ABSTRACT

Foreign Direct Investment (FDI) has been viewed as a major stimulus to economic growth
in developing countries. Its ability to deal with two major obstacles; namely, shortages of
financial resources and technology and skills, has made it the center of attention for
policymakers in low-income countries in particular. In spite of the significance generated
by FDI flows, the flow to developing countries and the world, in general, has witnessed
persistent decline over the years. The implication for the drop means that competition to
attract FDI has increased as developing countries continue to create the enabling
environment to attract foreign investors. Ghana, in particular, has, over the last decade,
pursued various forms of economic reforms and liberalization of trade regimes in order to
become more competitive in the international financial market. A handful of papers has
recently dealt with FDI flows in Ghana. However, most of these studies are concerned
with strategic FDI policy to attract FDI flows. The purpose of this study is to empirically
determine the factors that influence FDI flows in Ghana, using time series data from 2004-
05 to 2021-22. Regression analysis was carried out using relevant econometric
techniques. The results of the study capture trade openness, exchange rate, natural
resources, and infrastructure as the drivers of FDI in Ghana. Macroeconomic variables,
such as inflation and per capita gross domestic products, were also registered to impact
the determinants of FDI flows in Ghana. The contribution of this paper is that economic
liberalization was found to be significant, indicating that policymakers' efforts in
liberalizing the economic activities may necessarily translate into significant FDI inflows
into the country.
 INDEX
S.No CHAPTER Page No
LIST OF TABLES I
LIST OF GRAPHS II
1 CHAPTER - I 01 – 14
INTRODUCTION
NEED OF THE STUDY
SCOPE OF THE STUDY
OBJECTIVES OF THE STUDY
RESEARCH METHODOLOGY
LIMITATIONS OF THE STUDY
2 CHAPTER - II 15 – 19
REVIEW OF LITERATURE
3 CHAPTER - III 20 – 35
INDUSTRY PROFILE
COMPANY PROFILE
4 CHAPTER - IV 36 – 56
THEORETICAL FRAMEWORK
4 CHAPTER - V 57 – 73
DATA ANALYSIS &INTERPRATATION
5 CHAPTER - VI 74 – 77
FINDINGS
SUGGESTIONS
CONCLUSION
BIBLIOGRAPHY 78
 LIST OF TABLES

TABLE PAGE
TABLE NAME
NO NO
4.1 PERFORMANCE OF INDIAN STOCK MARKET 57
4.2 PERFORMANCE OF AUTO SECTOR 59
4.3 PERFORMANCE OF POWER SECTOR 60
4.4 FOREIGN INVESTMENT FLOWS IN INDIA 61
4.5 TRENDS IN FII INVESTMENT IN INDIA 63
4.6 Monthly Trends of FIIs for the Year 2021-22 64
4.7 CORRELATION OF FII WITH NIFTY 65
4.8 CORRELATION OF FII WITH SENSEX 66
4.9 COEFFECIENT OF DETERMINATION OF FII WITH NIFTY 67
4.1 COEFFECIENT OF DETERMINATION OF FII WITH SENSEX 68
4.12 Share of top investing countries in FDI Approvals 69
4.13 Share of top investing countries in FDI inflow in India 70
4.14 Total FDI and FDI in ICT Sector 72
The statistical description in terms of mean, standard deviation ,
4.15
minimum , maximum and coefficient of variance shows: 73
Year Wise FDI inflows into Infrastructure sector during April 2014
4.16
to December 2021 (In US$ million) 73
 LIST OF GRAPHS

TABLE PAGE
TABLE NAME
NO NO
4.1 PERFORMANCE OF INDIAN STOCK MARKET 58
4.2 PERFORMANCE OF AUTO SECTOR 59
4.3 PERFORMANCE OF POWER SECTOR 60
4.4 FOREIGN INVESTMENT FLOWS IN INDIA 62
 CHAPTER - I

INTRODUCTION
INTRODUCTION
Foreign Direct Investment (FDI) broadly encompasses any long-term investments by an
entity that is not a resident of the host country. Typically, the investment is over a long
duration of time and the idea is to make an initial investment and then subsequently keep
investing to leverage the host country’s advantages which could be in the form of access to
better (and cheaper) resources, access to a consumer market or access to talent specific to
the host country - which results in the enhancement of efficiency. This long-term
relationship benefits both the investor as well as the host country. The investor benefits in
getting higher returns for his investment than he would have gotten for the same
investment in his country and the host country can benefit by the increased know how or
technology transfer to its workers, increased pressure on its domestic industry to compete
with the foreign entity thus making the industry improve as a whole or by having a
demonstration effect on other entities thinking about investing in the host country.

TYPES OF FDI’S
By Direction
Outward FDI:
An outward-bound FDI is backed by the government against all types of associated risks.
This form of FDI is subject to tax incentives as well as disincentives of various forms.
Risk coverage provided to the domestic industries and subsidies granted to the local firms
stand in the way of outward FDIs, which are also known as 'direct investments abroad.'

Inward FDIs:
Different economic factors encourage inward FDIs. These include interest loans, tax
breaks, subsidies, and the removal of restrictions and limitations. Factors detrimental to the
growth of FDIs include necessities of differential performance and limitations related with
ownership patterns.

Horizontal FDI- Investment in the same industry abroad as a firm operates in at home.
Vertical FDI

• Backward Vertical FDI: Where an industry abroad provides inputs for a firm's
domestic production process.
• Forward Vertical FDI: Where an industry abroad sells the outputs of a firm's
domestic production.

BY TARGET

Greenfield investment: - Direct investment in new facilities or the expansion of existing

facilities. Greenfield investments are the primary target of a host nation’s promotional
efforts because they create new production capacity and jobs, transfer technology and
know-how, and can lead to linkages to the global marketplace. The Organization for
International Investment cites the benefits of Greenfield investment (or in sourcing) for
regional and national economies to include increased employment (often at higher wages
than domestic firms); investments in research and development; and additional capital
investments. Disadvantage of Greenfield investments include the loss of market share for
competing domestic firms. Another criticism of Greenfield investment is that profits are
perceived to bypass local economies, and instead flow back entirely to the multinational's
home economy. Critics contrast this to local industries whose profits are seen to flow back
entirely into the domestic economy.

Mergers and Acquisitions

Transfers of existing assets from local firms to foreign firm takes place; the primary type
of FDI. Cross-border mergers occur when the assets and operation of firms from different
countries are combined to establish a new legal entity. Cross-border acquisitions occur
when the control of assets and operations is transferred from a local to a foreign company,
with the local company becoming an affiliate of the foreign company. Nevertheless,
mergers and acquisitions are a significant form of FDI and until around 1997, accounted
for nearly 90% of the FDI flow into the United States. Mergers are the most common way
for multinationals to do FDI

BY MOTIVE

FDI can also be categorized based on the motive behind the investment from the
perspective of the investing firm:

2
Resource-Seeking : Investments which seek to acquire factors of production those are
more efficient than those obtainable in the home economy of the firm. In some cases, these
resources may not be available in the home economy at all. For example seeking natural
resources in the Middle East and Africa, or cheap labour in Southeast Asia and Eastern
Europe.

Market-Seeking : Investments which aim at either penetrating new markets or

maintaining existing ones.FDI of this kind may also be employed as defensive strategy; it
is argued that businesses are more likely to be pushed towards this type of investment out
of fear of losing a market rather than discovering a new one. This type of FDI can be
characterized by the foreign Mergers and Acquisitions in the 1980’s Accounting,
Advertising and Law firms.

Efficiency-Seeking : Investments which firms hope will increase their efficiency by

exploiting the benefits of economies of scale and scope, and also those of common
ownership. It is suggested that this type of FDI comes after either resource or market
seeking investments have been realized, with the expectation that it further increases the
profitability of the firm

Methods of Foreign Direct Investments

The foreign direct investor may acquire 10% or more of the voting power of an enterprise
in an economy through any of the following methods:

• By incorporating a wholly owned subsidiary or company

• By acquiring shares in an associated enterprise
• Through a merger or an acquisition of an unrelated enterprise
• Participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:

• Low corporate tax and income tax rates

• Tax holidays
• Preferential tariffs
• Special economic zones
• Investment financial subsidies
• Soft loan or loan guarantees

3
 • Free land or land subsidies
• Relocation & expatriation subsidies
• Job training & employment subsidies
• Infrastructure subsidies
• R&D support

STOCK EXCHANGE

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

governments, financial institutions, corporate houses, etc. come together and trade in these
corporate securities. This is a market of speculation. If the speculation of investors is
wrong, then the loss of investors. Nobody knows what will happen after a second.

An exchange refers to the segments of the capital market on which the securities issued by
companies are traded. It is an open auction market where buyers and sellers meet and
include competitive prices of the securities. It reflects people's hopes for the performance
of the economy. I offer the necessary mobility to the capital and the direct flow of capital
into a possible and successful enterprise.

Since the purchase and sale of the various securities takes place on the stock exchange.
The prices of certain securities reflect demand and supply there. In fact, the stock market is
considered a barometer of economic and financial health.

The India Stock Exchange, Securities and Exchange Board of India (SEBI) is on the issue
of acceptance of hedge funds in Indian financial market. At trade fairs around the world,
hedge funds are an important force for us to count on. The impact of hedge fund activity is
new for Indian financial investors (FII) flows volatility of the stock market. This is because
hedge fund activity in Indian primary stocks is reflected in participation certificates (PN)
and some in FII inflows. Large stock companies and investment poor certain large
companies in India in the period of consideration used Oversees Body (OCB) as a
mechanism to take a commitment in the Indian market. OCB activity in the Indian context
is quite similar to fund trading in the past OCB flows also used to be governed by FII
rivers traditionally to use a large chunck of PN and OCB activity in India, passing through
the Mauritian route due to tax benefits. The most recent budget submitted by the
Government of India (coming into force on 1 September 2004) reduces long-term capital
gains to zero and short-term capital gains to 10% of Mauritius taxation.

4
A "STOCK EXCHANGE" is a platform where buyers and sellers of securities issued by
governments, financial institutions, corporate houses, etc. meet and trade

These corporate papers are held. This is a market of speculation. If the speculation of
investors is wrong, then the loss of investors. Nobody knows what will happen after a
second.

An exchange refers to the segments of the capital market on which the securities issued by
companies are traded. It is an open auction market where buyers and sellers meet and
include competitive prices of the securities. It reflects people's hopes for the performance
of the economy. I offer the necessary mobility to the capital and the direct flow of capital
into a possible and successful enterprise.

Since the purchase and sale of various securities take place, the stock market takes place.
The prices of the individual securities reflect demand and supply there. In fact, the stock
market is considered a barometer of economic and financial health.

The stock market is the nerve center of the capital market. The stock market fulfills three
essential functions in the capital formation process, not the procurement of resources for
the corporate sector.

It offers places to buy and sell securities, d. H. Stocks, bonds, etc ... ,

5
It establishes a link between the saving of the household sector and the investment in the
economic sector.

It offers market quotations for reverse convertibles and bonds and serves as a barometer
not only for the health of individual companies, but also for the economy as a whole.

Therefore, by indicating the stock market prices of the prices of stocks and bonds or a kind
of collective judgment. At the same time, many buyers and sellers in the stock market have
achieved the role of the barometer, not only the health of individual companies, but also of
the economy as a whole.

FEATURES OF STOCK EXCHANGE

• It is the place where quoted securities are bought and sold.

• It is an association of people known as members.
• Securities trading is permitted under the rules of the stock exchange.
• Membership is required for transaction processing.
• Investors and speculators who want to buy and sell securities can do so via
exchange members

OPERATIONAL DEFINITIONS

STOCK MARKET: -

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

governments, financial institutions, corporate houses, etc. come together and trade in these
corporate securities.

MUTUAL FUNDS: - A mutual fund is a trust that bundles the savings of a number of
investors who share a common financial goal.

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

investments where the investor is permanently interested in a company in another country.
Specifically, this may be the purchase or construction of a factory in a foreign country or
the improvement of such a facility in the form of property, equipment or equipment.

FOREIGN INSTITUTIONAL INVESTORS (FII): - An investor or investment fund

originating in or registered in a country other than that in which it is investing. Foreign

6
institutional investors have made significant investments in Indian financial markets. There
are currently about 1324 FII registered in India.

EXTERNAL PORTFOLIO INVESTMENT (FPI): - FPI is a category of investment

instruments that are easier to trade, less durable, and that do not constitute a controlling
interest in a company. These include investments via equity instruments (shares) or debt
securities (bonds) of a foreign company, which are not necessarily long-term investments.

BULL MARKET: - A bull market is a market that is constantly rising. It is a market

where there is optimism about more dough, business results and other positive factors. The
bull market can sometimes last for years, for investors this is the preferred market trend.
However, no bull market can last very long.

BÄRENMARKT: - The bear market is a market that shows a sustained downward trend.
A 15-20% market downturn is commonly referred to as a bear market.

DIVERSIFICATION: - Diversification is the technique of simultaneous investment in

unconnected businesses, so that the risk that affects a particular sector does not affect your
overall investment. For example, your stock portfolio includes sectors such as information
technology, real estate, goods, cars, etc.

