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INTRODUCTION

Foreign Investment refers to Investments made by residents of a country in financial assets and production process of another country. It can affect the factor productivity of the recipient country and can also affect the balance of payments. In developing countries, there is a great need of foreign capital, not only to increase their productivity of labor but also to help to build the foreign exchange reserves to meet the trade deficit. It can come in two forms: Foreign Direct Investment (FDI) and Foreign Portfolio Investment. Foreign Direct Investment involves in the direct production activity and also of medium to long term nature. But the foreign portfolio investment is a short term investment mostly in the financial markets and it consists of Foreign Institutional Investment (FII). India being a capital scarce country, has taken lot of measures to attract foreign investment since the beginning of reforms in 1991. Till the end of January 2003, it was able to attract a total foreign investment of around US $48 billions out of which US $ 23 billions is in the form of Foreign Portfolio Investment. Foreign Institutional Investment consists of around US $ 12 billions in the total foreign investment. This shows the importance of FII in the overall foreign investment program. As India is in the process of liberalizing the capital account, it would have significant impact on the foreign investments and particularly on the FII, as this would affect the short term stability in the financial markets. Hence, there is a need to

determine the push and pull factors behind any change in the FII, so that we can frame our policies to influence the variables which drive-in foreign investment. Also FII has 1

been subject of intense discussion, as it is held responsible for intensifying currency crisis in 1990s elsewhere. India opened its stock markets to foreign investors in September 1992 and has since 1993 received considerable amount of portfolio investment from foreigners in the form of Foreign Institutional Investments (FII) in equities. In order to trade in Indian equity markets, foreign corporations need to register with the Securities Exchange Board of India (SEBI) as Foreign Institutional Investors (FII). SEBIs definition of Foreign Institutional Investors presently includes foreign pension funds; mutual funds, charitable/endowment/university funds etc as well as asset management companies and other money managers operating on their behalf. One who proposes to invest their proprietary funds or on behalf of broad based funds or of foreign corporate and individual and belong to any of the under given categories can be registered for FII. Foreign Institutional Investors (FIIs) including institutions such as Pension Funds. Mutual Funds, Investment Trusts, Asset Management or their power of attorney holders (providing discretionary and non-discretionary portfolio management services) are invite to invest in all the securities traded on the primary and secondary markets, including the equity and other securities /instruments of companies which are listed/to be listed on the stock exchanges in India including the OTC Exchange of India. These would include shares, debentures, warrants, and the schemes floated by domestic Mutual Funds. To be eligible to do so, the FIIs would be required to obtain registration with securities and Exchange Board of India (SEBI) FIIs are also require to file with SEBI another application addressed to RBI for seeking various permissions under FERA.

SEBI shall for granting registration to the FII, take into account the track record of the FII, its professional competence, financial soundness, experience and such other relevant criteria. FIIs seeking registration with /SEBI should hold a registration from the securities commission, or the regulatory organization for the stock market in its own country of domicile/incorporation. SEBIs registration and RBIs general permission under FERA to an FII will be for five years renewable for similar five year periods later on. RBIs general permission under FERA would enable the registered FII to buy, sell and realize capital gains on investments made through initial corpus remitted to India, subscribe/renounce rights offerings of shares, invest on all recognized stock exchanges through a designated bank branch, and to appoint a domestic custodian for custody of investments held.

The policy framework for permitting FII investment was provided under the Government of India guidelines vide Press Note date September 14, 1992. The guidelines formulated in this Regard were as follows:

Foreign Institutional Investors (FIIs) including institutions such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management Companies, Nominee Companies and Incorporated/Institutional Portfolio Managers or their power of attorney holders (providing discretionary and non-discretionary portfolio

management services) would be welcome to make investments under these guidelines. FIIs would be welcome to invest in all the securities traded on the Primary and Secondary markets, including the equity and other securities/instruments of companies which are listed/to be listed on the Stock Exchanges in India including the OTC Exchange of India. These would include shares, debentures, warrants, and the schemes floated by domestic Mutual Funds. Government would even like to add further categories of securities later from time to time. FIIs would be required to obtain an initial registration with Securities and Exchange Board of India (SEBI), the nodal regulatory agency for securities markets, before any investment is made by them in the Securities of companies listed on the Stock Exchanges in India, in accordance with these guidelines. Nominee companies, affiliates and subsidiary companies of a FII would be treated as separate FIIs for registration, and may seek separate registration with SEBI.

Since there were foreign exchange controls in force, for various permissions under exchange control, along with their application for initial registration, FIIs were also supposed to file with SEBI another application addressed to RBI for seeking various permissions under FERA, in a format that would be specified by RBI for the purpose. RBI's general permission would be obtained by SEBI before granting initial registration and RBI's FERA permission together by SEBI, under a single window approach. For granting registration to the FII, SEBI should take into account the track record of the FII, its professional competence, financial soundness, experience and such other criteria that may be considered by SEBI to be relevant. Besides, FII seeking initial registration with SEBI were be required to hold a registration from the Securities Commission, or the regulatory organization for the stock market in the country of domicile/incorporation of the FII. SEBI's initial registration would be valid for five years. RBI's general permission under FERA to the FII would also hold good for five years. Both would be renewable for similar five year periods later on. RBI's general permission under FERA would enable the registered FII to buy, sell and realize capital gains on investments made through initial corpus remitted to India, subscribe/renounce rights offerings of shares, invest on all recognized stock exchanges through a designated bank branch, and to appoint a domestic Custodian for custody of investments held. There would be no restriction on the volume of investment minimum or maximumfor the purpose of entry of FIIs, in the primary/secondary market. Also, there would

be no lock-in period prescribed for the purposes of such investments made by FIIs. It was expected that the differential in the rates of taxation of the long term capital gains and short term capital gains would automatically induce the FIIs to retain their investments as long term investments. Portfolio investments in primary or secondary markets were subject to a ceiling of 30% of issued share capital for the total holdings of all registered FIIs, in any one company. The ceiling was made applicable to all holdings taking into account the conversions out of the fully and partly convertible debentures issued by the company. The holding of a single FII in any company would also be subject to a ceiling of 10% of total issued capital. For this purpose, the holdings of an FII group would be counted as holdings of a single FII.

The general permission from RBI shall also enable the FII to:
1. Open foreign currency denominated account(s) in a designated bank. (These can even be more than one account in the same bank branch each designated in difference foreign currencies, if it is so required by FII for its operational purposes. 2. Open a special non-resident rupee account to which could be credited all receipts from the capital inflows, sale proceeds of shares, dividends and interests. 3. Transfer sums from the foreign currency accounts to the rupee account and viceversa, at the market rates of exchanges. 4. Make investments in the securities in India out of the balances in the rupee account. 5. Transfer repatriate (after tax) proceeds from the rupee account to the foreign currency accounts. 6. Repatriate the capital, capital gains, dividends, incomes received by way of interest , etc, and any compensation received towards sale/renouncement of rights offerings of shares subject to the designated branch of bank/the custodian being authorized to deduct withholding tax on capital gains and arranging to pay such tax remitting the net proceeds at market rates of exchange. 7. Register FIIs holding without any further clearance under FERA. There is no restriction on the volume of investment minimum or maximum for the purposes of entry of FIIs, in the primary/secondary market. Also, there is no lock in period for the purposes of such investments made by FIIs.

Portfolio investments in primary or secondary markets will be subject to a ceiling of 24% of issued share capital for the total holdings of all registered FIIs, in any one company. The ceiling would apply to all holdings taking into account the conversions out of the fully and partly convertible debentures issued by the company. The holding of a single FII in any company would also be subject to a ceiling of 5%of total issued capital. For this purposes, the holdings of a FII ground will be counted as holdings of a single FII. The maximum holding of 25% for all non-resident portfolio investments, including those of the registered FIIs, will also include NRI corporate and non-corporate investments, but will not include the following: 1. Foreign investments under financial collaborations (direct foreign investments), which are permitted upto51% in all priority areas. 2. Investments by FIIs through the following alternative routes: a. Off shores single/regional Funds. b. Global Depository Receipts. c. Euro convertibles. Disinvestments will be allowed only through stock exchanges in India, including the OTC Exchange. In exceptional cases, SEBI may permit sales other than through stock exchanges, provided the sale price is not significantly different from the stock market quotations. All secondary market operations would be only through the recognized intermediaries on the Indian Stock Exchange, including OTC Exchange of India. A registered FII will not engage in any short selling in securities and to take delivery of purchased and give delivery of sold securities.

