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FII

TYPES OF INFLOWS
• Foreign Direct Investment
– Forbidden Areas

• Foreign Institutional Investment


– Forbidden Areas
SEBI’s definition of FIIs
presently includes:

• Pension Funds
• Mutual Funds
• Investment Trust
• Insurance or reinsurance companies
• Endowment Funds
• University Funds
Contd..
• Asset Management Companies
• Nominee Companies
• Institutional Portfolio Managers
• Trustees
• Power of Attorney Holders
• Bank
• It also includes asset management
companies and other money managers
operating on their behalf.
Categories of registered FIIs
• Regular FIIs:
– not less than 70 per cent in equity related
instruments
– 30 per cent in non-equity instruments.
• 100 per cent debt-fund FIIs:
– permitted to invest only in debt instruments.

Forbidden Areas for FII:


• GOVT BONDS
Difference between FDI and FII
FDI
FII

1. FDI is when a foreign company brings capital FII is when a foreign company buys equity in a
into a country or an economy to set up a company through the stock markets. Therefore,
production or some other facility. FDI gives the in this case, FII would not give the foreign
foreign company some control in the operations company any control in the company.
of the company

2. Foreign direct investment involves in the direct Foreign portfolio investment is a short-term
production activity and also of medium to long- investment mostly in the financial markets and it
term nature consists of Foreign Institutional Investment
(FII).

3. It enables a degree of control in the company. It does not involve obtaining a degree of control
in a company.

4. FDI brings long-term capital, The FII brings short-term one


Agencies Regulating FII in India
• RBI: the apex bank

• FIPB: reviews all foreign investment


proposals

• SEBI: which regulates India's capital


markets
Registration of FII’s

• Registration

• Supporting documents required for registration


of FII’s

• The eligibility criteria for applicant seeking FII


registration
ADVANTAGES
• Unavailability of Corporate Debt.

• Increases FOREX reserves.

• Increases domestic saving and


investments.

• Large availability of capital.


DISADVANTAGES
•Problems of Inflation.

•Reduces flexibility of policymakers.

•Hot Money.

•False representation of economy.

•Cannot be utilized for long term.

•Problem for small investor.


SUGGESTIONS TO FURTHER
IMPROVE THE FII INFLOW
• Developing enthusiasm among investors

• Developing a basic understanding or


potential of the Indian market

• Diverse Market

• Overcoming Infrastructural hassles


Contd..

• Indian Bureaucracy

• Market Study

• Check on Economic Policies


ALL YOU WANTED TO KNOW ABOUT
PARTICIPATORY NOTES

• Why investors use PNs?

• What is the problem with the instrument?

• What are participatory notes?

• What is the extent to which PNs are used?


Are Restrictions on PN’s
justifiable? (A Small debate)
• YES

• They Leave no audit trail between sub broker and the member broker
after settlement.

• The FIIs buy stocks from the Indian market in their name, which they
in turn distribute to their clients on their own basis by issuing PNs.

• Front-door entry via FII registration for foreign investors into the
Indian capital market is restricted due to complex documentation and
delays in registration with Sebi, back-door entry via PNs is
unrestricted.
• NO

• Sebi proposal of restricting FIIs —will undoubtedly


reduce capital flows, especially into the equity market.

• If Sebi is steadfast in reducing inflows through PNs it


needs to initiate a transition mechanism over the next
year so that the market players have time to move away
from PNs to direct FII.

• Many genuine foreign investors do not favor PNs since


the issuing FIIs/foreign brokers charge higher fees,
which pushes up the transaction cost.
Record of FII
RECENT FIGURES
• Positive tidings about the Indian economy
combined with a fast-growing market have made
India an attractive destination for foreign
institutional investors (FIIs).
• The number of foreign institutional investors
(FIIs) registered with the Securities and
Exchange Board of India (SEBI) has now
increased to 1,042 in June 2007.In the beginning
of calendar year 2006, the figure was 813.
Contd..

• As many as 217 new FIIs opened their


offices in India during 2006.

• This is the highest number of


registrations by FIIs in a year till date.
Contd..

• The previous highest was 209 in 2005.

• Till May 2007, FIIs had pumped in a hefty


US$ 6 billion in equities. Last year, during
the same period, the FIIs' exposure to
Indian equities was 25 per cent lower at
US$ 4.5 billion.
Contd..

•The gross FII investments in the country till June from


the time they were allowed to invest in the India equity
markets stands at US$ 53.06 billion.

•FIIs have raised their holding in 540 companies out of


top 1,000 companies on the Bombay Stock Exchange
(BSE) during September-March (2006-07) period.
Companies that have gained favor with foreign investors
are mostly from construction, banking and IT companies
among others.
"Foreign capital goes to that country where
governments carry out structural reforms,
legal reforms and administrative reforms
and that is the road we have taken so far,"
P. CHIDAMBRAM