Exchange rate of the currency of a nation - currency like other goods rises or falls in the
"price" with the demand. When investors leave, they sell their holdings in the currency of a
country, and as demand falls, so will the "price" of that currency

ECONOMIES OF SIZE: - Producers can often save significant production costs by

buying, mass-producing or retailing bulk commodities. These lower costs, which are
achieved through extended production, are called economies of scale.

DEBT / EQUITY RATIO - The debt / equity ratio measures the extent to which a
company's capital is provided by lenders (through debt instruments such as fixed rate
bonds) or owners (through variable rate equities). Increased dependency on debt financing
can mean higher profitability for shareholders, but also greater risk if the situation
worsens.

INTERNATIONAL MONETARY FUND - The IMF is an international organization of

186 member countries established in 1947 to promote international monetary cooperation,
monetary stability and orderly exchange. Promoting economic growth and a high level of

7
employment; and to provide temporary financial assistance to countries to facilitate the
adjustment of the balance of payments.

INSTITUTIONAL INVESTOR An organization whose primary purpose is to invest its

own assets or the assets it holds for others. These include pension funds, investment
companies, insurance companies, universities and banks.

INTEREST RATES - Interest rates have a large impact on the volume of a country's
money supply. By raising interest rates, i. H. By increasing the cost of borrowing,
governments or banks can cut money. A decline in the money supply tends to inhibit
inflation, which makes one currency more valuable compared to other currencies.

MOST FAVORABLE NATIONAL TREATMENT - The term "Most Favored Nation"

refers to the country's obligation to receive the investment in order to give this investment
the same treatment it receives from its "most preferred" trading partner.

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

summarizes for a certain period of time (typically a year or quarter) the economic
transactions of an economy with the rest of the world. It covers:

All goods, services, factor income and current transfers that an economy receives or
provides from the rest of the world

Capital transfers and changes in the external financial assets and liabilities of an economy

PORTFOLIO INVESTMENT - involves the purchase and sale of equities and debt
securities that can not be classified as direct investment or foreign reserves. These
securities are tradable in organized financial markets.

ADI FLOWS AND SHARES - Through direct investment flows, investors build up a
direct investment position (position) that is part of the investor balance sheet. The FDI
holdings (positions) are usually different from the cumulative capital flows due to
revaluations (changes in prices or exchange rates) and other adjustments such as debt
rescheduling or deletion of loans, debt forgiveness or debt-equity swaps with different
values.

MULTINATIONAL COMPANIES (MNU) - are registered or unregistered companies

comprising parent companies and their foreign subsidiaries.

8
FOREIGN DIRECT INVESTOR - A foreign direct investor is a natural person, a
registered or unregistered public or private company, a government, a group of related
persons or a group of affiliated companies and / or partnerships with a direct investment
company, a a subsidiary, associate or branch - in a country other than the country or
countries in which the one or more direct investors are located.

HOST ECONOMY - is the country that receives FDI or FPI from foreign investors.

HOME ECONOMY - is the country of origin / residence of the company that invests in
the foreign economy / restaurant.

SUBSIDIARY- is a registered company in the host country in which the foreign investor
owns more than 50% of the voting rights of the shareholder or has the right to appoint or
remove a majority of the members of the administrative, management or supervisory body
of that company.

EQUITY - consists of interests in subsidiaries and ordinary shares of subsidiaries and

associates.

Reinvested earnings - consist of the direct investor's share of the profit, which is not
distributed as a dividend by subsidiaries or associates, and the income of branches, which
has not been transferred to the direct investor.

OTHER CAPITAL - covers cross-company debt (including short-term loans such as

trade credit) between direct investors and subsidiaries, branches and associates.

WTO World Trade Organization.

STATEMENT OF THE PROBLEM:

There are many factors that influence the economic condition. One of them is FDI. Hence
there is a need to study the impact of FDI on the change in economy.

9
NEED OF THE STUDY

As India is a developing country, it need certain amount of saving to invest for its
development. This gap between investment and saving is filled by foreign capital. India
has lower level of technology as compare to developed nations which is very necessary for
industrial and other development so it need technology transfer which comes with fdi
when it assumes the form of private foreign investment.

India is full with natural resource but it has no required technical skill and expertise to
exploit it so India need foreign capital to undertake the exploitation of its mineral wealth.
Domestic capital of developing countries like India is too low to build up its economic
infrastructure so it need some foreign capital to develop its economic infrastructure.

10
SCOPE OF THE STUDY:

There are various studies made on the FDI and its impact on Indian economy. Several
studies are made with several objectives. This study covers flow of FDI in to India in
various sectors and its impact on sectors. The study also covers FDI policies framed by
government of India with Foreign investment promotion board. The study also covers the
analysis made to know the sectors which have opportunities for FDI in future.

• The study is aimed to understand the flow of FDI in the Indian economy.
• Finding out the reason for the difference in FDI inflows
• How FDI is affecting various sector of economy.

11
OBJECTIVES OF THE STUDY

The study covers the following objective

• To study the trends and patterns of flow of FDI.

• To evaluate the impact of FDI on the economy.
• To know the flow of investment in India
• To evaluate the trends and patterns in the FDI across different sectors and from
different countries in India
• To know in which sector we can get more foreign currency in terms of investment
in India

12
RESEARCH METHODOLOGY

AIM: To establish the relationship between FDI and growing trends in the Indian
economy.

PRIMARY SOURCE: The Primary data are those information’s, which are collected
afresh and for the first time, and thus happen to be original in character.

SECONDARY SOURCE:

The present study is of analytical nature and makes use of secondary data. The relevant
secondary data has been collected from reports of the Websites, Journals, News Papers
Articles, Centre for Monitoring Indian Economy, Reserve Bank of India, World
Investment Report. It is a time series data and the relevant data has been collected for the
period 2016-2022.

Hypothesis:

• The study has been taken up for the period 2018-2022 with the following
hypothesis
• Ho: FDI doesn’t affect the economic growth of the country (India).
• H1: FDI affect the economic growth of the country (India).

Tools and Techniques

• Dividend Yield
• Net Investments
• Correlation

13
LIMITATIONS OF THE STUDY:
It’s not only FDI that effects the growth of economy there are other factors such as FII,
monetary policy and government policies.
• FDI data keeps on changing.
• Time limitation is 45 days.
• The values are truly based on the sources and the weighted average provided by the
sources; as it is very difficult to get the exact values on hand apart form these
sources directly as primary data.
• The time frame is really short to work on the 2 sectors (Power and Automobile
Sectors) and understand to ground level facts.

14
 CHAPTER - II

REVIEW OF LITERATURE
LITERATURE REVIEW

ARTICLE – 1

TITLE : Foreign Direct Investment and Economic Growth in India: A Sector-specific

Analysis

AUTHORS : Shib Sankar Jana, Tarak Nath Sahu, Krishna Dayal Pandey

ABSTRACT : The motivation behind this empirical investigation comes from the
inconclusive evidence produced by a flurry of previous empirical studies on foreign direct
investment (FDI)-growth nexus. The study recognises the fact that the treatment of FDI
inflows in an aggregate form instead of a sector-specific approach while correlating it with
economic growth remains the most tenuous assumption of the previously conducted
studies. Driven by the impetus of filling this gap, this study applies a time-varying
parameter model with vector autoregressive specification to examine as to how sector-wise
FDI inflows can affect the growth of respective sectors in the context of an emerging
economy like India. The study uses a number of econometric tests, such as Johansen’s
cointegration test, vector error correction model, Granger causality test, variance
decomposition analysis and impulse response analysis, to arrive at robust results. The
study evidences the inward FDI to be non-contributive to the agricultural output growth.
However, a reverse causality is evidenced wherein agricultural output is found to be
attracting more FDI into the sector. It also documents interesting evidence for
manufacturing sector where the FDI inflow is found to affect its output positively for a
couple of years. Regarding service sector, the study confirms a bidirectional causality
between FDI and growth both for the short and long run. On the basis of the findings, the
study suggests economic policymakers to rejuvenate the primary sector of India so that it
can attract and absorb more FDI and ensure sustainable economic growth. Besides, the
agriculture-led economic growth policy might be more reliant than service which is largely
vulnerable to external shocks.

KEYWORDS : Foreign direct investment, sectoral growth, sustainable economy growth,

time series model.

15
ARTICLE – 2

TITLE : AN OVERVIEW OF FOREIGN DIRECT INVESTMENT IN INDIA

AUTHORS : SYED AZHAR*; K.N.MARIMUTHU**

ABSTRACT : This paper attempted to make an analysis of FDI in India and its impact on
growth. It also focuses on the determinants and needs of FDI, year-wise analysis, sectoral
analysis and sources of FDI and reasons. One of the economic aspects of globalization is
the fact that increasing investments in the form of foreign direct investments. In the recent
times due to the global recession most of the countries have not been able to pull
investments. India has been able to attract better FDI’s than the developed countries even
during the crisis period also. Especially in the recent years the FDI in India has been
following a positive growth rate. Since 1991 the government has focused on liberalization
of policies to welcome foreign direct investments. These investments have been a key
driver for accelerating the economic growth through technology transfer, employment
generation, and improved access to managerial expertise, global capital, product markets
and distribution network. FDI in India has enabled to achieve a certain degree of financial
stability; growth and development to sustain and compete in the global economy.

KEYWORDS: FDI, GDP, Growth & Development & Indian Economy.

16
ARTICLE – 3

TITLE : Foreign Direct Investment (FDI) Inflows in India

AUTHOR : Dr Shikha Singh

ABSTRACT : Indian economy is one of the top emerging markets of the world. Five
years ago it was considered as part of the fragile five, but no longer. Since 2014, it has
emerged as of the one top foreign destination in the world with a significant rise in FDI.
The journey of attracting foreign investments started way back in 1991 with New
Economic policy and India has unprecentedly scaled new heights in the level of FDI
during 2000’s. The paper focuses on secondary data based Sectoral analysis of the inflow
of FDI in India from 2000 to 2018. The paper also aims to look at different facets of
positive FDI spill overs in the country.

KEYWORDS: Foreign Direct Investment, India, Sectors, Economic Growth,

Development

Bruce A. Blönigen-2018-This article examines the recent burgeoning literature that

empirically examines the decisions of Foreign Direct Investment (FDI) of multinationals
(MNE) and the resulting overall location of ADI around the world. The contribution of the
paper is to assess what we can say given the evidence with relative reliance on foreign
direct investment as a profession and about which we can not trust much at this time.
Proposals for future research directions will be made.

Hugo Rojas-Romagosa-2017-Foreign direct investment (FDI) has increased significantly

in the last two decades. These developments have led to a large number of empirical
papers testing the expected benefits that FDI inflows should bring to host countries. We
examine the most recent theoretical and empirical literature but limit our attention to the
productivity changes caused by increased FDI inflows. We examine both the aggregated
productivity effects and the spillover effects of FDI on local companies.

Giorgio De Saints-2016-This article examines the dynamics of expected stock returns and
volatility in the emerging financial market. We find that clustering predict ability and
persistence in conditional volatility and have documented others for the mature market.
However, emerging markets are more volatile and have a limited likelihood of price
volatility, so the risk of a mature country is not rewarded with a higher expected return

17
given high country-specific risks. We derive a risk / reward ratio in Latin America, but not
in Asia.

Karimullah-2016-The article examines the impact of FII equity investment behavior of

foreign investors on the Indian stock market. It seeks to identify the mutual causality
between the behavior of foreign institutional investors (FIIs) and the performance of the
Indian stock market for the period from January 1997 to June 2007. This article explores
the idea that financial liberalization leads to greater efficiency in the financial sector.
Market approval of capital investment of the FII is an important example of financial
liberalization. Return in the stock market is used as a proxy for the efficiency of the stock
market in India. Granger causality test has been used to test bidirectional causality. Apart
from the net investment of FIIs, the buying and selling behavior of FIIs is analyzed
separately. The results show that stock market performance is a key factor in FII's buying
and selling behavior. However, we have found no strong evidence that the fluctuations in
the stock indices are determined by the investment behavior of the FIIs.

Block holder, market efficiency and management myopia:

This paper shows that owners can add value even if they can not interview in a company's
operations. Block owners have a strong incentive to oversee the company's fundamental
value as they can sell their shares due to bad news. By trading their private information
(according to the Wall Street Rule), they cause prices to reflect fundamental value rather
than current income. This, in turn, encourages managers to invest in long-term growth
rather than short-term profits. Contrary to the view that the liquid markets in the US and
temporary shareholders worsen myopia, this paper shows that they can encourage
investment.

Robert Lensink and Oliver Morrissey-2015-This paper contributes to the literature on

FDI and economic growth. We deviate from previous studies by introducing
measurements of the volatility of FDI inflows. As introduced in the model, it is predicted
that these will have a negative impact on growth. We estimate the standard model using
cross-sectional, panel data, and instrumental variable techniques. While all results are not
fully robust, there is a consistent conclusion that foreign direct investment has a positive
impact on growth while the volatility of foreign direct investment has a negative impact.

