Foreign Institutional Investment in India From: Dalwala Taruna G. (6) Desai Deep (7) To: Prof. Hiren Patel

2 Introduction  The term FII is defined as an institution established or incorporated outside India for making investment in Indian securities and also includes a sub-account of an FII.  India, which is the second fastest growing economy after China, has lately been a major recipient of foreign institutional investor (FII) funds driven by the strong fundamentals and growth opportunities. According to analysts, the late revival of monsoon, upward revision of economic growth from 5.8 per cent to 6.1 per cent, better- than-expected performance of companies in the quarter ended-June 30, the new direct taxes code, leading to savings in the tax payer’s money, and the trade policy with an ambitious target of US$ 200 billion exports for have all revived the confidence of FIIs investing in India.

3 Foreign Institutional Investors (FII) include the following foreign based categories:  Pension Funds  Mutual Funds  Investment Trust  Insurance or reinsurance companies  Investment Trusts  Banks  Endowments  University Funds  Foundations  Charitable Trusts or Charitable Societies

4 parameters on which SEBI decides FII applicants’ eligibility Applicant’s track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. (The applicant should have been in existence for at least one year) whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with SEBI Whether the applicant is a fit & proper person.

5  fee for registration as FII : US $ 5,000  validity period of FII registration :The FII registration is valid for 5 years  Which financial instruments are available for FII investments? 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; Units of mutual funds; Dated Government Securities; Derivatives traded on a recognized stock exchange; Commercial papers.

6 FII investments  FII net investment declined to dols 1.5 billion for IFY , compared to dols 2.2 billion in The trend reversed itself in February and March 1998, reflecting the renewed stability of the rupee and relatively attractive valuations on Indian stock markets. Economic Figures In 2004, FII investments crossed $9 billion, the highest in the history of Indian capital markets. The total net investment for the year up to December 29 stood at US$9,072 million while foreign investors pumped in about US$2,113 million in December. Korea and Taiwan have always been the biggest recipients of FII money. It was only in 2004 that India managed to receive the second highest FII inflow at over $8.5bn. In 2005 FIIs invested more in Indian equities than in Korean or Taiwanese equities.

7 FII investment on monthly bases:

8 FII investment during

9 Policy on FII Investment  FIIs are required to allocate their investment between equity and debt instruments in the ratio of 70:30.  FIIs can buy/sell securities on Stock Exchanges. They can also invest in listed and unlisted securities outside Stock Exchanges where the price has been approved by RBI.  No individual FII/sub-account can acquire more than 10% of the paid up capital of an Indian company.  All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian Company. Main features of the policy on investment by FII are :

10 Government Initiatives:  India’s foreign investment policies allow foreign direct investment up to 26 per cent and foreign institutional investments of (an additional) 23 per cent in stock exchanges. Under the regulation, FIIs have been allowed to acquire shares of unlisted stock exchanges through transactions outside a recognised stock exchange provided it is not an initial allotment of shares

11 SEBI ANNOUNCES NEW REGULATIONS FOR FII'S  Market regulator Security Exchange Board of India recently announced new rules for foreign investments through financial instruments such as participatory notes, asking FIIs to wind up P-Notes for investing in derivatives within 18 months.SEBI also imposing curbs on P-Notes for investing in spot market.  In derivatives, foreign institutional investors (FIIs) and their sub-accounts cannot issue fresh P-Notes and will have to wind up their current position in 18 months.  In spot market, FIIs will not be allowed to issue P-Notes more than 40 per cent of their assets under custody.  Those FIIs who have issued P-Notes of more than 40 per cent of their assets could issue such instruments only if they cancel, redeem, or close their existing PNs. Those FIIs who have issued P-Notes less than 40 per cent of their assets under custody can issue additional instruments at the rate of 5 per cent of their assets

12 Highlights of New Rules  New norms to come into effect from tomorrow  Unregulated pension fund, university fund, charitable fund, endowments etc to be treated as FIIs  No dilution of know-your-customers norms for registration of FIIs to prevent money laundering  FIIs to be registered on a permanent basis instead of earlier practice of renewing registration every three years

13 Companies in which FII Investment is allowed upto 30% of their paid up capital 1.Aptech Ltd 2.Asian Paints (India) Ltd 3.Capital Trust Ltd 4.Container Corporation of India 5.Ferro Alloys Corporation Ltd 6.Garware Polyester Ltd 7.GIVO Ltd (formerly KB&T Ltd) 8.Gujarat Ambuja Cements Ltd 9.Infotech Enterprises Ltd. 10.Mastek Ltd 11.Orchid Chemicals and Pharmaceuticals Ltd 12.Pentasoft Technologies Ltd (Pentafour Communications Ltd) 13.Polyplex Corporation Ltd 14.Ranbaxy Laboratories Ltd 15.Software Solutions Integrated Ltd 16.Sonata Software Ltd 17.The Credit Rating Information Services of India Ltd. 18.The Paper Products Ltd 19.Vikas WSP Ltd Companies in which FII Investment is allowed upto 49% of their paid up capital 1. Blue Dart Express Ltd 2.CRISIL 3.HDFC Bank Ltd 4.Hindustan Lever Ltd 5.Himachal Futuristic Communications Ltd 6.Infosys Technologies Ltd. 7.NIIT Ltd. 8.Dr. Reddy's Laboratories 9.Panacea Biotec Ltd 10.Reliance Industries Ltd. 11.Reliance Petroleum Ltd. 12.Sofia Software Ltd 13.Sun Pharmaceutical Industries Ltd 14.United Breweries Ltd. 15.United Breweries (Holdings) Ltd. 16.Zee Telefilms Ltd.

14 Budget Impact on Foreign Institutional Investors:  The Finance Minister (FM) presented the India Union Budget 2009 in Parliament today against the backdrop of a slowing economy in which the Gross Domestic Product growth rate has decreased to 6.7 percent in financial year from 9 percent levels. This seems to be the roadblock which has curtailed the maneuverability for tax sops to a large extent. Foreign Institutional Investors are the key drivers of the Indian stock markets since the opening up of the investment sector in India. The income-tax proposals in the Union Budget for FIIs are keenly watched by all.

15 Foreign Institutional Investors activity during November-1999 to 2003 Date Equity (Rs. Crore)Debt (Rs. Crore) Gross Pur chas e Gross Sales Net Purchase /Sales Gross Purcha se Gross Sale s Net Purchas e /Sales January-19991, , February , , January-20005, , February , , , January-20017, , , February , , , January-20025, , February , , , January-20035, , , February , ,

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