A registered FII can appoint as custodian an agency approved by SEVI to act as a custodian of securities and for confirmation of transactions in securities, settlement of purchase and sale, and for information reporting. Such custodian shall establish separate accounts for detailing on a daily basis the investment capital utilization and securities held by each FII for which it is acting as custodian. The custodian will report to the RBI and /SEBI semi annually as part of its disclosure and reporting guidelines. The RBI shall make available to the designated bank branches a list of companies where no investment will be allowed on the basis of the upper prescribed ceiling of 24% having reached under the portfolio investment scheme. The RBI may at any time request by any order registered FII to submit information regarding the r cords of utilization of the inward remittances of investment capital and the statement of securities transactions. RBI and/or SEBI may also at any time conduct a direct inspection of the records and accounting of books of a registered FII. FIIs investing under this scheme will benefit from a confessional tax regime of a flat rate of 20% on dividend and interest income and a tax rate of 10% on long term (one year of more) capital gains.

SEBI Regulations for FII


Investment by FIIs is regulated under SEBI (FII) regulations, 1995 and Regulations 5(2) of FEMA Notification No. dated May 3, 2000. SEBI acts as the nodal point in the entire process of FII registration. FIIs are required to apply to SEBI in a common application form in duplicate. A copy of the application form is sent by SEBI to RBI along with their No Objection so as to enable RBI to grant necessary permission under FEMA. RBI approval under FEMA enables an FII to buy/sell securities on stock exchanges and open foreign currency and Indian rupee accounts with a designated bank branch. FIIs are required to allocate their investment between equity and debt instruments in the ratio of 70:30. However, it is also possible for an FII to declare it a 100% debt FII in which case it can make its entire investment in debt instruments. FIIs can invest in listed and unlisted securities including shares, debt instruments, dated government securities and Treasury Bills. No individual FII/sub-account can acquire more than 10% of the paid up capital of an Indian company. All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian company. Indian companies can raise the above mentioned 24% ceiling to the Sectoral Cap/ Statutory Ceiling as applicable by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by its General body in terms of Press Release dated September 20, 2001 and FEMA notification No.45 dated September 20,2001. Presence of Sectoral Cap / Statutory ceiling means that foreign investment from all sources cannot exceed a specified level. A company to which no sectoral cap/statutory 10

ceiling is applicable can raise the limit of permissible FII investment to 100% of the paid up capital. A company to which a 49% cap is applicable can raise the limit of permissible FII investment to 49% and if there is an existing foreign direct investment of 15%, possible FII investment can only be up to 34%. No permission from RBI is needed so long as the FIIs purchase and sell on recognized stock exchange. All non-stock exchange sales/purchases require RBI permission. In order to ensure that the sectoral / statutory ceiling on foreign investment in a company are not violated due to investment by FIIs, RBI monitors these ceilings for the companies in respect of which sectoral caps /statutory ceiling have been indicated by Government of India. When the total holdings of FIIs reaches within 2% of the applicable limit, reserve bank issues a notice to all concerned that any further purchases of the shares of the said Company requires prior approval of RBI. FIIs can avail of the Forward Cover Facility from the Authorized Dealer subject to certain conditions. High Net Worth individuals/ foreign corporate can invest through SEBI Registered FIIs subject to a sub-limit of 5% each within the aggregated limit of 24%. Registered Foreign Institutional Investors (FIIs) are allowed to trade in all exchange traded derivative contracts approved by SEBI from time to time subject to the limits prescribed by SEBI.

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Sub-accounts
Those funds or portfolios, established outside India, whether incorporated or not and corporate and individuals, n whose behalf investments are proposed to be made in India by a foreign Institutional Investor. It may however be noted that Non-resident Indians and overseas Corporate Bodies (OCB) are not entitled to get registered as sub-account.

There are two categories of sub-accounts:


Broad-based / proprietary sub-accounts which are allowed to individually invest up to 10% of the total issued capital. Foreign Corporate and foreign individuals Investment by each sub-account in this category should not exceed 5% of the issued capital. A broad based fund is a fund which has at least 20 shareholders and no single investor holds more than 10% of shares and units of the fund. In case, if any investor holds more than 10% of shares or units of the fund, then it in turn should be a broad-based. The proprietary funds of the FII shall not be invested through a broad-based fund. A proprietary Fund is a fund wherein the ownership of the funds is that of the Foreign Institutional Investor. A single FII may have many customers, with sub-accounts. The FII may be prominent advisor shaping the decisions of all these sub-accounts. This may lead to difficulties if there is herding that is a situation where all these sub-accounts behave in correlated way. In order to address this, the existing limit of 10 percent holding in any one firm by any one FII may be extended to cover the sum of the holding s of any one FII and all such sub-accounts coming under that FII which have common beneficial ownership as the FII. The onus for establishing that a sub-account does not have a 12

common beneficial ownership will lie with the FII. This requirement may be phased in over a five year period, with a limit of 20 percent by December 2005, 18 percent by 2006, 16 percent by 2007, 14 percent by 2008, 12 percent by 2009 and 10 percent by 2010. The market integrity concern may force a rethinking of some aspects of FIIs subaccount policy. Since the sub-accounts are mostly likely to be client funds, there is force in the argument of banning sub-accounts altogether. However, with over 90% of FII investment in India through the account route, such an outright ban will be unsettling for the market. A possible alternative to address the market integrity concerns is that some entities, which do not have reputation risk or are unregulated, may be prohibited to be registered as sub-accounts. Such entities may be given sufficient time to wind up the position. The stability of foreign investment in India will be enhanced if FIIs are able to switch between equity and debt instruments in India, depending on their view about future equity returns. Greater flexibility for FIIs to participate in the bond market will induce more balanced strategies, and mixing of equity and debt. Such FII investment in debt will indeed be apart of Indias external debt, but with an important difference, namely that such debt will be in domestic currency. Keeping this important difference in mind, there is merit in progressive liberalization with amendment of the quantitative restriction upon debt flows to a cap on the annual flow from the present ceiling on the aggregate portfolio value.

Participatory notes
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Participatory notes (PNs) are instruments sold by FIIs registered in the country to clients abroad that are derivatives linked to an underlying security traded in the domestic market. These derivatives not only allow the foreign clients of the FIIs to earn incomes from trading in the domestic market, but to trade these notes themselves in international markets. These instruments are sold to the clients outside the country. These participatory notes are also area of concern because there is no regulating body which holds the exact identity of the PN holder. This is the basic issue where the clients from abroad can go for speculation leading grievous losses to the domestic markets while providing profits for the clients. Participatory notes were issued for the foreign institutional investors to invest in the local market so that foreign investment can be brought to the domestic markets. But it had become a concern out of volatile or speculative nature. By the end of August 1995, the value of equity and debt instruments underlying participatory notes that had been issued by FIIs amounted to Rs 78,390 crore or 47 percent of cumulative net FII investment. Through these routes, entities not expected to play a role in the Indian market can have a significant influence on market movements.

Hedge funds
Hedge funs, which are private investment vehicles for wealthy individuals or Institutional investors have been in existence for over half a century,. They however have littler to do with hedging or eliminating risks arising from an underlying portfolio position. Hedge funds constitute an alternative to mutual funds in terms of being a vehicle for fund management. Regulation of mutual funds, motivated by the need to protect small investors, induces significant costs of regulation. Hedge funds are prevented from accessing small investors, and are free from this regulation. They are able to engage

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in a wider array of trading strategies, and contractual structures, as compared with mutual funds. They are the preserve of sophisticated investors who are able to take care of their own interests, and not rely on an intrusive regulatory of mutual funds are substantial, hedge funds would yield superior returns. Albert Winslow Jones is credited with forming one of the first hedge funds in 1749. However, they came into prominence in 1966, when an article in Fortune reported how Jones funds had substantially higher returns that other mutual funds. A concept of a domestic Hedge Fund may be create through appropriate SEBI regulations, to play a comparable role in the market based on purely rupee investments. SEBI has suggested a policy framework for hedge funds in India based on transparent and regulated access with abundant caution. However, there are certain concerns, which warrant that, for the time being, these funds may not be registered in India. There is merit in closely watching the regulatory development with regard to hedge funds in the US and elsewhere, including Europe and formulating policy on the basis of experiences of these countries at a later date. Only those funds which are otherwise eligible to be registered as FIIs/sub accounts under SEBI (FIIs) Regulations, 1995 may be continued to be allowed.

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Classification of investors:
The kind of information required and the policy to be formulated depends on the kind of investors. There are two kinds of investors, namely: 1. 2. Individual investor. Institutional investors

Individual Investor find it difficult their portfolio investment policies, as they will busy with their business, family and social lives and do not have time to conduct research to decide in which shares their hard earned savings have to be invested. Therefore, they tend to adopt hit and run policy. The institutional investors have both time and resource to dig out the necessary information to formulate their investment portfolio. They can afford to employ skilled economists, financial analysts and investment managers. They can acquire all the necessary financial information and in case inadequacy, they can also approach the concerned organisation to make enquires and collect further information. An institutional investor can have continuous review and scrutiny of its investment portfolio. In case of adverse market conditions, they will be efficient to dispose off the securities. The institutional investors own a major part of corporate securities and most of them into buying and selling the securities as a part of their main policies of optimum utilisation of their cash resources.

