


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Reads:
7,583
Uploaded:
03/29/2010
Category:
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Rated:
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fii and fdi


fdi stock
increase
happen
books
faith
market index
bibliography
extent
successful
fii increases
(more tags)
fdi stock
increase
happen
books
faith
market index
bibliography
extent
successful
fii increases
indian fii
regaining
study
(fewer)
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happysunilrana
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