18
The evidence for a positive effect of FDI is not sensitive to the other explanatory variables.
In particular, this does not depend on the level of human capital (as found in some
previous studies). There is a suggestion that the volatility of FDI per se does not delay
growth, but that such volatility captures the growth-inhibiting effects of unobservable
variables.

Foreign direct investment in Bangladesh; an analysis of the perception of potential

investors:

Bangladesh had made several important policy changes in terms of ownership and control
of industry with a view to promoting economic growth. One of the Bangladesh
government (GOB) strategies to accelerate economic growth has been to attract foreign
direct investment (FDI)

19
 CHAPTER-III

INDUSTRY PROFILE

&

COMPANY PROFILE
 FDI INDUSTRY
The Indian stock market turned out to be among the world's best performers in 2015-16
with the Bombay Stock Exchange (BSE) Sensex rising 29% from 21,140 on January 1 to
27,312 on December 19. Most market players believe this stellar run will continue in 2015
on the back of reforms, strong foreign fund inflows, revival of manufacturing,
improvement in the macro-economic situation and rise in corporate earnings growth.

Attractive Valuations
Despite the sharp rise, the valuation of the Indian stock market is still attractive. On
December 12, the Sensex was trading at a price-to-earnings (PE) ratio of 18.5, marginally
lower than the five-year average of 18.77.. One reason is that the return on equity of BSE
200 companies is bottoming out. "Revival of growth of Indian companies, which were
facing tough times for the past five years, is still at a nascent stage. Nifty 50 companies can
see 16-17% earnings growth in the next one year.

Stocks that respond to interest rate moves, coupled with select debt schemes, are likely to
be the winners in 2015, with the Reserve Bank of India expected to start easing its
monetary policy.

Fund managers said economic prospects have improved, but the New Year may be tougher
for equity investors to make money as valuations of many stocks are rich after the broad-
based rally in 2014. Concern over interest rate hike in the US and weak global crude oil
prices may also keep investors on.

India is among the top-performing emerging markets in 2014. So far in 2014, the Sensex
has gained 34%. Smaller companies have fared even better, with the BSE Mid Cap index
surging 56% and the BSE Small Cap Index jumping 75%.

Though the falling crude prices have improved the prospects of the Indian economy, India
may not be spared if there is an emerging market sell-off. "On the global front, oil
exporting nations could face problems, and there could be a global risk aversion.
Market participants consider probable interest rate cuts by the Reserve Bank of India (RBI)
as the biggest trigger for the economy and the markets. The extent of monetary policy
easing would determine the strength of rally in shares of the so-called interest rate-
sensitive sectors such as banks, auto, real estate and bonds.

20
Fund managers said debt funds could offer good returns in the coming year as a fall in
interest rates could lead to an appreciation in bond prices. With wholesale price inflation
coming at nil for November, expectations of interest rate cuts as early as in the March
quarter are high. "Shortterm rates can fall more than long-term rates. We expect consumer
inflation to be in the range of 5-5.5%, and expect RBI to cut interest rates by 50 basis
points in 2015," said Dhawal Dalal, executive V-P and head (fixed income), DSP
BlackRock Mutual Fund. If interest rates fall by 50 basis points, investors could see a 5%
capital appreciation on their long-term gilt fund portfolio.

Measured by BSE Sensex, stock market has generated a positive return of about 9 per cent
for investors in 2013, while gold prices fell by about three per cent and its poorer cousin
silver plummeted close to 24 per cent.

After outperforming stock market for more than a decade, gold has been on back foot for
two consecutive years now vis-a-vis equities, shows an analysis of their price movements.

"Gold's under-performance was mainly due to prices falling in dollar terms amid
anticipated tapering over last several months combined with FII investment in Indian
stocks.

"This movement has been equally true for global markets as 2013 saw gold losing its shine
and markets coming back with a bang," said Jayant Manglik, President Retail Distribution,
Religare Securities.

"As always, gold and stock prices follow opposite trends and this year was no different
except that both changed direction," he said.

Improvement in the world economy has brought the risk appetite back amongst retail
investors and this has drenched the liquidity from safe havens such as gold leading to its
under-performance, an expert said.

In 2012, the Sensex had gained over 25 per cent, which was nearly double the gain of
about 12.95 per cent in gold. The appreciation in silver was at about 12.84 per last year.

According to Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio, "Markets have
particularly shown great strength post July-August 2013 when RBI took some strong
measures to control the steeply depreciating rupee."

21
"When the US Fed gave indications that it might taper its stimulus programme given the
economy shows improvement, a knee-jerk correction was seen in most risky assets,
including stocks in Indian markets. However, assurance by the Fed about planned and
staggered tapering in stimulus once again proved to be a catalyst for the markets."

"External factors affecting Indian stocks seem to be negative for the first half of 2014 due
to continued strength of the US dollar and benign in the second half. By that time,
elections too would have taken place. A combination of domestic and international factors
point to a bumper closing of Indian markets in 2014 with double-digit percentage growth,"
he said.

Stock market segment mid-cap and small-cap indices have fallen by about 10 per cent and
16 per cent, respectively, in 2013.

Foreign Institutional Investors have bought shares worth over Rs 1.1 lakh crore (nearly
USD 20 billion) till December 19. In 2012, they had pumped in Rs 1.28 lakh crore (USD
24.37 billion).

Evolution
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meager and obscure. The
East India Company was the dominant institution in those days and business in its loan
securities used to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place
in Bombay. Though the trading list was broader in 1839, there were only half a dozen
brokers recognized by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers increased
into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers
increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a

22
disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850
could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,
found a place in a street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1887, they formally established in
Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known
as " The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same
street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was
consolidated.

Other leading cities in stock market operations

Ahmadabad gained importance next to Bombay with respect to cotton textile industry.
After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As new
mills were floated, the need for a Stock Exchange at Ahmadabad was realized and in 1894
the brokers formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to
Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.
After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares,
which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom
between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock
Exchange Association".

In the beginning of the twentieth century, the industrial revolution was on the way in India
with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel
Company Limited in 1907, an important stage in industrial advancement under Indian
enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies
generally enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in its midst, under the name and style of "The Madras Stock Exchange" with

23
100 members. However, when boom faded, the number of members stood reduced from
100 to 3, by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a
rapid increase in the number of textile mills and many plantation companies were floated.
In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange
Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange
Limited).

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the
Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed by a
slump. But, in 1943, the situation changed radically, when India was fully mobilized as a
supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities,
those dealing in them found in the stock market as the only outlet for their activities. They
were anxious to join the trade and their number was swelled by numerous others. Many
new associations were constituted for the purpose and Stock Exchanges in all parts of the
country were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited
(1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and
the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947,
amalgamated into the Delhi Stock Exchnage Association Limited.

Post-independence Scenario
Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange
was closed during partition of the country and later migrated to Delhi and merged with
Delhi Stock Exchange.

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

24
Most of the other exchanges languished till 1957 when they applied to the Central
Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only
Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well
established exchanges, were recognized under the Act. Some of the members of the other
Associations were required to be admitted by the recognized stock exchanges on a
concessional basis, but acting on the principle of unitary control, all these pseudo stock
exchanges were refused recognition by the Government of India and they thereupon
ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India (mentioned
above). The number virtually remained unchanged, for nearly two decades. During
eighties, however, many stock exchanges were established: Cochin Stock Exchange
(1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune
Stock Exchange Limited (1982), Ludhiana Stock Exchange Association Limited (1983),
Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore,
1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange
Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra
Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at
Baroda, 1990) and recently established exchanges - Coimbatore and Meerut. Thus, at
present, there are totally twenty one recognized stock exchanges in India excluding the
Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange
of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets since
independence. It is quite evident from the Table that Indian stock markets have not only
grown just in number of exchanges, but also in number of listed companies and in capital
of listed companies. The remarkable growth after 1985 can be clearly seen from the Table,
and this was due to the favouring government policies towards security market industry.

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public limited
companies. They are broadly divided into two categories, namely, specified securities
(forward list) and non-specified securities (cash list). Equity shares of dividend paying,
growth-oriented companies with a paid-up capital of atleast Rs.50 million and a market

25
capitalization of atleast Rs.100 million and having more than 20,000 shareholders are,
normally, put in the specified group and the balance in non-specified group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot
delivery transactions "for delivery and payment within the time or on the date stipulated
when entering into the contract which shall not be more than 14 days following the date of
the contract" : and (b) forward transactions "delivery and payment can be extended by
further period of 14 days each so that the overall period does not exceed 90 days from the
date of the contract". The latter is permitted only in the case of specified shares. The
brokers who carry over the outstandings pay carry over charges (cantango or
backwardation) which are usually determined by the rates of interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell securities
for his clients on a commission basis and also can act as a trader or dealer as a principal,
buy and sell securities on his own account and risk, in contrast with the practice prevailing
on New York and London Stock Exchanges, where a member can act as a jobber or a
broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of
face-to-face trading with bids and offers being made by open outcry. However, there is a
great amount of effort to modernize the Indian stock exchanges in the very recent times.

Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock markets gave way to many
functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long
settlement periods and benami transactions, which affected the small investors to a great
extent. To provide improved services to investors, the country's first ringless, scripless,
electronic stock exchange - OTCEI - was created in 1992 by country's premier financial
institutions - Unit Trust of India, Industrial Credit and Investment Corporation of India,
Industrial Development Bank of India, SBI Capital Markets, Industrial Finance
Corporation of India, General Insurance Corporation and its subsidiaries and CanBank
Financial Services.

Trading at OTCEI is done over the centres spread across the country. Securities traded on
the OTCEI are classified into:

26
 • Listed Securities - The shares and debentures of the companies listed on the OTC
can be bought or sold at any OTC counter all over the country and they should not
be listed anywhere else

• Permitted Securities - Certain shares and debentures listed on other exchanges and
units of mutual funds are allowed to be traded

• Initiated debentures - Any equity holding atleast one lakh debentures of a particular
scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is,
certificates of listed securities and initiated debentures are not traded at OTC. The original
certificate will be safely with the custodian. But, a counter receipt is generated out at the
counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange.
The difference is that the delivery and payment procedure will be completed within 14
days.

Compared to the traditional Exchanges, OTC Exchange network has the following
advantages:

• OTCEI has widely dispersed trading mechanism across the country which provides
greater liquidity and lesser risk of intermediary charges.

• Greater transparency and accuracy of prices is obtained due to the screen-based

scripless trading.

• Since the exact price of the transaction is shown on the computer screen, the
investor gets to know the exact price at which s/he is trading.

• Faster settlement and transfer process compared to other exchanges.

• In the case of an OTC issue (new issue), the allotment procedure is completed in a
month and trading commences after a month of the issue closure, whereas it takes a
longer period for the same with respect to other exchanges.

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Thus, with the superior trading mechanism coupled with information transparency
investors are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian
stock market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India, Industrial Finance Corporation of India, all Insurance
Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations - institutions
and corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper,
certificate of deposit, etc.

There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of
themselves and their clients. Participants include trading members and large players like
banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism
which adopts the principle of an order-driven market. Trading members can stay at their
offices and execute the trading, since they are linked through a communication network.
The prices at which the buyer and seller are willing to transact will appear on the screen.

28
When the prices match the transaction will be completed and a confirmation slip will be
printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

• NSE brings an integrated stock market trading network across the nation.

• Investors can trade at the same price from anywhere in the country since inter-
market operations are streamlined coupled with the countrywide access to the
securities.

• Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational efficiency
and informational transparency in the stock market operations, with the support of
total computerized network.

Unless stock markets provide professionalized service, small investors and foreign
investors will not be interested in capital market operations. And capital market being one
of the major source of long-term finance for industrial projects, India cannot afford to
damage the capital market path. In this regard NSE gains vital importance in the Indian
capital market system.

29
 COMPANY PROFILE

MIDEAST INVESTMENTS PRIVATE LIMITED

Mideast investments Private Limited, a member of National Stock Exchange of India,

stands to ensemble the province of trading in shares through its vibrant environment
created among various professionals working to strive the need of its clients. Incepted in
the year 1996, since inception the company has been at the foray of creating high end
values, and enumerated its services for each and every category of client it handles.

Promoted basically by business conglomerates from different facets of business families,

and promoters having a clear vision of the corporate culture have been a czar, to the
financial industry. With every promoter being professionally qualified and well
experienced in the field of finance, the company is at a store of making high regards in the
field of finance and stock broking services.

Ensembles the direct approach to its clients in any kind of query, service and operational
activity, the staff working around to provide such services are highly qualified
professionals with dignity towards end clients for the sake of providing services and
enlisted by the management of the organization. The company has well qualified staff to
cater all kinds of different needs of its clients.

Having various categories of clients viz., Individuals, High Networth Individuals,

Corporate Entities, Domestic Financial Institution and etc., the company grosses up to
make a unique blend of services to offer to each and every category of client it serves.
Apart from broking services, advisory services relating to trading in shares are exclusively
being managed by industry experts working as full timers to proved enriched services.