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Equity Market an Introduction Equity: stocks also know as Equities, are shares in a company. It is the certificate of ownership of incorporation. In simple terms when you invest in a companys stock or buy its share, you own part of a company. Thus as stockholder, you share portion of the profit the company may make, as well as portion of the loss a company may take. As the company keeps doing better, your stock will increase in value and yield higher dividends.

Equity market or stock market: is a system through which a company shares are traded. The equity market offers investors an opportunity to participate in a companys success through an increase in its stock price.

Investment: An investment is the commitment of funds made in the expectation of some positive rate of return. If the investment is properly undertaken the return will be commensurate with the risk the investor assumes. The term investment or investing is a word of many meanings; there are three concepts of investment Economic investment, Business Investment and Financial investment.

The Investment portfolio: Refers to the various assets of an investor, which are to be considered as a unit. An investment portfolio is not merely a collection of unrelated assets but a carefully blended asset combination with as unified framework. The investor takes decision with regards to his wealth position from the portfolio as a whole.

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EVOLUTION AND PRESENT SCENARIO OF THE INDIAN MARKET :

SECURITIES MARKET: Securities markets are market in financial assets or instruments are these are represented as I.O.U. (I owe YOU) in financial form. These are issued by business organizations, corporate units and the governments, central or state. Public sector undertakings also issue these securities. These securities are used to finance their investment and current expenditure. These are thus sources of funds to the issuers. Securities are the claims on money and like promissory notes of I.O.U securities are source of fund for companies, government etc. the external sources of funds of the companies are as follows:

i)

LONG TERM FUNDS: a) Ownership capital-equity and preference capital b) Debt capital-debentures and the long borrowings in the form of deposit from public or credit limits or advances from banks and financial institutions.

ii)

SHORT TERM FUNDS: a) Borrowings from banks b) Trade credit and suppliers credit

The security market can be again classified into:

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1) Primary Market: A primary market is a market where securities are issued to the public for the first time. New issues are dealt within this market. The new issues market has three functions to perform organization underwriting and distribution. There are three ways by which a company may raise capital in primary market. i) ii) iii) Public issue Rights issue Private placements

Intermediaries in the primary market ate merchant bankers, collecting bankers, registers and transfer agents, broker underwriters, advertising agencies, printers, sub-brokers and solicitors and mailing agents

2) Secondary market: secondary market is a market where securities, which have already issued in the primary market, are traded. This market consists of all stock exchanges recognized by government of India, and is regulated under the securities contract (regulations) act 1956. The BSE is the principle stock exchange in India. Which sets the tone of the other stock markets?

Intermediaries in secondary market are brokers, jobbers, dealers, arbitrators, investment advisors, portfolio managers, and sub-brokers.

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Difference between the primary market and the secondary market


In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity-trading avenue in which already existing/pre-issued securities are traded amongst investors. secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, over-the counter (OTC) is a part of the dealer market.

EVOLUTION OF INDIAN STOCK MARKET:


The origin of stock market in India goes back to the late part of the 18 th century. The earliest security dealing was transactions in loan securities of the east India Company, the dominant institution of those days. Corporate shares came to the picture by 1830s and assumed significance with the enactment of companies Act in 1850. The introduction of limited liability marked the beginning of the era of modern joint stock enterprises. The American civil war followed this in 1860-65. However the bubble burst with the end of the civil war and a disastrous slump followed. The tremendous soil pressure on the brokers led to their forming an informal association which later gave birth to the native share and stock brokers association, was formed in 1982, which later came to be known as Bombay Stock Exchange in 1887. The cotton textile industry that contributed a lot in the establishment of the Bombay stock exchange was also the prime factor in the development of the Ahmadabad as a center for dealing in stocks and share. As new cotton textile mills floated and the volume of business grew, the Ahmadabad share and stock brokers Association was 20

formed in 1982, which later came to be known as the Ahmadabad stock exchange. The next stock exchange was established in Calcutta in 1908. the industries that contributed o its birth and subsequent development were jute, coal, and mining. Like the Bombay stock exchange, it was born out of crisis when the boom of 1904-08 broke and a need was felt for an organized body for mutual protection of brokers and safety of the trade. With the World War I, all imports into India ceased and the Indian manufacturers were faced with a boom. The three stock exchanges flourished during the period of prosperity. However, the boom also led to the formation of many rival stock exchanges. The World War II also resulted in boom and mushroom growth of the stock exchange. However, many of them perished during the slump that followed. Most of the stock exchanges languished till 1956 when the government came out with a comprehensive legislation called the Securities contract (Regulation) Act, to regulate the functioning of the stock exchanges, this legislation made it mandatory on the part of the stock exchanges to secure legislation from the central government. Only the established stock exchanges in Mumbai, Calcutta, Delhi, Hyderabad, and Indore were recognized under the Act, more sock exchanges were recognized subsequently. At present the stock market consists of 23 regional stock exchanges and two national stock exchanges known as NSE and OTCEI (Over the Counter Exchange of India).

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Stock Market Milestones


1 2 1875 BSE established as the native share and stock brokers association 1956 BSE became the first stock exchange to be recognized under the securities contract Act. 3 4 5 6 7 1993 NSE recognised as a Stock exchange 2000commencement of Internet Treading at NSE 2000 NSE commences derivatives trading. 2001 BSE commences derivatives trading. 2001-2009 continuous growth and innovation in Trading

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Factors determining the market movements


The supply and demand for securities largely determine whether the market is the Bull or Bear phase. Forces like investor Psychology, government involvement in the economy and changes in economic activity also drive the market up or down. These combine to make investor bid higher or lower price for stocks.

Understanding Financial Markets The financial markets can broadly be divided into: 1 2 Money Market Capital Market

Money Market: Money market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short-term non-equity debt instrument including treasury bills, commercial papers, bankers acceptance, certificate of deposits, etc.

Capital Market: capital market is a market for long-term debt and equity shares. In this market the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided in to: Primary Market Secondary Market

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Primary Market: An issuer/company enters the Primary market to raise capital. They issue new securities in exchange for cash from an investor (buyer). If the issuer is selling for the first time these are referred to as Initial public offer. Summing up, primary market is the means by which companies float shares to the general public in an Initial public offer to raise capital.

Secondary market: secondary refers Market to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. For the general investor, the secondary market provides an efficient platform for trading of his securities .For the management of the company. Secondary equity markets serve as a monitoring and control conduit by facilitating value enhancing control activities, enabling implementation of incentive based management contracts, and aggregating information (via price discovery) that guides management decisions.

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Major Stock Exchanges in India


National Stock Exchanges (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 recommendation of high-powered committee, the national stock exchange was incorporated in 1992by 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: 1 2 Wholesale Debt market Capital Market

Wholesale debt market operations are similar to money operations institutions such as government securities, treasury bills, and public sector unit bonds, commercial paper, certificate of deposits. There are two kinds of players in NSE 1 2 Trading Members Participants

Recognised members of NSE are called trading members who trade on behalf of themselves and their clients, participants include trading members and large players like bank who take direct settlement responsibility. Trading at NSE takes place through a fully automated screen-based trading mechanism, which adopts the principal of an order-driven market. Trading members can stay at their offices and execute the trading, since they are linked with through a commercial network. 25

The prices at which the buyer and seller are willing to transect will appear on the screen. When the price match the transaction will be completed and a confirmation slip will be printed at the office of trading member. NSE has several advantages over the traditional trading exchanges. They are as fallows: 1 2 NSE brings an integrated stock market trading network across the nation. Investors can trade at the same price from anywhere in they country since inter-market operations are settled coupled with the countrywide access to the securities. 3 Delays in communications, late payments and the malpractices prevailing in the traditional mechanism can be done away with greater operational efficiency and informational transparency in the stock market operations, with the support of total computerised network.

Bombay Stock Exchange (BSE) Bombay Stock exchanges Limited is the oldest stock exchange in Asia with a rich heritage popularly known as BSE, it was established as The Native Share & stock brokers association in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956. The exchange pivotal and pre-eminent role in the development of the Indian capital market is widely recognised and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the exchange is now a demutualised and corporate entity incorporated under the provisions of the companies act, 1956, pursuant to the BSE scheme, 2005 notified by the Securities and Exchange Board of India (SEBI)

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With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The exchange is professionally managed under the overall direction of the Board of Directors. The board comprises eminent professionals, representatives of Trading Members and Managing Director of the Exchange. The Board is inclusive and is designed from the participation of market intermediaries. In terms of organization structure, the Board formulates larger policy issues and exercises overall control. The committees constituted by the Board are broad-based. The Managing Director and a management team of professionals who manage the day-to-day operations of the exchange. The exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005 the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSEs Online Trading System (BOLT) is a proprietary system of the Exchange is BS 7766-2-2002 certified. The surveillance and clearing and settlement functions of the exchange are ISO 9001:2000 certified.