With its huge database of more than 2000 individual clients, 50 plus corporate entities and
around 130 High Net worth Individuals, the company is making efficient efforts to add
more client base to its present operations. With a broad view, the company is making
exponential efforts to provide vast amount of services across the nation through PAN india
presence, “ an initiative for the current fiscal”,

Since inception turnovers ranging from 650 crores have sky marked to 900 crores till the
financial year 2014-2015, during the year the company has started operations relating to
Training, Research and Development keeping emphasis exclusively in development of
30
financial sector, as the need of present hour is to generate human skill in the arena of
finance.

With vibrant services, the company has been on a verge of taking a pride in introducing
“SHARIAH Based Trading” through its terminals being connected to NSE of India
Limited., with latest technology in use, Mideast stands to its spa of services presently
being offered. On introduction of these specialized services, the company has added
extensive amount of MUSLIM client base appropriating nearly 80% out of the total 2000
individual client data base.

On sprawling view, with use-age of latest technology for various purposes viz., Trading,
Charting and etc., the company is always ahead of the competitive edge and promises to
deliver the catastrophic mode of investment and returns to be generated for all categories
of clients.

It has been an enduring experience working with MIDEAST INVESTMENTS PVT LTD,
during the course of internship and the amount of knowledge being shared together is
enormous in the field of finance.

OVERVIEW:

MIDEAST INVESTMENTS has significant volumes in the segment of Equity at National

Stock exchanges aggregating Rs. 750 Cr per annum. The advantages of the company
having more than 200 ready customers base that will help us in reach out to the people
with trust they have in us over a decade. The company understands customer need very
well as already enjoying highest customer satisfaction in services which is the key area.

STOCK BROKERAGE:

The company’s managers have over 10000 man-hours of ringside broking experience,
which is being utilized to hilt by fully computerized VAST access at its Hyderabad Office.
MIDEAST INVESTMENTS Pvt. Ltd. is a corporate member of the National Stock
Exchange of India Limited, which is India’s largest exchange transacting over US $68
billion (Rs 2,38,000 Cr) annually.

31
EQUITY RESEARCH:

Based on fundamental and technical strengths of Indian Corporations and the market
environment MIDEAST provides consultancy for investments. A MIDEAST assists
individual to maximize their earning’s through stock market investment and Mutual Fund
as other financial instruments. Scientifically through their portfolio management services.

NRI PLACEMENT AND RELATED SERVICES:

The analysis of opportunities for NRI’s the primary and secondary market is a focus area
of MIDEAST Investments with the boom in the stock market, evaluation of companies to
invest becomes critical particular for NRI’s for trading in these markets. Hence MIDEAST
provides the service

VISION

"To become a globally renowned organization that provides state of the art trading
solutions and infrastructure and to grow with latest technology and services, by delivering
the best solutions by best-in-class people."

MISSION

"To achieve our objectives in an environment of fairness, honesty, and courtesy towards
our clients, employees, vendors and society at large."

ACCEPTANCE OF TERMS AND CONDITIONS

BROKER NORMS The following should be read carefully and accepted prior to
becoming a Constituent for online trading i.e. for trading availing the facilities and/or any
information, or any part thereof, as the case may be, as may be made available from time
to time on the Web-Site and/or entering into any securities dealings through the Contact
India whether by use of any of the facilities available on the Web-Site, or by any other
means whatsoever. Please read the following, which contains important information
concerning use of the Web Site. The use of the Web Site is conditional upon and subject
to, acceptance of and compliance with, the Terms. And whereas for offline the Constituent
can avail the facilities subject to acceptance of and compliance with the terms contained
herein.

32
End User shall be responsible for obtaining and maintaining all telephone, computer
hardware and other equipment needed for access to and use of this Site and all charges
related thereto. MIDEAST INVESTMENTS PVT LTD. Shall not be liable for any
damages to the End User's equipment resulting from the use of this Site.

ACHIEVEMENT

Middle East Investment Company has grown to become a leading Saudi boutique
investment house. An achievement resulting from unwavering commitment to Saudi
Arabia, the professionalism of the Group’s employees, a keen sense of social responsibility
with a strong awareness of its operating environment and the exceptional vision and close
adherence to basic values.

We developed state-of-the-art investment platforms to cope with the challenges facing

business in today’s global environment. Our real estate portfolios focus on investing in real
estate and land development projects that provide the opportunity to create and capture
value. The Company professionally managed investment stakes consist of local and
international diversified portfolios of securities, REITs and Hedge Funds. MIC has
controlling stakes of private equity investments in EMEA, spanning 14 companies in 7
verticals actively operating in 14 countries.

To ensure sustainable growth strategic alliances are being sought with like minded
multinational co-operation.

AWARDS

The Seif Social Entrepreneurship Award 2016 consists of four cash rewards of each
10,000 CHF. The four cash awards are devoted to different priorities as to reflect the
multifaceted character of social entrepreneurship.

OPPORTUNITIES

Online Trading

Mideast gives you the access to tools that institutions and professionals use for trading in
Capital Markets. We provide an Online Trading platform that enables NRI’s to transact
paperless trading in Equity and Derivatives segments....

33
Offline Trading

Mideast also offers Offline Trading facility to NRIs wherein the orders can be placed
through telephone, Email, Chat or Fax communication.

Mutual Fund Investment

NRIs can invest through Mideast in all the leading funds without going through the hassle
of any paperwork. Mideast’s Mutual Fund Desk provides its clients with the latest updates
on the top Funds, NAV's, New Fund Offers. We also provide performance report of
various funds to ensure smart investments are made in Mutual Fund segment.

Investment in IPO

Paperless investment can be done by NRIs through Mideast in the Primary Market vide
Initial Public Offering (IPO). Details of current IPO's & forthcoming IPO's, Performance
of Past IPO's, basis of allotment, etc are provided by us to enable clients make hassle free
IPO investments

Dematerialisation of shares bought in Primary Market

We assist the NRI clients in converting the physical share certificates to electronic form
(Demat form). The Holder of the shares has to just open a NRI Account and submit the
Demat Request along with the certificates, Mideast’s efficient and customer friendly NRI
Desk takes care of all the other formalities.

Insurance Services

There are about ten private sector Joint Insurance companies like Max India, Birla Sunlife,
Om Kotak, HDFC, Etc. However ICICI Prudential is No. 1 among all of them.

You will be surprised that all the policy structure like terms, premium amount, bonus,
redemption, claim settlements, riders, etc. are designed by Britishers to suit Indian
conditions. Infact, prior to nationalizations of Insurance Companies and making LIC,
Prudential was very active in Indian Market.

34
Real Estate Services

Mideast Properties Pvt. Ltd. is a Real Estate marketing company promoted by Mideast
Group. The company has organised Internet based Property Investment services especially
for NRIs. The main object of the company is to provide.... Click here for more details

BOARD OF DIRECTORS

1. Robert Devereux – Chairman

2. Julian Ozanne - Executive Director & CEO
3. Jonathan R Aisbitt - Director
4. Avril Stassen – Director
5. Sajjad Sabur – Director
6. Quentin Scorgie – Chief Financial Officer
7. Yogesh Asher - Sr Finance Manager

35
 CHAPTER – IV

THEORETICAL FRAMEWORK
 THEORETICAL FRAMEWORK

An investor is someone who allocates capital with the expectation of a financial return.
The types of investments include, equity, debt securities, real estate, currency, commodity,
derivatives such as put and call options, etc. This definition makes no distinction between
those in the primary and secondary markets. That is, someone who provides a business
with capital and someone who buys a stock are both investors. Since those in the
secondary market are considered investors, speculators are also investors. According to
this definition there is no difference.

INVESTING

The act of committing money or capital to an endeavor with the expectation of obtaining
an additional income or profit.

It's actually pretty simple: investing means putting your money to work for you.
Essentially, it's a different way to think about how to make money. Growing up, most of us
were taught that you can earn an income only by getting a job and working. And that's
exactly what most of us do. There's one big problem with this: if you want more money,
you have to work more hours. However, there is a limit to how many hours a day we can
work, not to mention the fact that having a bunch of money is no fun if we don't have the
leisure time to enjoy it.

You can't create a duplicate of yourself to increase your working time, so instead, you
need to send an extension of yourself - your money - to work. That way, while you are
putting in hours for your employer, or even mowing your lawn, sleeping, reading the paper
or socializing with friends, you can also be earning money elsewhere. Quite simply,
making your money work for you maximizes your earning potential whether or not you
receive a raise, decide to work overtime or look for a higher-paying job.

There are many different ways you can go about making an investment. This includes
putting money into stocks, bonds, mutual funds, or real estate (among many other things),
or starting your own business. Sometimes people refer to these options as "investment
vehicles," which is just another way of saying "a way to invest." Each of these vehicles has
positives and negatives, which we'll discuss in a later section of this tutorial. The point is
that it doesn't matter which method you choose for investing your money, the goal is

36
always to put your money to work so it earns you an additional profit. Even though this is
a simple idea, it's the most important concept for you to understand.

WHAT INVESTING IS NOT

Investing is not gambling. Gambling is putting money at risk by betting on an uncertain

outcome with the hope that you might win money. Part of the confusion between investing
and gambling, however, may come from the way some people use investment vehicles.
For example, it could be argued that buying a stock based on a "hot tip" you heard at the
water cooler is essentially the same as placing a bet at a casino.

True investing doesn't happen without some action on your part. A "real" investor does not
simply throw his or her money at any random investment; he or she performs thorough
analysis and commits capital only when there is a reasonable expectation of profit. Yes,
there still is risk, and there are no guarantees, but investing is more than simply hoping
Lady Luck is on your side.

WHY BOTHER INVESTING?

Obviously, everybody wants more money. It's pretty easy to understand that people invest
because they want to increase their personal freedom, sense of security and ability to
afford the things they want in life.

However, investing is becoming more of a necessity. The days when everyone worked the
same job for 30 years and then retired to a nice fat pension are gone. For average people,
investing is not so much a helpful tool as the only way they can retire and maintain their
present lifestyle.

TYPES OF INVESTMENTS

There are many ways to invest money. Of course, to decide which investment vehicles are
suitable for one needs to know their characteristics and why they may be suitable for a
particular investing objective.

BONDS
Grouped under the general category called fixed-income securities, the term bond is
commonly used to refer to any securities that are founded on debt. When you purchase a

37
bond, you are lending out your money to a company or government. In return, they agree
to give you interest on your money and eventually pay you back the amount you lent out.

The main attraction of bonds is their relative safety. If you are buying bonds from a stable
government, your investment is virtually guaranteed, or risk-free. The safety and stability,
however, come at a cost. Because there is little risk, there is little potential return. As a
result, the rate of return on bonds is generally lower than other securities. (The Bond
Basics tutorial will give you more insight into these securities.)

STOCKS
When you purchase stocks, or equities, as your advisor might put it, you become a part
owner of the business. This entitles you to vote at the shareholders' meeting and allows
you to receive any profits that the company allocates to its owners. These profits are
referred to as dividends.

While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate
in value on a daily basis. When you buy a stock, you aren't guaranteed anything. Many
stocks don't even pay dividends, in which case, the only way that you can make money is
if the stock increases in value - which might not happen.

Compared to bonds, stocks provide relatively high potential returns. Of course, there is a
price for this potential: you must assume the risk of losing some or all of your investment.

MUTUAL FUNDS

A mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are
pooling your money with a number of other investors, which enables you (as part of a
group) to pay a professional manager to select specific securities for you. Mutual funds are
all set up with a specific strategy in mind, and their distinct focus can be nearly
anything: large stocks, small stocks, bonds from governments, bonds from companies,
stocks and bonds, stocks in certain industries, stocks in certain countries, etc.

The primary advantage of a mutual fund is that you can invest your money without the
time or the experience that are often needed to choose a sound investment. Theoretically,
you should get a better return by giving your money to a professional than you would if

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you were to choose investments yourself. In reality, there are some aspects about mutual
funds that you should be aware of before choosing them, but we won't discuss them here.

DEFINITION OF 'FINANCIAL INSTRUMENT'

A real or virtual document representing a legal agreement involving some sort of monetary
value. In today's financial marketplace, financial instruments can be classified generally as
equity based, representing ownership of the asset, or debt based, representing a loan made
by an investor to the owner of the asset. Foreign exchange instruments comprise a third,
unique type of instrument. Different subcategories of each instrument type exist, such as
preferred share equity and common share equity, for example.

Financial instruments can be thought of as easily tradable packages of capital, each having
their own unique characteristics and structure. The wide array of financial instruments in
today's marketplace allows for the efficient flow of capital amongst the world's investors.

FINANCIAL INSTRUMENTS IN INDIA

They can be broadly classified into Government securities and Industrial securities.

The Government securities are fixed income securities backed by the government and
there is no risk of default. The Major Instruments that fall under Industrial
Securities are Debentures, Preference Shares and Equity Shares. In other words, the
industrial securities are about the stock market and mutual funds.

GOVERNMENT SECURITIES (G-SEC):

In India G- Secs are issued by the Central Government, State Governments and Semi
Government Authorities such as municipalities, port trusts, state electricity boards and
public sector corporations. The Central and State Governments raise money through these
securities to finance the creation of new infrastructure as well as to meet their current cash
needs. Since these are issued by the government, the risk of default is minimal. Therefore,
interest rates on these securities often serve as a benchmark for the level of interest rates in
the economy. Other issuers may price their offerings by `marking up’ this benchmark rate
to reflect the credit risk specific to them.