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STOCK EXCHANGE stands for:

S-Security provider for investor T-Tax benefits, planning & Exemptions O-Optimum return on Investment C-Cautious approach K-Knowledge of the market E-Eligibility for accruals X-Exchange of security transactions C-Cyclopedia of listed companies H-High yield A-Authentic information N-New entrepreneurs encouragement G-Guidance to Investor & companies E-Equity cult.

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NEED OF THE STUDY


The Need for the study arises because of the amazing performance of the market never before. This is because of the huge inflows of FIIs during last 6 years. From 2003 there has been a bull run, though there is some temporary fall down in Sensex where there was a great loss of even 800 Sensex points in single day, which didnt stop till date. FIIs have unique tendency i.e. they can make the markets and break the markets. They are efficient enough to create a stable market and efficient enough to speculate the things even in stable market and destroy its fundamental strength. FIIs have a tendency of herding which is very dangerous they dont bother about the domestic markets they just follow the rumours and pull off their investments.

OBJECTIVES OF STUDY
1 2 3 4 5 To know the Role of FIIs in Indian markets. To study the effects of FIIs on Indian markets. To study the factors determining the FIIs investment in India. To know Trends of FIIs investment in India and Share of FIIs in some companies. To study the Market, which changes its behaviour along with the FIIs?

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SCOPE
1 2 3 The study is focused on the role played by the FIIs Indian share market. The study also covers the total FII flows into Indian markets i.e. BSE. The study also covers various factors that are influencing the FIIS affect on the Indian economy.

RESEARCH METHODOLOGY
My study is based on Secondary data and the data is collected through various, books, magazines, news papers, Journals and different sources. For better understanding, Tables and Graphs are used where ever necessary. Drawing conclusions by analyzing the collected data, interpreting the results from the tables and graphs used. Many number of magazines like business today, business India, Foreign trade

review, Financial Express, Finance India etc,..Were also referred to collect the data. Different sites also searched to collect the data.

Review-1:
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Topic: Source: Published: Author:Abstract:-

Why FIIs are investing in India?

Foreign Trade Review


Oct, 2008

S.S.S.KUMAR

Indias forex reserves swelled from a meager US$ 3.96 billion in early March 1990 to more than US$ 200 billions by the end of June 2008. Substantial part of the forex reserves are built up from the FII Inflows and not from trade surpluses. FIIS be suddenly withdrawn. Against this backdrop in this paper we raise the following questions: Why Foreign Institutional Investors Investing in India? Is it the diversification benefit that the Indian market offers for an investor in the developed market thats driving these huge inflows or is it the portfolio flows? The analysis shows that Indian stock market offers a very attractive rate of return next only to Turkey and Mexico among the emerging markets considered in this study.

Review-2:

31

Topic: Source: Published: Abstract:-

Indian stocks are back on FII radar THE WALL STREET JOURNAL Mon, Jul 27 2009.

Foreign investors bought stocks worth $6.42 bn in Apr-Jun, but holdings still lower than a year ago Ravi Krishnan and Ashwin Ramarathinam Mumbai: Foreign institutional investors, or FIIs, the largest category of investors in the India equity markets, are back with a bang. FIIs increased their investment in four out of five firms among the 50 that make up the Nifty index during the quarter ended June. Investors bought into the India growth story and expectations of economic reforms after the Congress-led United Progressive Alliance (UPA) won a decisive mandate in the April-May general election. The Bombay Stock Exchanges Sensex, Indias most widely tracked equity index, gained 49.2% in the three months ended June, the best quarterly gain in 17 years. There are 30 stocks in the Sensex, and 29 of them are also listed on the Nifty. Its a reflection of political stability and reforms moving along, said Sanjay Sachdev, country manager and regional fund manager (South-East Asia) at Tokyo-based Shinsei Bank Ltd. The global liquidity flow has also improved and that has a positive impact. As liquidity returned slowly to the global financial system and risk appetite resurfaced on hopes of an early turnaround in major economies, investors started buying. For 15 straight weeks since 9 March, institutional investors were net buyers in emerging markets, including India, driving the valuation up by as much as 80% in the case of the Sensex. 32

According to fund flows tracker EPFR Global, emerging market equities collectively absorbed $26.5 billion (Rs1.28 trillion) of institutional investment in the quarter ended June, the highest since the December quarter of 2007. In India, foreign investors bought stocks worth $6.42 billion. What has also probably helped bring in foreign capital is the relatively strong economic growth in India. The rest of the world is struggling, said Abhay Aima, head of equities, private banking and third-party products, at HDFC Bank Ltd, the countrys second largest private bank. In India, people are saying worst case is 6% (economic growth). That attracts capital. Gross domestic product, or GDP, grew at 5.8% in the January-March quarter, much lower than 8.6% in the year-ago period, but higher than market expectations of 5%. GDP grew 6.7% in the last fiscal. Among the 50 stocks on the Nifty, the benchmark of the National Stock Exchange, FIIs increased their holdings in 42. Under the norms of the capital market regulator, the Securities and Exchange Board of India (Sebi), listed firms are required to file a detailed break-up of their shareholding pattern to stock exchanges for every quarter within three weeks of the end of the quarter.

Review-3:

33

Topic: Source: Published: Abstract:-

Inflow in stock markets cross $ 6-bn mark FII THE FINANCIAL EXPRESS
Jul 19, 2009

New Delhi: In a sign of confidence in the Indian markets, Foreign Institutional Investors pumped in over six billion dollar, or about Rs 29,940 crore this year, with over one billion dollar coming in July alone. An analysis of FIIs activity shows that overseas investors are the net purchasers of Indian stocks worth 6.18 billion dollars (Rs 29,940.30 crore) from January to July this year. According to the data with the Securities and Exchange Board of India, FIIs were the gross buyer of shares worth Rs 2,98,675.70 crore while they sold equities valued at Rs 2,68,735.30 crore, resulting in a net inflow of Rs 29,940.30 crore (6.18 billion dollar). In July, FIIs made a net investment of Rs 5,637 (1.16 mn dollar) in the domestic equity markets, showing their confidence in an emerging market like India. Significantly, during the same period, the Bombay Stock Exchange's barometer Sensex has lost nearly two per cent. However, it seems that the overseas investors are still skeptic about debt market as they have not turned into net investor in this segment this year. Till now, FIIs are the net seller of debts worth Rs 973.60 crore (151 million dollar), even as the overseas investors infused Rs 4,485.10 crore (932 million dollar) so far in July, the SEBI data said.

Review-4:

34

Topic: Source: Published: Abstract:-

FIIs turn off Indian stocks to havens closer home

BUSINESS LINE
SUNDAY JUNE 28 09

Chennai, June 27 Foreign institutional investors (FIIs) have turned net sellers in Indian stocks after being consistent buyers over the past couple of months. The recent selling appears to be triggered by profit-taking by overseas investors, as they re-balance their portfolio in favour of safer avenues back home. Rising bond yields and expectations that interest rates will edge up again may also have reduced the FII appetite for Indian stocks, market participants and fund managers feel. After pumping in Rs 24,837 crore into Indian stocks between mid-April and end-May, FIIs have been net sellers of equity worth over Rs 3,670 crore ($757 million) in the last two weeks. The recent FII selling in India coincides with signs of emerging markets as a class witnessing outflows the past few days after receiving steady inflows for several weeks.

Review-5:
35

Topic: Source: Published: Authors: Abstract:

FII trends and effects on Indian markets Economic Times (New Delhi, India) February, 2007. Ajay Jindal and Noemie Bisserbe.

The pharmaceutical sector has been among the worst performing sectors in the market over the last 12 months.

However, it appears that foreign institutional investors (FIIs) have consistently kept faith with top pharmaceutical companies. In most companies, FII stakes have gone up, after reaching a low around a year ago.

The FIIs' attitude to the pharma sector is that they seem to prefer companies leaning more towards discovery research. Dr Reddy's, which is the most aggressive Indian player in the R&D field.

The pharmaceutical sector has been among the worst performing sectors in the market over the last 12 months.

However, it appears that foreign institutional investors (FIIs) have consistently kept faith with top pharmaceutical companies. In most companies, FII stakes have gone up, after reaching a low around a year ago.