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These securities may have maturities ranging from five to twenty years. These are fixed
income securities, which pay interest every six months. The Reserve Bank of India
manages the issues of the securities. These securities are sold in the primary market mainly
through the auction mechanism. The RBI notifies issue of a new tranche of securities.
Prospective buyers submit their bids. The RBI decides to accept bids based on a cut off
price.

The G -secs are primarily bought by the institutional investors. The biggest investors are
commercial banks who invest in G-secs to meet the regulatory requirement to maintain a
certain percentage of Statutory Liquidity Ratio (SLR) as well as an investment vehicle.
Insurance companies, provident funds, and mutual funds are the other large investors. The
Primary Dealers perform the function of market makers through buying and selling
activities.

The Government of India also borrows short term funds for up to one year. This is
through the issue of Treasury Bills which are sold at a discount to the face value and
redeemed at the full face value.

INDUSTRIAL SECURITIES:

These are securities issued by the corporate sector to finance their long term and working
capital requirements.

The Major Instruments that fall under Industrial Securities are

• Debentures,
• Preference Shares
• Equity Shares.

DEBENTURES

Debentures have a fixed maturity and pay a fixed or a floating rate of interest during their
lifetime. The company has an obligation to pay interest and the principal amount on the
due dates regardless of its profitability position. The debenture holders are not members of
the company and do not have any say in the management of the company. Since these
carry a predefined rate of return, there is no scope for any major capital
appreciation. However, in case of fixed rate debentures, their market price moves

40
inversely with the direction of interest rates. The debenture issues are rated by the
professional credit rating agencies regarding the payment of interest and the repayment of
the capital amount. Apart from the `plain vanilla’ variety of debentures (periodic payment
of interest during their currency and repayment of capital on maturity), a number of
variations have been devised. For example, zero coupon bonds are issued at a discount to
their face value and redeemed at the full face value. The difference constitutes return for
the investor.

PREFERENCE SHARES

Preference Shares carry a fixed rate of dividends. These carry a preferential right to
dividends over the equity shareholders. This means that equity share holders cannot be
paid any dividends unless the preference dividend has been paid in full. Similarly on the
winding up of the company, the preference share holders get back their capital before
the equity share holders. In case of cumulative preference shares, any dividend unpaid in
past years accumulates and is paid later when the company has sufficient profits. Now all
preference shares in India are `redeemable’, i.e. they have a fixed maturity period. Thus,
preference shares are sometimes called a `hybrid variety’ – incorporating features of debt
as well as equity.

EQUITY SHARES

Equity Shares are regarded as high return high risk instruments. These do not carry any
fixed rate of return and there is no maturity period. The company may or may not declare
dividend on equity shares. Equity shares of major companies are traded on the stock
exchanges. The major component of return to equity holders usually consists of market
appreciation.

CALL MONEY MARKET:

The loans made in this market are of a short term nature – overnight to a fortnight . This is
mostly inter-bank market. Those banks which are facing a short term cash deficit,
borrow funds from the cash surplus banks. The rate of interest is market driven and
depends on the liquidity position in the banking system.

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COMMERCIAL PAPER (CP) AND CERTIFICATE OF DEPOSITS (CD) :

CPs are issued by the corporate to finance their working capital needs. These are issued
for short term maturities. These are issued at a discount and redeemed at face
value. These are unsecured and therefore only those companies who have a good credit
standing are able to access funds through this instrument. The rate of interest is market
driven and depends on the current liquidity position and the creditworthiness of the issuing
company. The characteristics of CDs are similar to those of CPs except that CDs are issued
by the commercial banks.

FINANCIAL INSTRUMENTS

Equities: Equities are a type of security that represents the ownership in a company.
Equities are traded (bought and sold) in stock markets. Alternatively, they can be
purchased via the Initial Public Offering (IPO) route, i.e. directly from the company.
Investing in equities is a good long-term investment option as the returns on equities over a
long time horizon are generally higher than most other investment avenues. However,
along with the possibility of greater returns comes greater risk.

Mutual funds: A mutual fund allows a group of people to pool their money together and
have it professionally managed, in keeping with a predetermined investment objective.
This investment avenue is popular because of its cost-efficiency, risk-diversification,
professional management and sound regulation. You can invest as little as Rs. 1,000 per
month in a mutual fund. There are various general and thematic mutual funds to choose
from and the risk and return possibilities vary accordingly.

Bonds: Bonds are fixed income instruments which are issued for the purpose of raising
capital. Both private entities, such as companies, financial institutions, and the central or
state government and other government institutions use this instrument as a means of
garnering funds. Bonds issued by the Government carry the lowest level of risk but could
deliver fair returns.

Deposits: Investing in bank or post-office deposits is a very common way of securing

surplus funds. These instruments are at the low end of the risk-return spectrum.

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Cash equivalents: These are relatively safe and highly liquid investment options.
Treasury bills and money market funds are cash equivalents.

NON-FINANCIAL INSTRUMENTS

Real estate: With the ever-increasing cost of land, real estate has come up as a profitable
investment proposition.

Gold:The 'yellow metal' is a preferred investment option, particularly when markets are
volatile. Today, beyond physical gold, a number of products which derive their value from
the price of gold are available for investment. These include gold futures and gold
exchange traded funds.

EQUITIES

Definition of Equity by Investopedia

1. A stock or any other security representing an ownership interest.

2. On a company's balance sheet, the amount of the funds contributed by the owners
(the stockholders) plus the retained earnings (or losses). Also referred to as
"shareholders' equity".

3. In the context of margin trading, the value of securities in a margin account minus
what has been borrowed from the brokerage.

4. In the context of real estate, the difference between the current market value of the
property and the amount the owner still owes on the mortgage. It is the amount that
the owner would receive after selling a property and paying off the mortgage.

5. In terms of investment strategies, equity (stocks) is one of the principal asset

classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These
are used in asset allocation planning to structure a desired risk and return profile for
an investor's portfolio.

The term's meaning depends very much on the context. In finance, in general, you can
think of equity as ownership in any asset after all debts associated with that asset are paid
off. For example, a car or house with no outstanding debt is considered the owner's

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equity because he or she can readily sell the item for cash. Stocks are equity because they
represent ownership in a company. In short, Equity is an instrument that signifies
an ownership position, or equity, in a corporation, and represents a claim on its
proportionate share in the corporation's assets and profits. A person holding such an
ownership in the company does not enjoy the highest claim on the company's earnings.
Instead, an equity holder's claim is subordinated to creditor's claims, and the
equity holder will only enjoy distributions from earnings after these higher priority claims
are satisfied. Also called equities or equity securities or corporate stock.

Types of Equity: There are a number of types of equity, each with different
characteristics.

Common stock or ordinary shares: Common stock, as it is known in the United States,
or ordinary shares, according to British terminology, is the most important form of equity
investment. An owner of common stock is part owner of the enterprise and is entitled to
vote on certain important matters, including the selection of directors. Common stock
holders benefit most from improvement in the firm's business prospects. But they have a
claim on the firm's income and assets only after all creditors and all preferred stock holders
receive payment. Some firms have more than one class of common stock, in which case
the stock of one class may be entitled to greater voting rights, or to larger dividends, than
stock of another class. This is often the case with family owned firms which sell stock to
the public in a way that enables the family to maintain control through its ownership of
stock with superior voting rights.

Preferred stock: Also called preference shares, preferred stock is more akin to bonds than
to common stock. Like bonds, preferred stock offers specified payments on specified
dates. Preferred stock appeals to issuers because the dividend remains constant for as long
as the stock is outstanding, which may be in perpetuity. Some investors favour preferred
stock over bonds because the periodic payments are formally considered dividends rather
than interest payments, and may therefore offer tax advantages. The issuer is obliged to
pay dividends to preferred stock holders before paying dividends to common shareholders.
if the preferred stock is cumulative, unpaid dividends may accrue until preferred stock
holders have received full payment. In the case of non cumulative preferred stock,
preferred stock holders may be able to impose significant restrictions on the firm in the
event of a missed dividend.

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CONVERTIBLE PREFERRED STOCK

This may be converted into common stock under certain conditions, usually at a
predetermined price or within a predetermined time period. Conversion is always at the
owner's option and cannot be required by the issuer. Convertible preferred stock is similar
to convertible bonds.

Warrants: Warrants offer the holder the opportunity to purchase a firm's common stock
during a specified time period in future, at a predetermined price, known as the exercise
price or strike price. The tangible value of a warrant is the market price of the stock less
the strike price. If the tangible value when the warrants are exercisable is zero or less the
warrants have no value, as the stock can be acquired more cheaply in the open market. A
firm may sell warrants directly, but more often they are incorporated into other securities,
such as preferred stock or bonds. Warrants are created and sold by the firm that issues the
underlying stock. In a rights offering, warrants are allotted to existing stock holders in
proportion to their current holdings. If all shareholders subscribe to the offering the firm's
total capital will increase, but each stock holder's proportionate ownership will not change.
The stock holder is free not to subscribe to the offering or to pass the rights to others. In
the UK a stock holder chooses not to subscribe by filing a letter of renunciation with the
issuer.

MUTUAL FUNDS

Investment Options: Mutual Funds stand out: Savings form an important part of the
economy of any nation. With the savings invested in various options available to the
people, the money acts as the driver for growth of the country. Indian financial scene too
presents a plethora of avenues to the investors. Though certainly not the best or deepest of
markets in the world, it has reasonable options for an ordinary man to invest his savings.
Let us examine several of them:

Banks: Considered as the safest of all options, banks have been the roots of the financial
systems in India. Promoted as the means to social development, banks in India have indeed
played an important role in the rural upliftment. For an ordinary person though, they have
acted as the safest investment avenue wherein a person deposits money and earns interest
on it. The two main modes of investment in banks, savings accounts and fixed deposits
have been effectively used by one and all. However, today the interest rate structure in the

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country is headed southwards, keeping in line with global trends. With the banks offering
little above 9 percent in their fixed deposits for one year, the yields have come down
substantially in recent times. Add to this, the inflationary pressures in economy and you
have a position where the savings are not earning. The inflation is creeping up, to almost 8
percent at times, and this means that the value of money saved goes down instead of going
up. This effectively mars any chance of gaining from the investments in banks.

Post Office schemes: Just like banks, post offices in India have a wide network. Spread
across the nation, they offer financial assistance as well as serving the basic requirements
of communication. Among all saving options, Post office schemes have been offering the
highest rates. Added to it is the fact that the investments are safe with the department being
a Government of India entity. So the two basic and most sought for features, those of
return safety and quantum of returns were being handsomely taken care of. Though
certainly not the most efficient systems in terms of service standards and liquidity, these
have still managed to attract the attention of small, retail investors. However, with the
government announcing its intention of reducing the interest rates in small savings options,
this avenue is expected to lose some of the investors. Public Provident Funds act as options
to save for the post retirement period for most people and have been considered good
option largely due to the fact that returns were higher than most other options and also
helped people gain from tax benefits under various sections. This option too is likely to
lose some of its sheen on account of reduction in the rates offered.

Company Fixed Deposits: Another oft-used route to invest has been the fixed deposit
schemes floated by companies. Companies have used fixed deposit schemes as a means of
mobilizing funds for their operations and have paid interest on them. The safer a company
is rated, the lesser the return offered has been the thumb rule. However, there are several
potential roadblocks in these. First of all, the danger of financial position of the company
not being understood by the investor lurks. The investors rely on intermediaries who more
often than not, don�t reveal the entire truth. Secondly, liquidity is a major problem with
the amount being received months after the due dates. Premature redemption is generally
not entertained without cuts in the returns offered and though they present a reasonable
option to counter interest rate risk (especially when the economy is headed for a low
interest regime), the safety of principal amount has been found lacking. Many cases like
the Kuber Group and DCM Group fiascoes have resulted in low confidence in this option.

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The options discussed above are essentially for the risk-averse, people who think of safety
and then quantum of return, in that order. For the brave, it is dabbling in the stock market.
Stock markets provide an option to invest in a high risk, high return game. While the
potential return is much more than 11-12 percent any of the options discussed above can
generally generate, the risk is undoubtedly of the highest order. But then, the general
principle of encountering greater risks and uncertainty when one seeks higher returns holds
true. However, as enticing as it might appear, people generally are clueless as to how the
stock market functions and in the process can endanger the hard-earned money.

For those who are not adept at understanding the stock market, the task of generating
superior returns at similar levels of risk is arduous to say the least. This is where Mutual
Funds come into picture.

Mutual Funds are essentially investment vehicles where people with similar investment
objective come together to pool their money and then invest accordingly. Each unit of any
scheme represents the proportion of pool owned by the unit holder (investor). Appreciation
or reduction in value of investments is reflected in net asset value (NAV) of the concerned
scheme, which is declared by the fund from time to time. Mutual fund schemes are
managed by respective Asset Management Companies (AMC). Different business groups/
financial institutions/ banks have sponsored these AMCs, either alone or in collaboration
with reputed international firms. Several international funds like Alliance and Templeton
are also operating independently in India. Many more international Mutual Fund giants are
expected to come into Indian markets in the near future.