Review-6:

36

Topic: Source: Published: Authors: Abstract:

FIIs pulling money out, but things may not be too bad. India Abroad. July-26th-2004 Suggu & Kanchana

Some analysts say India must remove bureaucratic hurdles to woo foreign investors.

The July 13 attack that killed 27 people in Jammu has dampened market sentiment. Fears have resurfaced, pulling down the bourses.

The new terrorist strike has cast doubts over the prospects of India being a safe and attractive investment destination, even as investors struggle to recover from the debilitating impact of the May 14 attack in Jammu.

Foreign institutional investors pulled out about Rs.11 billion

($225.36

million) from the Indian markets between May 15 and June 30. The BSE 30-share sensitive index - the Sensex - touched 3097 points on May 31.

Review-7:
37

Topic: Source: Published: Authors:

Foreign funds look past India's politics. Business Asia May-17th-2005 Arackaparambil, Rosemary

Abstract: Foreign funds have poured into India to buy selected shares despite growing political uncertainty, fund managers and analysts claim. Bargains began to emerge last month as investors bailed out of the market, unnerved by the collapse of the ruling coalition and failed attempts by opposition parties to cobble together an alternative government. The inability of opposition figure Ms Sonia Gandhi to form a viable government has temporarily condemned India to rudderless leadership. Political confusion has not deterred foreign investors, who appear willing to brave the political risk in order to pick up good stocks on the cheap.

Review-8:
38

Topic: Source: Published: Authors:


Abstract:-

Number of FIIs in India crosses 1000

December 29, 2006

Deepak Korgaonkar.

The number of foreign institutional investors (FIIs) registered with the Securities and Exchange Board of India (Sebi) crossed the 1,000 mark. The total number of FIIs having their offices in India has now increased to 1,030. In the beginning of calendar year 2006, the figure was 813. As many as 37 foreign entities registered with the market regulator till December 28, highest ever single month registrations by the FIIs since their entry into Indian market in 1993. In 1993, Pictet Umbrella Trust Emerging Markets Fund, an institutional investor from Switzerland, was the only FII to enter the Indian market. While in 1994, no new registrations were reported, between 1995 and 2003, an average of 51 new FIIs opened their shops in the country each year. The number of new registrations with the Sebi increased to 144 in 2004 and 209 in 2005. Out of 1,030 FIIs from 42 different countries, as many as 388 FIIs are from the US, 167 from the Great Britain, 73 from Luxembourg, 51 from Singapore, 35 each from Australia and Hong Kong, 32 from Canada, 29 from Ireland, 27 from Netherlands, 25 from Mauritius, 22 from Switzerland and 20 from France.

COMPANY PROFILE
39

Interconnected Stock Exchange of India Limited (ISE) is a national-level stock exchange providing trading, clearing, settlement, risk management and surveillance support to its Trading Members. It has 841 Trading Members, who are located in 131 cities spread across 25 states. These intermediaries are administratively supported through the regional offices at Delhi, Kolkata, Patna, Coimbatore and Nagpur, besides Mumbai. Inter-connected stock exchange of India limited [ISE] has been promoted by 14 Regional stock exchanges to provide cost-effective trading linkage/connectivity to all the members of the participating Exchanges, with the objective of widening the market for the securities listed on these Exchanges. ISE aims to address the needs of small companies and retail investors with the guiding principle of optimizing the existing infrastructure and harnessing the potential of regional markets, so as to transform these into a liquid and vibrant market through the use of state-of-the-art technology and networking. The participating Exchanges of ISE in all about 4500 stock brokers, out of which more than 200 have been currently registered as traders on ISE. In order to leverage its infrastructure and to expand its nationwide reach, ISE has also appointed around 450 Dealers across 70 cities other than the participation Exchange centers. These dealers are administratively supported through the regional offices of ISE at Delhi [north], Kolkata [east], Coimbatore, Hyderabad [south] and Nagpur[central], besides Mumbai. ISE aims to address the needs of small companies and retail investors by
40

harnessing the potential of regional markets, so as to transform them into a liquid and vibrant market using state-of-the art technology and networking. ISE has also floated a wholly-owned subsidiary, ISE securities and services limited [ISS], which has taken up corporate membership of the National Stock Exchange of India Ltd. [NSE] in both the Capital Market and Futures and Options segments and the Stock Exchange, Mumbai In the Equities segment, so that the trader and their local market. ISE thus provides the investors in smaller cities a one-stop solution for the cost-effective and efficient trading and settlement in securities. It also aims to make and build the professional careers of MBAs, post graduates and graduates, with a view to enabling them to work effectively in securities trading, risk management, financial management, corporate finance disciplines or functions as intermediaries (viz.stock brokers, sub-brokers, merchant brokers, clearing bankers, etc. ) With the objectives of broad basing the range of its services, ISE has started offering the full suite of DP facilities to its Traders, Dealers and their clients.

MISSION
ISE shall endeavor to provide flexible and cost-effective access to multiple
41

markets to its intermediaries across the country using the latest technology.

OBJECTIVES
1. Create a single integrated national level solution with access to multiple markets for providing high cost-effective service to millions of investors across the country. 2. Create a liquid and vibrant national level market for all listed companies in general and small capital companies in particular. 3. Optimally utilize the existing infrastructure and other resources of participating Stock Exchanges, which are under-utilized now. 4. Reduce transaction cost. 5. Provide clearing and settlement facilities to the Traders and Dealers across the Country at their doorstep in a decentralized mode. 6. Spread demat trading across the country.

SAILENT FEATURES
Network of intermediaries:

42

As at the beginning of the financial year 2003-04, 548 intermediaries (207 Traders and 341 Dealers) are registered on ISE. A broad of members forms the bedrock for any Exchange, and in this respect, ISE has a large pool of registered intermediaries who can be tapped for any new line of business.

Robust Operational Systems: The trading, settlement and funds transfer operations of ISE and ISS are completely automated and state-of-the-art systems have been deployed. The communication network of ISE, which has connectivity with over 400 trading members and is spread across46 cities, is also used for supporting the operations of ISS. The trading software and settlement software, as well as the electronic funds transfer arrangement established with HDFC Bank and ICICI Bank, gives ISE and ISS the required operational efficiency and flexibility to not only handle the secondary market functions effectively, but also by leveraging them for new ventures.

Skilled and experienced manpower: ISE and ISS have experienced and professional staff, who have wide experience in Stock Exchanges/ capital market institutions, with in some cases, the experience going up to nearly twenty years in this industry. The staff has the skill-set required to perform a wide range of functions, depending upon the requirements from time to time.

Aggressive pricing policy:


The philosophy of ISE is to have an aggressive pricing policy for the various products

43

and services offered by it. The aim is to penetrate the retail market and strengthen the position, so that a wide variety of products and services having appeal for the retail market can be offered using a common distribution channel. The aggressive pricing policy also ensures that the intermediaries have sufficient financial incentives for offering these products and services to the end-clients.

Trading, Risk Management and Settlement Software Systems: The ORBIT (Online Regional Bourses Inter-connected Trading) and AXIS (Automated Exchange Integrated Settlement) software developed on the Microsoft NT platform, with consultancy assistance from Microsoft, is the most contemporary of the trading and settlement softwares introduced in the country. The applications have been built on a technology platform, which offers low cost of ownership, facilitates simple maintenance and supports easy up gradation and enhancement. The softwares are so designed that the transaction processing capacity depends on the hardware used; capacity can be added by just adding inexpensive hardware, without any additional software work.

Vibrant Subsidiary Operations: ISS, the wholly owned subsidiary of ISE, is one of the biggest Exchange subsidiaries in the country. On any given day, more than 250 registered intermediaries of ISS traded from 46 cities across the length and breadth of the country.

MILESTONES
July 6, 1996 A report on Inter-connected Market System (ICMS) submitted 44

to the Federation of Indian Stock Exchange (FISE). October 26, 1996 January 4, 1997 January establishment of ICMS. Jan 22, 1998 November 18, 1998 February 26, 1999 December 31, 1999 January 18, 2000 February 24, 2000 May 3, 2000 segment of NSE. January 10, 2001 1000 million per day. February 28, 2001 Turnover of Rs. 1508.80 million recorded by ISS in the Capital Turnover in the Capital Market segment of NSE crosses Rs. ISE incorporated as a company limited by guarantee. SEBI grants recognition to ISE. Commencement of trading on ISE. Induction of 450 Dealers commences. Incorporation of ISS as a company limited by share capital. SEBI registers ISS for the Capital Market segment of NSE. Commencement of trading by ISS in the Capital Market Steering Committee was constituted by FISE at Hyderabad. Price water House Coopers, the management consultancy firm, submitted a feasibility report and recommended the

Market segment of NSE. May 4, 2001 Internet trading for clients started by ISS for the NSE segment through DotEx plaza. May 19, 2001 February 13,2002 May 6, 2002 ISEs website, www.iseindia.com launched. SEBJ registers ISS for the Futures & Options segment of NSE. ISS commences trading in the Futures & Options segment of NSE.

45

March 12, 2003 April 1,2003 June 21,2003

ISE admitted as a member of the Equities segment of BSE. DP services through CDSL launched by ISE. First Investor Education Program under the Securities Market Awareness Campaign conducted at Vashi.

January 9, 2004

Peak turnover of Rs.3034.90 million recorded by ISS in the

Capital Market segment of NS. May 17, 2004 July 17, 2004 Complex by ISE. July 24, 2004 September 3, 2004 December 27, 2004 September 15, 2005 by SEBI. October 20, 2005 November 24, 2005 November 24, 2005 Switchover to Direct Client Dealing commences in ISS. ISE re-registered as a for profit company, limited by shares. Board of ISE reconstituted in tune with the Corporatisation and Demutualisation provision. Second DP branch opened New Delhi by ISE. Third DP branch opened at Kolkata by ISE. Trading in the BSE equities segment started by ISS. Approval of ISEs Corporatization and Demutualisation Scheme first DP branch office opened at Coimbatore by ISE. First Investor Point opened at the Vashi Railway Station

BOARD OF DIRECTORS
46

Shri K.Rajendra Nair Shri P.J.Mathew Shri S.Ravi Shri K.V.Thomas Shri K.D.Gupta

Chairmen, Public Interest Director Managing Director Public Interest Director Shareholder Director Shareholder Director Shareholder Director

Shri Maninder Singh Grewal Shri Sanjeev puri Shri T.N.T.Nayar Shri P.Siva Kumar Shri Surendra Holani Shri Rajiv Vohra -

Shareholder Director Shareholder Director Shareholder Director Trading Member Director Trading Member Director

PROMOTING STOCK EXCHANGES


47

Bangalore Stock Exchange Limited 51, Stock Exchange Towers 1st Cross, J. C. Road Bangalore - 560 027 Cochin Stock Exchange Limited MES Dr. P. K. Abdul Gafoor Memorial Cultural Complex 36/1565, 4th floor Judges Avenue, Kaloor Cochin - 682 017

Magadh Stock Exchange Association Limited 9th floor, Ashiana Plaza Budh Marg Patna - 800 001 Saurashtra Kutch Stock Exchange Limited Popatbhai Sorathia Bhavan Sadar Bazar Rajkot - 360 001

Coimbatore Stock Exchange The Uttar Pradesh Stock Exchange Assn. Limited Limited Padam Towers Stock Exchange Building 14/113, Civil Lines CSX Towers Kanpur - 280 001 683-686, Trichy Road, Singanallur Coimbatore - 641 005 Jaipur Stock Exchange Bhubaneswar Stock Exchange Limited Limited Stock Exchange Bhavan, P-2, Jayadev Vihar Stock Exchange Building P.O. Chandrasekharpur Bhubaneswar-751023 J.L.N. Marg, Malviya Nagar Jaipur - 302 017 Mangalore Stock Exchange Madhya Pradesh Stock Exchange Limited 4th floor, Ram Bhavan Complex Palika Plaza, Phase II Kodialbail 201 M. T. H. Compound Mangalore - 575 003 Indore 451001 Gauhati Stock Exchange Madras Stock Exchange Ltd Limited 30 (old no. 11), Second Line Beach Saraf Building Annexe Chennai 600 001 A. T. Road Guwahati - 781 001

FII ACTIVITY IN THE MONTH OF APRIL 2009

48

GROSS PURCHASES DAY ENDED (Rs m)

GROSS SALES (Rs m)

NET INV. (Rs m)

1-Apr-09 2-Apr-09 6-Apr-09 8-Apr-09 9-Apr-09 13-Apr-09 15-Apr-09 16-Apr-09 17-Apr-09 20-Apr-09 21-Apr-09 22-Apr-09 23-Apr-09 24-Apr-09 27-Apr-09 28-Apr-09 29-Apr-09

16,952 27,615 26,198 37,969 21,018 20,583 40,626 30,193 25,476 18,682 14,963 14,245 14,061 19,484 36,618 15,441 28,693

14,604 20,653 24,475 33,128 20,112 14,164 32,904 26,234 17,586 15,356 15,590 14,228 10,944 14,349 18,221 17,180 25,247

2,348 6,962 1,723 4,841 906 6,419 7,722 3,959 7,890 3,326 -627 17 3,117 5,135 18,397 -1,739 3,446

TOTAL

408,817

334,975

73,842

49

50

FII ACTIVITY IN THE MONTH OF MAY 2009


DAY ENDED 04-may. 05-may. 06-may. 07-may. 08-may. 11-may. 12-may. 13-may. 14-may. 15-may. 18-may. 19-may. 20-may. 21-may. 22-may. 25-may. 26-may. 27-may. 28-may. 29-may. GROSS PURCHASES (Rs m) 38528 29691 28572 18988 31646 16844 25425 60331 15234 26730 581 125789 63995 38964 24120 50926 23231 40767 58709 59793 GROSS SALES (Rs m) 23616 22741 21689 15036 19240 15019 20487 19479 18691 16728 47 75341 66337 37495 31067 20465 24050 36398 37418 51451 NET INV. (Rs m) 14912 6950 6883 3952 12406 1825 4938 40852 -3457 10002 534 50448 -2342 1469 -6947 30461 -819 4369 21291 8342

TOTAL

778,864

572,795

206,069

51

52

FII ACTIVITY IN THE MONTH OF JUNE 2009


DAY ENDED 1-Jun-09 2-Jun-09 3-Jun-09 4-Jun-09 5-Jun-09 8-Jun-09 9-Jun-09 10-Jun-09 11-Jun-09 12-Jun-09 15-Jun-09 16-Jun-09 17-Jun-09 18-Jun-09 19-Jun-09 22-Jun-09 23-Jun-09 24-Jun-09 25-Jun-09 26-Jun-09 29-Jun-09 30-Jun-09 TOTAL GROSS PURCHASES (Rs m) 37985 40676 34238 36261 45506 26941 38153 38515 35818 29319 25786 18623 21683 21384 18944 16172 20473 16029 41115 25477 23881 29521 642,500 GROSS SALES (Rs m) 31806 38583 37400 29555 31332 23992 28246 31338 25887 24132 27919 25742 23948 26543 19205 18142 27055 22041 51496 18748 19909 27232 610,251 NET INV. (Rs m) 6179 2093 -3162 6706 14174 2949 9907 7177 9931 5187 -2133 -7119 -2265 -5159 -261 -1970 -6582 -6012 -10381 6729 3972 2289 32,249

53

54

FII ACTIVITY IN THE MONTH OF JULY 2009


GROSS PURCHASES DAY ENDED (Rs m) (Rs m) (Rs m) GROSS SALES NET INV.

1-Jul-09 2-Jul-09 3-Jul-09 6-Jul-09 7-Jul-09 8-Jul-09 9-Jul-09 10-Jul-09 13-Jul-09 14-Jul-09 15-Jul-09 16-Jul-09 17-Jul-09 20-Jul-09 21-Jul-09 22-Jul-09 23-Jul-09 24-Jul-09 27-Jul-09 28-Jul-09 29-Jul-09 30-Jul-09 31-Jul-09

14486 23027 21496 31895 59567 34510 23453 18978 20715 21069 28875 26185 28466 25789 25474 29364 53070 32639 30323 43156 28517 50712 30798 702,564

12849 19008 15813 35408 31581 26755 26369 25209 18811 16540 18565 23267 25866 18729 24973 27909 45971 22132 25861 35775 27126 38872 22922 586,311

1637 4019 5683 -3513 27986 7755 -2916 -6231 1904 4529 10310 2918 2600 7060 501 1455 7099 10507 4462 7381 1391 11840 7876 116,253

TOTAL

55

FII ACTIVITY IN THE MONTH OF AUGUST 2009


56

DAY ENDED 3-Aug-09 4-Aug-09 5-Aug-09 6-Aug-09 7-Aug-09 10-Aug-09 11-Aug-09 12-Aug-09 13-Aug-09 14-Aug-09 17-Aug-09 18-Aug-09 19-Aug-09 20-Aug-09 21-Aug-09 24-Aug-09 25-Aug-09 26-Aug-09 27-Aug-09 28-Aug-09 31-Aug-09 TOTAL

GROSS PURCHASES (Rs m) 18265 27814 19489 25809 21418 29728 28941 25950 29548 26399 17664 16443 22887 17776 24132 25439 20393 28126 41096 25743 26739 519,799