The benefits on offer are many with good post-tax returns and reasonable safety being the
hallmark that we normally associate with them. Some of the other major benefits of
investing in them are:

Number of available options: Mutual funds invest according to the underlying

investment objective as specified at the time of launching a scheme. So, we have equity
funds, debt funds, gilt funds and many others that cater to the different needs of the
investor. The availability of these options makes them a good option. While equity funds
can be as risky as the stock markets themselves, debt funds offer the kind of security that is
aimed for at the time of making investments. Money market funds offer the liquidity that is
desired by big investors who wish to park surplus funds for very short-term periods.

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Balance Funds acter to the investors having an appetite for risk greater than the debt funds
but less than the equity funds. The only pertinent factor here is that the fund has to be
selected keeping the risk profile of the investor in mind because the products listed above
have different risks associated with them. So, while equity funds are a good bet for a long
term, they may not find favour with corporates or High Networth Individuals (HNIs) who
have short-term needs.

Diversification:Investments are spread across a wide cross-section of industries and

sectors and so the risk is reduced. Diversification reduces the risk because all stocks
don�t move in the same direction at the same time. One can achieve this diversification
through a Mutual Fund with far less money than one can on his own.

Professional Management: Mutual Funds employ the services of skilled professionals

who have years of experience to back them up. They use intensive research techniques to
analyze each investment option for the potential of returns along with their risk levels to
come up with the figures for performance that determine the suitability of any potential
investment.

Potential of Returns: Returns in the mutual funds are generally better than any other
option in any other avenue over a reasonable period of time. People can pick their
investment horizon and stay put in the chosen fund for the duration. Equity funds can
outperform most other investments over long periods by placing long-term calls on
fundamentally good stocks. The debt funds too will outperform other options such as
banks. Though they are affected by the interest rate risk in general, the returns generated
are more as they pick securities with different duration that have different yields and so are
able to increase the overall returns from the portfolio.

Liquidity: Fixed deposits with companies or in banks are usually not withdrawn
premature because there is a penal clause attached to it. The investors can withdraw or
redeem money at the Net Asset Value related prices in the open-end schemes. In closed-
end schemes, the units can be transacted at the prevailing market price on a stock
exchange. Mutual funds also provide the facility of direct repurchase at NAV related
prices. The market prices of these schemes are dependent on the NAVs of funds and may
trade at more than NAV (known as Premium) or less than NAV (known as Discount)
depending on the expected future trend of NAV which in turn is linked to general market

48
conditions. Bullish market may result in schemes trading at Premium while in bearish
markets the funds usually trade at Discount. This means that the money can be withdrawn
anytime, without much reduction in yield. Some mutual funds however, charge exit loads
for withdrawal within a period linked to

Besides these important features, mutual funds also offer several other key traits.
Important among them are:

Well Regulated: Unlike the company fixed deposits, where there is little control with the
investment being considered as unsecured debt from the legal point of view, the Mutual
Fund industry is very well regulated. All investments have to be accounted for, decisions
judiciously taken. SEBI acts as a true watchdog in this case and can impose penalties on
the AMCs at fault. The regulations, designed to protect the investors� interests are also
implemented effectively.

Transparency: Being under a regulatory framework, mutual funds have to disclose their
holdings, investment pattern and all the information that can be considered as material,
before all investors. This means that the investment strategy, outlooks of the market and
scheme related details are disclosed with reasonable frequency to ensure that transparency
exists in the system. This is unlike any other investment option in India where the investor
knows nothing as nothing is disclosed.

Flexible, Affordable and a Low Cost affair: Mutual Funds offer a relatively less
expensive way to invest when compared to other avenues such as capital market
operations. The fee in terms of brokerages, custodial fees and other management fees are
substantially lower than other options and are directly linked to the performance of the
scheme. Investment in mutual funds also offers a lot of flexibility with features such as
regular investment plans, regular withdrawal plans and dividend reinvestment plans
enabling systematic investment or withdrawal of funds. Even the investors, who could
otherwise not enter stock markets with low investible funds, can benefit from a portfolio
comprising of high-priced stocks because they are purchased from pooled funds.

As has been discussed, mutual funds offer several benefits that are unmatched by other
investment options. Post liberalization, the industry has been growing at a rapid pace and
has crossed Rs. 110000 crore size in terms of its assets under management. However, due
to the low key investor awareness, the inflow under the industry is yet to overtake the

49
inflows in banks. Rising inflation, falling interest rates and a volatile equity market make a
deadly cocktail for the investor for whom mutual funds offer a route out of the impasse.
The investments in mutual funds are not without risks because the same forces such as
regulatory frameworks, government policies, interest rate structures, performance of
companies etc. that rattle the equity and debt markets, act on mutual funds too. But it is the
skill of the managing risks that investment managers seek to implement in order to strive
and generate superior returns than otherwise possible that makes them a better option than
many others.

INSURANCE

Definition: A contract (policy) in which an individual or entity receives financial

protection or reimbursement against losses from an insurance company. The company
pools clients' risks to make payments more affordable for the insured.

When shopping around for an insurance policy, look for the best priced package that is
right for you - prices can vary from one insurance company to the next. And make sure
you know what you want. Some individuals, for example, prefer 24-hour claims service or
face-to-face contact with an insurance representative. Also consider the claims settlement
process, the amount of the deductible and the extent of the replacement coverage.
Insurance companies and the policies they offer are not all the same, so think about more
than just the price.

Insurance is a contract between two parties whereby one party agrees to undertake the risk
of another in exchange for consideration known as premium and promises to pay a fixed
sum of money to the other party on happening of an uncertain event (death) or after the
expiry of a certain period in case of life insurance or to indemnify the other party on
happening of an uncertain event in case of general insurance.

The party bearing the risk is known as the 'insurer' or 'assurer' and the party whose risk is
covered is known as the 'insured' or 'assured'.

Insurance provides financial protection against a loss arising out of happening of an

uncertain event. A person can avail this protection by paying premium to an insurance
company.

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A pool is created through contributions made by persons seeking to protect themselves
from common risk. Premium is collected by insurance companies which also act as trustee
to the pool. Any loss to the insured in case of happening of an uncertain event is paid out
of this pool.

Insurance works on the basic principle of risk-sharing. A great advantage of insurance is

that it spreads the risk of a few people over a large group of people exposed to risk of
similar type.

CONCEPT OF INSURANCE / HOW INSURANCE WORKS

The concept behind insurance is that a group of people exposed to similar risk come
together and make contributions towards formation of a pool of funds. In case a person
actually suffers a loss on account of such risk, he is compensated out of the same pool of
funds. Contribution to the pool is made by a group of people sharing common risks and
collected by the insurance companies in the form of premiums.

Effect of Insurance: Risk of 5 house owners is spread over 1100 house owners in the
village, thus reducing the burden on any one of the owners.

Why should one buy Insurance?

All assets have some economic value attached to them. No person can deny that there is
also a possibility that these assets may get damaged/destroyed or become non-operational
due to risks like breakdowns, fire, floods, earthquake etc. Different assets are exposed to
different types of risks like a car has a risk of theft or meeting an accident, a house is
exposed to risk of catching fire, a human is exposed to risk of death/accident. Insurance is
needed because of following reasons:

SOCIAL SECURITY TOOL

Insurance acts as an important tool providing a sense of security to the society on a whole.
It is the right of every human-being to have basic amenities like food, clothing, housing,
medical care, standard of living necessary for his personal and family's well being, and
right to security in case of unemployment, disability, sickness or any other circumstances
out of his control.

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In case the bread earner of a family dies, the family suffers from direct financial loss as
family's income ceases. As a result, family's economic condition gets affected unless there
are other arrangements to rescue the family from this situation. Life insurance is one
alternate arrangement that offers some respite to the family from financial distress.
Otherwise this family would have been pushed into the lower strata of the society, which
would be an additional cost to the society. This is because subsidies would have to be
given to the family so as to enable it to survive and enjoy the basic rights at par with other
people. Moreover, a poor family is generally seen to have a large family size with family
members being illiterate. This on a whole affects the society and is a cost to the society.
Therefore, insurance compliments the state in social management efforts.

UNCERTAINTY
The basic need of insurance arises as risks are uncertain and unpredictable in nature.
Getting insurance for an asset does not mean that the asset is protected against risks or its
exposure to risk is reduced, but it actually implies that in case the asset suffers any loss in
value due to such risk, the insurance company bears the loss and compensates the insured
by making payment to him.

ECONOMIC DEVELOPMENT

The premium paid by people to the insurance companies is a part of their savings.
Insurance, thus, acts as a useful instrument in promoting savings and investments,
particularly within the lower-income and middle-income families. These savings are
ultimately used as investments fuelling economic growth.

GENERAL PURPOSES OF INSURANCE

Insurance is widely popular and beneficial because of its following general purposes:

• Protection or safety (Term insurances) : These plans are best suited for people aged
upto 35 years as it provides higher protection at low cost. These plans are also
beneficial for a person whose income is low and want to secure their family from
financial default in case of his death.

• Marriage or education of the child (Children plans)

• Speedy growth of money & risk cover (Unit Linked Plans)

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 • Saving and Protection (Endowment type plans)

• Saving, protection & liquidity (Money back plans)

The above purposes apply for life insurance. In case of General insurance the basic
purpose is to protect the insured against financial loss suffered by him or creation of
liability, due to the causes covered by the policy.

DEPOSITS

Bank Deposits: Money placed into a banking institution for safekeeping. Bank deposits
are made to deposit accounts at a banking institution, such as savings accounts, checking
accounts and money market accounts. The account holder has the right to withdraw any
deposited funds, as set forth in the terms and conditions of the account. The "deposit" itself
is a liability owed by the bank to the depositor (the person or entity that made the deposit),
and refers to this liability rather than to the actual funds that are deposited.

When someone opens a bank account and makes a deposit of $500 cash, the account
holder surrenders legal title to the $500 cash. This cash becomes an asset of the bank; the
account becomes a liability. In the United States, the Federal Deposit Insurance
Corporation (FDIC) provides deposit insurance that guarantees the deposits of member
banks up to $250,000 per depositor, per bank. Member banks are required to place signs
visible to the public stating that "deposits are backed by the full faith and credit of the
United States Government."

Saving money is advantageous because it provides people the opportunity to earn interest
while keeping their money safe. Investing money can be risky, but it offers higher returns
than bank savings accounts and can help people build wealth over the long-term.

Savings accounts and other savings vehicles such as certificates of deposit are
advantageous because they provide the account holder with the opportunity to earn interest
on his savings while having little to no risk. While the interest rates are typically low, the
amount earned in interest is incentive for saving. Savings accounts and money market
accounts are designed to provide the account holder with anytime access to his money.
Certificates of deposit, or CDs, impose a penalty if the funds are withdrawn before the

53
expiration date of the certificate, but generally have higher interest rates than savings
accounts.

The benefits of saving money are priceless. It is no secret that conserving money is crucial.
In a time when the value of homes are decreasing and the price of food is rising, saving
money is the only way to weather this economic catastrophy.

A person can start doing this by taking account of every penny they earn. The advantages
of saving money outnumber the disadvantages.

Peace of Mind: When a person saves money continuously, it gives them a "peace of
mind". An individual will sleep better at night knowing they have additional money put
aside. Peace of mind translates into better relationships because if a person can sleep better
at night, they will be more alert and receptive to there spouse, children and friends. Since
most stress originates from financial worry, saving will reduce this type of anxiety. There
will be less tension and irritability. Who wouldn't want that?

More Income: Saving money means an individual will have more it at the end of the year.
This is what saving money does. It allows a person to have more of the money they
earned. Uncle Sam takes enough of it, why not keep more for yourself? A person could
have as much as $5,000 more. Sky is the limit.

Monetary Safety Net: Saving money provides a person with a financial net of safety just
in case they lose their job, become disabled or can no longer work. Life is uncertain, but
money does not have to be. Having an emergency fund that will last a year is perfect.
When a person saves money they actively build this net for emergencies. Things happen,
and what this does is protect a person from suffering economically.

Saving Earns Interest: Allocating money in a certain savings account will allow it to earn
interest. Online banks help money grow at faster rates. For example, if an individual puts
$1,000 in an ING savings account, this money will earn approximately $3.00 a month in
interest. This depends on the market as well. In a year a person can earn $40 in interest
alone if they leave the money in there. It pays to save money. Emigrant pays about 5%
interest so it earns more than ING direct.

54
More Options: When a person decides to save money and make it a lifestyle, a plethora of
choices is available. One could invest or purchase something they want. It is nice to have
some wiggle room.

Now is the time to save money. All one has to do is look on the news and see that times
will only become more difficult before they get better. The only way for anyone to thrive
during this turbulent time is to set aside money for the future. A person must take their
financial destiny into their hands because no one else will.

Institutional Investors: Institutional investors are organizations which pool large sums of
money and invest those sums in securities, real property and other investment assets. They
can also include operating companies which decide to invest their profits to some degree in
these types of assets.