GROSS SALES (Rs m) 13505 25737 24294 28274 29879 32000 21900 27055 20176 16092 27402 16398 31608 20790 18670 16952 20929 17767 27668 14815 27601 479,512

NET INV. (Rs m) 4760 2077 -4805 -2465 -8461 -2272 7041 -1105 9372 10307 -9738 45 -8721 -3014 5462 8487 -536 10359 13428 10928 -862 40,287

57

FII ACTIVITY IN THE MONTH OF SEPTEMBER 2009


58

DAY ENDED 1-Sep-09 2-Sep-09 3-Sep-09 4-Sep-09 7-Sep-09 8-Sep-09 9-Sep-09 10-Sep-09 11-Sep-09 14-Sep-09 15-Sep-09 16-Sep-09 17-Sep-09 18-Sep-09 22-Sep-09 23-Sep-09 24-Sep-09 25-Sep-09 29-Sep-09 30-Sep-09 TOTAL

GROSS PURCHASES (Rs m) 25968 15003 19122 22083 29528 39293 31014 29985 26608 18631 29112 36089 60749 45045 32084 43112 57112 54403 37029 46879 698,849

GROSS SALES (Rs m) 28993 20745 18533 22651 19028 27548 28540 24236 23302 16010 20251 24350 34117 26347 17049 24785 43891 21284 26004 31790 499,454

NET INV. (Rs m) -3025 -5742 589 -568 10500 11745 2474 5749 3306 2621 8861 11739 26632 18698 15035 18327 13221 33119 11025 15089 199,395

59

FII ACTIVITY IN THE MONTH OF OCTOBER 2009


60

DAY ENDED

GROSS PURCHASES (Rs m)

GROSS SALES (Rs m) 32604 39471 41469 32985 43625 30318 20599 26859 29611 26649 27083 31499 29783 29910 19569 36488 30081 50135 33368 612,106

NET INV. (Rs m) 13721 -2375 314 7732 -3619 2507 9990 15825 9631 11967 17700 -3916 -2958 -486 1910 13410 278 -15946 7357 83,042

1-Oct-09 5-Oct-09 6-Oct-09 7-Oct-09 8-Oct-09 9-Oct-09 12-Oct-09 14-Oct-09 15-Oct-09 16-Oct-09 20-Oct-09 21-Oct-09 22-Oct-09 23-Oct-09 26-Oct-09 27-Oct-09 28-Oct-09 29-Oct-09 30-Oct-09 TOTAL

46325 37096 41783 40717 40006 32825 30589 42684 39242 38616 44783 27583 26825 29424 21479 49898 30359 34189 40725 695,148

61

62

FII ACTIVITY IN THE MONTH OF NOVEMBER 2009


GROSS PURCHASES (Rs m) 3-Nov-09 4-Nov-09 5-Nov-09 6-Nov-09 9-Nov-09 10-Nov-09 11-Nov-09 12-Nov-09 13-Nov-09 16-Nov-09 17-Nov-09 18-Nov-09 19-Nov-09 20-Nov-09 23-Nov-09 24-Nov-09 25-Nov-09 26-Nov-09 27-Nov-09 30-Nov-09 TOTAL 21881 33952 20355 34280 22802 30354 30871 25174 22719 25059 23794 25860 20835 22917 19513 23427 22553 29352 14208 29839 499,745

GROSS SALES (Rs m) 24889 33814 17679 27320 16310 26069 21143 23660 16001 18266 17856 20637 24178 24173 20193 20400 21901 26291 21511 22762 445,053

NET INV. (Rs m) -3008 138 2676 6960 6492 4285 9728 1514 6718 6793 5938 5223 -3343 -1256 -680 3027 652 3061 -7303 7077 54,692

DAY ENDED

63

64

FII ACTIVITY IN THE MONTH OF DECEMBER 2009


GROSS PURCHASES (Rs m) 1-Dec-09 2-Dec-09 3-Dec-09 4-Dec-09 7-Dec-09 8-Dec-09 9-Dec-09 10-Dec-09 11-Dec-09 14-Dec-09 15-Dec-09 16-Dec-09 17-Dec-09 18-Dec-09 21-Dec-09 22-Dec-09 23-Dec-09 24-Dec-09 29-Dec-09 30-Dec-09 31-Dec-09 TOTAL 45330 39149 23652 23038 19370 28737 21058 25548 21678 18301 22954 22151 25346 22348 18374 14108 24675 15947 17761 14172 27025 490,722

DAY ENDED

GROSS SALES (Rs m) 22389 24028 19365 18589 19399 18796 24027 21782 18257 16556 21814 23544 20455 23182 20957 11858 11140 7834 13917 10634 18685 387,208

NET INV. (Rs m) 22941 15121 4287 4449 -29 9941 -2969 3766 3421 1745 1140 -1393 4891 -834 -2583 2250 13535 8113 3844 3538 8340 103,514

65

66

FII ACTIVITY IN THE MONTH OF JAN 2010


GROSS PURCHASES (Rs m) 1-Jan-10 4-Jan-10 5-Jan-10 6-Jan-10 7-Jan-10 8-Jan-10 11-Jan-10 12-Jan-10 13-Jan-10 14-Jan-10 15-Jan-10 18-Jan-10 19-Jan-10 20-Jan-10 21-Jan-10 22-Jan-10 25-Jan-10 27-Jan-10 28-Jan-10 29-Jan-10 TOTAL 58816 16216 33383 34316 34273 32683 75386 28936 36220 36024 19836 26199 21237 27117 26986 32472 16287 29571 34961 39400 660,319

GROSS SALES (Rs m) 43974 9200 22763 25925 30096 31176 27946 31556 36655 37388 28734 23252 25752 27440 32681 53067 25291 48769 56599 37426 655,690

NET INV. (Rs m) 14842 7016 10620 8391 4177 1507 47440 -2620 -435 -1364 -8898 2947 -4515 -323 -5695 -20595 -9004 -19198 -21638 1974 4,629

DAY ENDED

67

68

FII ACTIVITY IN THE MONTH OF FEB 2010

GROSS PURCHASES DAY ENDED (Rs m) 1-Feb-10 2-Feb-10 3-Feb-10 4-Feb-10 5-Feb-10 8-Feb-10 9-Feb-10 10-Feb-10 11-Feb-10 15-Feb-10 16-Feb-10 17-Feb-10 18-Feb-10 19-Feb-10 22-Feb-10 23-Feb-10 24-Feb-10 25-Feb-10 26-Feb-10 TOTAL 23455 28101 23744 17416 15178 17418 19788 23768 18089 16286 11813 29770 20483 21358 15382 21079 24027 24021 36781 407,957

GROSS SALES (Rs m) 23943 27992 18888 17841 31475 25483 23744 24004 14580 14111 9243 17531 20772 18424 14986 13641 17869 26458 25837 386,822

NET INV. (Rs m) -488 109 4856 -425 -16297 -8065 -3956 -236 3509 2175 2570 12239 -289 2934 396 7438 6158 -2437 10944 21,135

69

70

FII ACTIVITY IN THE MONTH OF MARCH 2010


GROSS PURCHASES (Rs m) 2-Mar-10 3-Mar-10 4-Mar-10 5-Mar-10 8-Mar-10 9-Mar-10 10-Mar-10 11-Mar-10 12-Mar-10 15-Mar-10 17-Mar-10 18-Mar-10 19-Mar-10 22-Mar-10 23-Mar-10 25-Mar-10 26-Mar-10 29-Mar-10 30-Mar-10 TOTAL 38127 29409 25851 34625 44613 37301 27167 23029 25509 44016 28192 26335 26717 19929 24675 53251 34698 29462 27190 600,096

GROSS SALES (Rs m) 22780 19276 18929 15834 22018 19599 22985 18559 21620 30489 16478 19227 22782 17224 19820 42311 23906 19138 18785 411,760

NET INV. (Rs m) 15347 10133 6922 18791 22595 17702 4182 4470 3889 13527 11714 7108 3935 2705 4855 10940 10792 10324 8405 188,336

DAY ENDED

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FII Investments over Last Year


MONTH ENDED NET INV. (Rs m) MONTH END Rs / US$ MONTH END INDEX CUMM. INV. (Rs m) % GAIN (Rs m) % GAIN (US$ m)

Jan - 2009 Feb - 2009 Mar - 2009 Apr - 2009 May - 200 9 Jun - 2009 Jul - 2009 Aug - 200 9 Sep - 2009 Oct - 2009 Nov - 200 9 Dec - 200 9 Jan-2010 Feb-2010 Mar-2010

-42502 -26905 2690 73842 206069 32249 116253 40287 199395 83042 54692 103514 58130.3 38655.5

48.88 51.16 50.73 50.09 47.09 47.91 47.94 48.83 48.11 46.98 46.51 46.62 46.19 45.84

9424 8892 9709 11403 14625 14494 15670 15667 17127 15896 16926 17465 16357 15651

-42502 -69407 -66717 7125 213194 245443 361696 401983 601378 684420 739112 842626 900756.3 939411.8

88 92.3 92.7 -294.7 10.6 12.1 12.4 12.5 9.5 9.7 9.3 8.4 8.3 8.25

107 133.4 136.1 -224.7 17.8 19.1 20.3 20.6 17.8 17.6 16.9 15.6 15.2 14.9

188,336

45.08

17,590

214,100

(0.3)

1.2

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Showing FIIs % of Investment in different sectors of the Economy

Sector IT and Enabled services Pharma Aviation Banking Industry Real Estate Others

FII % of Investment 28 09 06 21 11 25

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FIIS % OF INVESTMENT

IT and Enabled Services Pharma Aviation Banking Industry Real Estate Others

Interpretation
1 From the above table and Pie Chart it is clear that FIIs are majorly investing in IT and its enabled services, which is around 28%. 2 They are also keen in investing in Banking, Real estate, and Pharmacy and Aviation sectors also. 3 It also shows FIIs interest in various sectors, and they majorly invest in the booming sectors.