Types of typical investors include banks, insurance companies, retirement or pension

funds, hedge funds, investment advisors and mutual funds. Their role in the economy is to
act as highly specialized investors on behalf of others. For instance, an ordinary person
will have a pension from his employer. The employer gives that person's pension
contributions to a fund. The fund will buy shares in a company, or some other financial
product. Funds are useful because they will hold a broad portfolio of investments in many
companies. This spreads risk, so if one company fails, it will be only a small part of the
whole fund's investment.

Institutional investors will have a lot of influence in the management of corporations

because they will be entitled to exercise the voting rights in a company. They can actively
engage in corporate governance. Furthermore, because institutional investors have the
freedom to buy and sell shares, they can play a large part in which companies stay solvent,
and which go under. Influencing the conduct of listed companies, and providing them with
capital are all part of the job of investment management.

OVERVIEW OF INSTITUTIONAL INVESTORS:

Because of their sophistication, institutional investors may often participate in private

placements of securities, in which certain aspects of the securities laws may be
inapplicable. For example, in the United States, a private placement under Rule 506 of
Regulation D may be made to an "accredited investor" without registering the offering of

55
securities with the U.S. Securities and Exchange Commission. In essence institutional
investor, an accredited investor is defined in the rule as:

▪ a bank, insurance company, registered investment company (generally speaking, a

mutual fund), business development company, or small business investment
company;
▪ an employee benefit plan, within the meaning of the Employee Retirement Income
Security Act, if a bank, insurance company, or registered investment adviser makes
the investment decisions, or if the plan has total assets in excess of $5 million;
▪ a charitable organization, corporation, or partnership with assets exceeding
$5 million;
▪ a director, executive officer, or general partner of the company selling the
securities;
▪ a business in which all the equity owners are accredited investors;
▪ a natural person who has individual net worth, or joint net worth with the person's
spouse, that exceeds $1 million at the time of the purchase;
▪ a natural person with income exceeding $200,000 in each of the two most recent
years or joint income with a spouse exceeding $300,000 for those years and a
reasonable expectation of the same income level in the current year; or
▪ a trust with assets in excess of $5 million, not formed to acquire the securities
offered, whose purchases a sophisticated person makes.

INSTITUTIONAL INVESTORS AS FINANCIAL INTERMEDIARIES

Numerous institutional investors act as intermediaries between lenders and borrowers. As

such, they have a critical importance in the functioning of the financial markets.
Economies of scale imply that they increase returns on investments and diminish the cost
of capital for entrepreneurs. Acting as savings pools, they also play a critical role in
guaranteeing a sufficient diversification of the investors' portfolios. Their greater ability to
monitor corporate behaviour as well to select investors’ profiles implies that they help
diminish agency costs.

56
 CHAPTER-IV
DATA ANALYSIS
&
INTERPRETATION
 PERFORMANCE OF INDIAN STOCK MARKET

Indices: SENSEX For the period : from year 2005 To year 2022

year Open High low close Price/earnin Price/boo Dividen

gs k value d yield

2005 1027.38 19554.81.2 947.14 1908.85 22.30 3.58 1.24

9

2006 1957.33 4546.58 1945.48 2615.37 36.19 6.35 .80

2007 2617.78 3459.07 1980.6 3346.06 31.78 4.81 .98

2008 3436.87 4643.31 3405.88 3926.90 45.45 6.07 .68

2009 3910.16 3943.66 2891.45 3110.49 23.63 3.81 1.13

2010 3114.08 4131.22 2713.12 3085.20 16.07 3.02 1.50

2011 3096.65 4605.41 3096.65 3658.98 14.45 2.80 1.52

2012 3658.34 4322.00 2741.22 3055.41 13.00 2.25 1.80

2013 3064.95 5150.99 3042.25 5005.82 17.35 3.07 1.38

2014 9209.54 6150.69 3491.55 3972.12 24.48 3.81 1.14

2015 3990.65 4462.11 2594.87 3262.33 17.60 2.51 1.83

2016 3262.01 3758.27 2828.48 3377.28 15.22 2.30 2.14

2017 3383.85 5920.76 2904.44 5838.96 15.02 2.49 2.14

2018 5872.48 6617.15 4227.50 6602.69 17.26 3.28 2.01

2019 6626.8 9442.98 6069.33 9397.93 16.21 3.94 1.58

2020 9422.49 14035.30 8799.01 13786.9 20.18 4.75 1.35

1

2021 83827.7 20498.11 12316.1 20286.9 22.25 5.32 1.10

7 0 9

2022 20325.2 21206.77 14677.2 16481.2 22.44 5.71 .98

7 4 0

57
 90000

80000

70000 year
Open
60000
High
50000
low
40000 close
30000 Price/earnings
Price/book value
20000
Dividend yield
10000

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Interpretation:
The above bar diagram explain about the performance of Indian stock market sensex from
2005-22. In the year 2005 the opening is started with 1027.38 and the highest opening
83,827.77 by the year 2021. Remaining years of openings are below the 2021. In the 2nd
high sensex is 2022 with 21206.77 and it was drastically changed from the year 2006 the
perice of book value is in year 6.35 by the yr 2012 and low price in 2.25 and next divided
yield is high in 2.14 and the lowest value is 68 this is about the table and graph.

58
PERFORMANCE OF AUTO SECTOR

Indices: AUTO For the period: From year 2013 to 2021

year Open High Low close

2014 0.00 0.00 0.00 21.12

2015 0.00 0.00 0.00 755.55

2016 0.00 0.00 0.00 1015.62

2017 0.00 0.00 0.00 2533.79

2018 -- 2871.63 0.00 2836.39

2019 2852.05 4299.07 2525.72 4256.45

2020 4251.97 5843.51 3959.66 5518.50

2021 5604.44 5881.83 4435.21 5667.45

2022 5671.41 5796.87 4063.38 4548.08

6000

5000

4000 year
Open
3000 High
Low
2000
close
1000

0
1 2 3 4 5 6 7 8 9

Interpretation:

From the above observed that the performance of auto from the period from 2014 to 2022.
In the year 2014 the opening and high, low values are nill and the close value is 21.12%. It
values were same by the year 2017 but the closing values are different .From the year 2019
to 2020 the values are significantly changes with the opening to closing.

59
PERFORMANCE OF POWER SECTOR

Indices: POWER For the period: From year 2019 to 2022

Year Open High low close Price/earnings Price/book Dividend

value yield

2019 -- 0.00 0.00 1457.91 0.00 0.00 0.00

2020 -- 0.00 0.00 2048.43 0.00 0.00 0.00

2021 4395.76 4729.00 4023.09 4548.85 6.35 1.08 .10

2022 4584.38 4929.34 2896.47 3281.29 34.40 5.90 .73

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

Interpretation:

From the above observed that the performance of power sector closing values are high
from the years 2019 to 2022. About the price value is slightly changed from the year 2019
to 2022 with 34.40, the book value & dividend values are 5.90, .73.

60
FOREIGN INVESTMENT FLOWS IN INDIA:

One of the key distinctions between portfolio and direct investment that has emerged from
this recent era of globalization is that portfolio investment can be much more volatile.

TABLE: Foreign Investment Flows in India

A. Direct Investment B. Portfolio Investment Total (A + B)

Year
(US $ million) (US $ million) (US $ million)

2008-09 97 6 103
2009-10 129 4 133
2010-11 315 244 559
2011-12 586 3567 4153
2012-13 1314 3824 5138
2013-14 2144 2748 4892
2014-15 2821 3312 6133
2015-16 3557 1828 5385
2016-17 2462 61 2523
2017-18 2155 3026 5181
2018-19 4029 2760 6789
2019-20 6131 2021 8152
2020-21 4660 979 5639
2021-22 4675 11377 16052

Of a net inflow of $ 5.3 billion in 2014-15, these inflows were $ 2.4 billion in 2015-16.
This is due to lower portfolio inflows, which reduced net investment. Changes in
investment conditions in a country or region can lead to dramatic fluctuations in portfolio
investment. For an emerging country, in other words for developing countries, the FPI can
bring about rapid development and help an emerging economy quickly seize economic
opportunities and create many new jobs and considerable wealth. However, when the
economic situation of a country experiences a downturn, sometimes only by failing to
meet the expectations of international investors, the large flow of money into a country can
drift into a mass panic.

61
CHART: FOREIGN INVESTMENT FLOWS

18000
16000
14000
12000
10000
8000
6000
4000
2000
0

A. Direct Investment (US $ million) B. Portfolio Investment (US $ million)

Total (A + B) (US $ million)

FOREIGN PORTFOLIO INVESTMENTS TO INDIA

Foreign portfolio investments were approved in India on the basis of the recommendations
of the Narasimham Committee, which stated:

The EESC also proposes to gradually open up capital markets to foreign portfolio
investment and, at the same time, efforts should be made to improve market depth by
facilitating the issuance of new types of stocks and innovative debt securities.
"(Narasimham Committee Report)

Prior to 2007, only foreign investors (NRIs) and foreign corporations (OCBs) were
allowed to make portfolio investments in India. It was not until 14 September 2005 that the
Indian Government issued guidelines for FII investment in India, followed three years later
in November 2009 by a statement by the Indian Stock Exchange (SEBI).

62
TRENDS IN FII INVESTMENT IN INDIA

TABLE: Trends in FII investment

FII FII CUM FII

Year PURCHASE SALES FII NET FII NET NET
US$ US$
in crores in crores in crores million million
2011-12 5593 466 5126 1634 1638
2012-13 7631 2835 4796 1528 3167
2013-14 9694 2752 6942 2036 5202
2014-15 15554 6979 8575 2432 7634
2015-16 18695 12737 5958 1649 9284
2016-17 16115 17699 -1584 -386 8898
2017-18 56856 46734 10122 2339 11237
2018-19 74051 64116 9934 2160 13396
2019-20 49920 41165 8755 1846 15242
2020-21 47060 44371 2689 562 15804
2021-22 144858 99094 45765 9949 25754

INTERPRETTION

The investments of the FII have shown steady growth since the opening of the Indian
capital markets in September 2012. Their investments have always been net positive, but
for 2015-16, when their sales were more than their purchases.

From the above table, it can be seen that the inflows of portfolio investment have always
increased. In 2019-2020 and 2020-21, however, there was a turnaround. After a net inflow
of $ 2.1 billion over the period 2014-15, these inflows dropped to $ 1.8 billion in 2017-18
and to $ 0.562 billion in 2014-15. The decline is due to lower portfolio inflows, which has
reduced net investment during these years. However, this decline was a significant decline
in 2016-17. FIIs have made a net investment of Rs. 45,764 crores this year registered
1602% growth over the previous year, a record in the history of FII investment in India.
Gross purchases this year amounted to Rs.144.857 crores, a growth rate of 208% over the
previous year. This trend continued in April 2018 and was not affected again until May
and June 2015, when the net investment became negative. Fortunately, in July 2017 there
were net positive portfolio flows through FIIs. In September 2017, the net FII portfolio

63
investment was $ 27,637 million. If this is the case, it will not be helpful to increase the FII
investment cap per se. The country must work on specific measures to promote more FII
investment. Analysis of the data indicates that the FIIs have suffered significant losses
over the period 2021-22. The maximum outflow was in the months of May and June 2019
(almost 430 million US dollars).

TABLE: Monthly Trends of FIIs for the Year 2021-22

Purchases
Month Sales (Rs mn) Net (Rs mn) Net (US$ mn)
(Rs mn)
Apr-21 11422 11756 -335 -8.4
May-21 8253 13284 -5031 -124.3
Jun-21 8023 16072 -8049 -190.5
Jul-21 13098 12154 944 22.2
Aug-21 7932 11783 -3851 -90.1
Sep-21 14381 12458 1923 45.2
Oct-21 10737 16470 -5733 -135.4
Nov-21 10391 9845 546 12.9
Dec-21 11089 8789 2300 104.8
Jan-22 16355 11894 4462 104.8
Feb-22 16477 13084 3393 79.8
Mar-22 25207 23973 1233 29

A key factor that led to a steady outflow of funds in mid and late 2022 was the
deterioration in the outlook for emerging markets. The creditworthiness of almost all
Southeast Asian countries was severely damaged by the crises that began in July 2022. As
a result, the FIIs have been exposed to strong pressure from Emerging Markets Funds.
Stock exchanges in all these countries have fallen steadily from March 2022 to about
September 2020. The integration of the Indian capital markets into the international
markets has thus also extended to the Indian markets. However, the net outflow from the
Indian markets was significantly lower than in the other Asian countries. Another
indication of the integration of the Indian markets is the sharp increase in valuations and
inflows in the first quarter of 2022, as well as a rise in the share indices in all other Asian
countries.

The sluggishness in investment in the emerging markets was exacerbated by the fact that
Through out 2021-22, US and European markets showed historically high valuations, and

64
the expectations of further rise because of the strong economic indicators there which led
to reduced allocations elsewhere.

TABLE: CORRELATION OF FII WITH NIFTY

GROSS GROSS NET

MONTH PURCHASES SALES 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 simultaneous stock returns are highly correlated in India. The correlation
coefficients between different measurements of FII flows and market returns on the
Bombay Stock Exchange during different sampling periods are shown in the table above.
While correlations are quite high throughout the sample period, they have increased
significantly since the beginning of the 2021-22 period. The calculations show that there is
a relationship between FIIs and Nifty, as 6 out of 12 months show a positive correlation for
gross purchases and 8 for 12 months a positive correlation for Net FII Investment and
Nifty.

65
TABLE: CORRELATION OF FII WITH SENSEX

GROSS GROSS NET

MONTH
PURCHASES SALES 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 behavior of the foreign portfolio investors in this period corresponded to the behavior
of Sensex. Net FII investment in the Indian capital markets began to fluctuate sharply in
April and turned negative. The net FII investment in the Indian stock market was positive
from May to July. During this period, the investments of Sensex and net FII showed a very
high degree of correlation. For the month of June, a correlation showed as high as 0.60.
The months of September, October, November and December show a declining trend, the
FII plant returned from that day. Overall, there is a relationship between FIIs and Sensex
as 7 out of 12 months show a positive correlation for gross purchases and 8 for 12 months
a positive correlation for Net FII Investment and Sensex.

66
TABLE: COEFFECIENT OF DETERMINATION OF FII WITH NIFTY

GROSS GROSS NET

MONTH
PURCHASES SALES 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 6.72E-05 0.124042
AUGUST 0.087789444 9.97E-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

The coefficient of determination (R2) ranging 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, where the quadrature forces R2 are between
0 and 1. R2 in the above table indicates the percentage (%) of the total variation in Nifty
that is explained by the regression equation or explained by FIIs. In January, the total
deviation of Nifty declared by FII was 42% and the remaining 58% is explained by other
factors affecting Nifty.

67
TABLE: COEFFECIENT OF DETERMINATION OF FII WITH SENSEX

GROSS GROSS NET

MONTH
PURCHASES SALES INVESTMENT
APRIL 0.071599272 0.259107325 0.005808
MAY 0.034097085 0.050539242 0.022029
JUNE 0.164540479 2.22E-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 4.76E-05 0.028982681 0.022313
MARCH 0.17460218 0.06294736 0.230035

Similarly, in the case of FII and Sensex, we have R2 = 0.46, indicating that the variation in
FII accounts for about 46% of the variation in Sensex. 54% of the variation in Sensex is
not explained by FII, explained by other factors, omitted variables, random variation, etc.
We should not emphasize R2 too much, t-stat are more important. However, R2 or some
other measure of goodness fit is expected in the reported empirical results.

68
Share of top investing countries in FDI Approvals

Rank Country Aug.20 %of 2019 2020 2021 2022- Cumu % of

18 to total -20 -21 -22 23 lative total
march approv (April appro approva
2021 als Jan.) vals ls till
aug Jan
2022 2023
to Jan
2023

1 U.S.A. 56,631 24.71 818 881 779 260 59394 22.92

2 Mauritiu 32,919 14.37 1432 1572 2838 3565 42340 16.34

s

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 SouthKo 9,798 4.28 29 65 15 64 9975 3.85

rea

6 German 8,976 3.92 292 172 177 222 9843 3.80

y

7 Netherla 8618 3.76 315 628 76 117 9758 3.77

nds

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 Singapor 7,943 3.47 330 369 578 164 9387 3.62

e

FDI 229,150 7,90 6,22 8,72 7112 259,1

appro 4 4 8 18
vals

69
Share of top investing countries in FDI inflow in India

Rank Country Aug.2 %of 2019- 202 2021- 2022-23 Cumulat % of

018 to total 20 0-21 22 (April ive total
march approv Jan.) approva approval
2021 als ls aug s till Jan
2022 to 2023
Jan
2023

1 Mauriti 27446 29.64 3766 260 5141 9120 48112 36.90

us 9

2 U.S.A. 12248 13.23 1504 165 3055 1705 20183 15.48

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 Netherl 3856 4.61 836 224 1217 329 8489 6.51

ands 7

6 German 3455 3.73 684 373 663 1302 6481 4.97

y

7 Singapo 1997 2.16 180 172 822 1013 4186 3.21

re

8 France 1947 2.10 534 176 537 63 3259 2.50

9 South 2189 2.36 188 110 157 257 2903 2.23

korea

10 Switzerl 1299 1.30 437 207 353 332 2530 1.94

and

Total 92611 14932 121 1713 19356 156154

FDI 17 8
inflo
w

The top 10 countries received more than half of the Indian FDI permits in 2018-22, while
in the period 2019-20 the share increased to around 70%. This ability shows the ranking of
cumulative investments approved in the period from 2019 to January 2023 shows that the

70
US was the largest investor in India with an investment of Rs. 59394Crores The
Netherlands, France and Singapore follow in this order. but the US share has fallen, while
Mauritius shares have risen in recent years. Compared to 2003-04, it has increased by
more than 80% over the period 2018-19, mainly due to the fact that foreign direct
investment is channeled through Mauritius, as there is a double agreement on tax evasion
with India. With regard to the influx of foreign direct investment into the country,
Mauritius led the list with 90% of total FDI inflows, while the US ranks second with
15.48% of total FDI inflows in India. Mauritius is way ahead of the UK, Japan, the
Netherlands, Singapore, France, South Korea and Switzerland in this order of FDI inflow.
South Korea, with a share of 2.23% Australia, which holds the 8th position in FDI
approvals with a share of 2.65%, is not in the top 10 countries in FDI inflows. On the other
hand, Switzerland, which can not be found in the FDI approvals, holds 10th place in the
ADI inflows, with a 1.94% share. The table shows that FDI inflows from all countries
increased over the period 2019-20.

71
Total FDI and FDI in ICT Sector

Year FDI inflow Growth in FDI FDI in ICT Growth in FDI

sector in ICT
Amount in Rs. Amount in Rs.
Cr. Cr.

2008-09 409 351

2009-10 1094 167.48 675 92.31

2010-11 2018 84.46 2380 252.59

2011-12 4312 113.68 4132 73.61

2012-13 6916 60.39 6750 63.36

2013-14 9654 39.59 9211 36.46

2014-15 13548 40.34 11817 28.29

2015-16 12343 -8.89 8644 -26.85

2016-17 10311 -16.46 7271 -15.88

2017-18 12645 22.64 10323 41.97

2018-19 19361 53.11 14419 39.68

2019-20 14932 -22.88 8423 -41.58

2020-21 121117 -18.85 6703 -20.42

2021-22 17138 41.44 3869 -42.28

It has been observed that there are some fluctuations in the growth rate in both positive
rates. From 2008-09 to 2016-17, the inflow of foreign direct investment has steadily
increased, but it has again fallen dramatically in 2015-16 and 2016-17. The most likely
causes of these alarming declines are the result of various Asian crises sanctions against
India as a result of the Indian government's nuclear test, which overshadowed the inflows
of foreign direct investment into India over the period 2000-2022. In addition, the trend in
ADI over the period 2008-09 appears to be declining. This trend was felt in the world (108
countries according to World Investment Report 2003) when the world experienced a
slowdown in the economy. M & A (M & A) reduction was the main reason, and the war in

72
Iraq and SARS also had a negative impact on global capital flows in 2008. In 2022, global
FDI inflows rebounded from the 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 the same as shown in the tables above, which shows that the
variability of FDI inflows and ADI in the ICT sector is about the same. This shows that as
DI inflows change, so does the FDI in ICT.

Year Wise FDI inflows into Infrastructure sector during April 2015 to December
2022 (In US$ million)

YEAR AMOUNT
2015-16 292.37
2016-17 1902.26
2017-18 347.33
2018-19 388.37
2019-20 456
2020-21 914.04
2021-22 2179.39
Total 10575.56

73
CHAPTER-V
FINDINGS
CONCLUSION
SUGGESTIONS
FINDINGS:

1. It is an accepted fact that FIIs have a significant impact on the development of

stock market indices in India. Looking at the overall FII stock trade in India and its
relationship with the stock indices such as Sensex and Nifty, this shows a steadily
increasing impact of FIIs on the domestic stock market.
2. FIIs and the movements of Sensex are quite closely correlated in India, and FIIs
have a significant impact on the movement of Sensex. NSE also notes that FIIs on
the Indian stock markets have a disproportionate impact on market sentiment and
price performance.
3. This is because other market participants consider the FII to be infallible in their
market assessment and tend to follow the decisions of the FII. This "herd instinct"
shown by other market participants reinforces the importance of FIIs to the
domestic stock market in India.
4. The results of this study show that not only the FIIs are the key players in the
Indian domestic market, but their influence on domestic markets is also increasing.
5. Data on the trading activity of FIIs and domestic stock market turnover suggests
that FIIs are becoming more important in margin as FII trading accounts for an
increasing proportion of stock market turnover. In addition, the results of this study
indicate that foreign institutional investors have become the dominant investor
group in the Indian domestic market.
6. Especially in the companies that make up 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 able to
significantly influence the movement of Sensex and Nifty.
7. FII investment is a major contributor to the equity of a financial firm, a FII retreat,
even if it is driven by development outside the country, can have a significant
impact on the financial health of a major institution in the financial sector of that
country ,
8. FII investments appear to have had a significant impact on the Indian stock market.
FIIs are interested in the Indian stock market increasing its vulnerability to
fluctuations. The analysis revealed a strong impact of FII investments on the
Sensex and Nifty indices. This finding goes well beyond the general understanding
that net FII investments affect stock prices in India as they trace the relationship

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CONCLUSION:

In this study, I tried to find out the impact of FDIs and FIIs on the Indian stock market.
The important finding of this study is that foreign investment is determined by the stock
market trend. But foreign investment is not a major factor in the stock market boom. In
India, the FII increasingly dominate the stock markets. Domestic investors and domestic
companies are not so dominant. There is therefore a fear of sudden outflows of foreign
capital and this may trigger a third market fraud, since most regulatory changes are only
made as a result of an adverse event.

FDI in india as contributed effectively to the over all growth of the economic in the recent
times. Fdi policy permits fdi upto 100% from foreign inverster without prior approvial in
most of the sectors including the services under automatic route.

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SUGGESTIONS:

Some of the steps that can be taken to influence the decisions of foreign institutional
investors include:

❖ The government should reduce its budget deficits, which would strengthen the
economy as a whole.
❖ Creating infrastructure and other facilities to attract foreign investment. As
mentioned above, a range of services can help foster foreign institutional
investment in India, from basic services such as the provision of electricity and
clean water, to fair and effective dispute resolution systems.
❖ The ability of governments to prevent or reduce financial crises also has a major
impact on the growth of capital flows. Steps to address these crises include
strengthening banking supervision, calling for more transparency in international
financial transactions, and ensuring proper supervision and regulation of financial
markets.
❖ Attempts should be made to lower inflation levels in order to attract more foreign
institutional investment in India.
❖ The banking system needs to be strengthened, which could be achieved by
reducing the number of non-performing assets.
❖ Although the investments of the FII are increasing over time, they are still well
below the permissible limits. Such a move could be the newly announced
INDONEXT, the platform for trading small and mid-cap companies, which could
create some focus on these companies and hopefully liquidity and volume for their
trading, which could lead to further investment them from FIIs.
❖ The fact is that developing countries like India have their own constraints
stemming from the state of their social, political and economic development. In
order to attract and maintain portfolio investment, host countries must pursue a
stable macroeconomic policy,
❖ In the event of disputes between investors and the governments of the host
countries, the provision of clear procedures must be followed to ensure that the
rules are complied with and that arbitration is determined by consensus.
❖ Countries may adopt such measures as expropriations, domestic salary
requirements, short-term capital outflow restrictions, etc., to protect domestic

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 industries from international competition and promote their economic
development, but this usually leads to a misallocation of resources results from the
natural economic capabilities of the nations.
❖ In recent years, the nature of global capital flows into developing countries has
changed significantly as the dominance of private capital flows, and in particular of
portfolio investment (FPI), has increased significantly. In order to attract portfolio
investments that favor liquidity, the promotion of stock markets has been
promoted.

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 BIBLIOGRAPHY

Books:
1. Foreign Investment in India: 1947-48 to 2007-08, Dr. KamleshGakhar
2. Foreign Direct Investment in India: 1947 to 2007, Dr. Nitin Bhasin
3. Alfaro, L., S. Kalemli-Ozcan, & S. Sayek (2009). FDI, productivity and financial
development. World Economy, 32(1), 111–135.
4. Desbordes, R., & S.-J. Wei (2014). The Effects of Financial Development on
Foreign Direct investment. World Bank Policy Research Working Paper, (7065).
5. Hanson, G. H. (2001). Should Countries Promote Foreign Direct Investment. G-24
Discussion Paper Series, 9(9), 23.
Websites:
1. http://business.mapsofindia.com
2. http://www.mideastinvestments.com
3. http://www.economywatch.com
4. http://siadipp.nic.in
5. www.indianinfoline.com
6. www.onlinestockholding
7. www.moneycontrol.com
8. www.mastercapitalindia.com
9. www.financialexpress.com/news
10. www.en.wikipedia.org.wiki/stock_market

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