Showing the increase in Number of FIIs over the years.

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Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Number of FIIs 1845 1706 1100 1059 832 637 540 426 398 354 315

Bar chart showing the number of FIIs from 2000 to 2010:

Interpretation
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From the above Bar graph it is very much clear that there has been an increase in the number of FIIs coming to India.

2 3

From 315 in 2000, the FIIs has grown to over 1845 as on mar 2010. After 2003 the number of FIIs registering with SEBI has seen a high growth.

Table 7: Showing % of FII Holding in Sensex companies.

Year December 2005 March 2006 December 2006 March 2007 December 2007 March 2008 December 2008 March 2009 December 2009

FII % 19.02 23.32 24.65 25.40 27.40 29.55 31.8 32.8 32.7

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March 2010

33.1

Interpretation:There is a consistence growth in FIIs holding in Sensex companies. In December 2005 they have a stake of 19%. It is 34.1% in the march, 2010. There has been an increase in the FII holding in sensex companies since 2005.

Table 8: Showing FII % of share holding to overall Market Capitalization.

Year 2005-06 2006-07 2007-08 2008-09

% of FII 4.9 4.0 2.09 1.89

Interpretation
1. From the above tables it can be obsereved that FIIs % of holdings in sensex companies has risen over the years, but their % against the overall market capitalization has witnessed a downfall. 78

2. From the second table we can say that FIIs role in determining the direction of the secondary market may be on the decline stage. 3. Though FII inflow into Sensex companies have risen, it has not kept pace with growth in the market capitalization of these companies. 4. Decrease in the FIIs % holding to overall market capitalization is a good sign for the Indian share market.

Table 9: Showing FII % of holding in some major Sensex Companies:

Company Infosys Technologies Satyam computer services Ranbaxy Laboratories Cipla HDFC Bank ICICI Bank SBI Jet Airways

2009(%) 42.02 60.04 19.45 16.59 40.49 60.95 11.90 8.58

2008(%) 39.30 52.55 19.39 18.78 32.49 42.87 11.90 13.78

2007(%) 40.57 54.04 22.24 17.57 26.69 48.85 11.46 12.97 79

Interpretation
1 From the above table it is clear that FIIs take a good amount of share in Sensex companies. 2 3 4 In most of their share has shown an increasing trend. Especially in IT and Banking companies they are keen in increasing their share. Their investment is spread across all the major sectors of the economy.

Table 10: Showing SENSEX Movements as against FIIs Trading Activity from April 01, 2007-March 31,2010.
Month Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Opening Price 12,811.93 13,987.77 14,610.28 14,685.16 15,344.02 15,401.99 17,356.99 20,130.23 19,547.09 20,325.27 17,820.67 17,227.56 15,771.72 17,560.15 16,591.46 13,480.02 14,064.26 14,412.99 13,006.72 10,209.37 9,162.94 Closing price 13,872.37 14,544.46 14,650.51 15,550.99 15,318.60 17,291.10 19,837.99 19,363.19 20,286.99 17,648.71 17,578.72 15,644.44 17,287.31 16,415.57 13,461.60 14,355.75 14,564.53 12,860.43 9,788.06 9,092.72 9,647.31 Increase/Decr ease in Stock Price 1,060.44 556.69 40.23 865.83 -25.42 1,889.11 2,481.00 -767.04 739.90 -2,676.56 -241.95 -1,583.12 1,515.59 -1,144.58 -3,129.86 875.73 500.27 -1,552.56 -3,218.66 -1,116.65 484.37 FII Net investment (purchasesales) 59987 40968 71694 189953 -41913 189485 173631 -45974 37558 -42,502.00 -26,905.00 2,690.00 73,842.00 206,069.00 32,249.00 116,253.00 40,287.00 199,395.00 79,477.00 -172,269.00 48,827.00

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Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10

9,720.55 9,720.55 9,363.58 8,762.88 9,745.77 11,403.25 14,746.51 14,506.43 15,691.27 17,186.20 15,828.63 16,947.46 17,473.45 16,339.32 16,429.55

9,647.31 9,424.24 8,891.61 9,708.50 11,403.25 14,625.25 14,493.84 15,666.64 17,126.84 17,009.17 16,926.22 17,464.81 16,339.32 16,254.20 17,527.77

-73.24 -296.31 -471.97 945.62 1,657.48 3,222.00 -252.67 1,160.21 1,435.57 -177.03 1,097.59 517.35 -1,134.13 -103.76 1,098.22

1,244.00 5,080.00 -46,722.00 -105,777.00 1,758.00 -35,979.00 -65,996.00 -142,486.00 -35,037.00 14,260.00 5,469.00 8,070.20 19,939.40 4,564.20 188,336

BAR-CHART SHOWING PRICE MOVEMENT ALONG WITH FII NET INVESTMENT:

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INTERPRETATION: From the above Table, Co-relation chart we can understand that there is a low impact of FIIs net investment and price movement of stock market. How ever FIIs are active traders in Indian market and they are impacting Indian capital markets. In the above co-relation chart the points are in the oval shape and hence it shows a very low relationship between stock index and FII investments.

FINDINGS:
1. FII can boost employment directly. Thus, developing countries become more productive as labour intensive industries are established in their economies. Also FII can indirectly improve a host economys competitiveness, productivity and efficiency among local firms, as they adopt technologies similar to those of their countrys multinational companies (MNCs) in order to compete with them successfully. 2. FIIs have seen a declining trend in recent years but the picture of FII flows to developing countries is quite gloomy compares to the high volume of FII inflows to the developing world in the 1980s and 1990s.

3.

It was found that there is a relation between foreign direct investment and the development process in the developing countries.

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4. Inward and out ward investments help investors to diversify their investments and earn a higher return at lower risk. 5. Cross-border investment contribute to a narrowing of the gap between rich and poor countries. 6. The Indian Insurance market is expected to be around US$52 billion by 2010. 7. 8. Total estimated investment opportunity of US$14-15 billion. Allocation is very high in Certificate of deposit around 60.49% out of total investments followed by pass through certificate with 15.90%.

SUGGESTIONS
Developing countries need to have reached a certain level of educational, technological and infrastructure development before being able to benefit from a foreign presence in their markets. 1. Developing countries need to improve the following areas in order to be competitive in the global markets: a. Increasing financial resources for development. b. Boosting export competitiveness. c. Generating employment and strengthening the skills base. d. Enhancing technological capabilities. 2. Innovative products such as Unit Linked Insurance Policies are likely to drive future industry growth.

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3. It is better to FIIs to enter into Indian markets, It is offering high returns than other countries.

Conclusion
1. The foreign portfolio flows have become the important source for strengthening and improving the functioning of the domestic capital markets. 2. There is a general understanding that Indian stock market is primarily driven by FIIs. FIIs investment in the BSE Sensex companies is about 34% of the total outstanding share, which is not significant as compared to the size of our capital market. 3. India has a turnover ratio of 94.2% which is quite comparable to the other developed markets like the U.S.A and U.K which has turnover ratios of 129.1% and 141.9% respectively. 4. However, last one year quarter end analysis gives somewhat optimistic results for FIIs. 84

LIMITATIONS OF THE STUDY


The study is carried out based on Secondary data and data collected from various Magazines, Journals, News Papers, Books, Internet and Web Sites. So that the result or finding out is subjected to the data used in the study. covers the areas of FIIs and their effects. related to only BSE. India are only studied. Study is FIIs related to My study The study only

limited due to time constraint and may not be detailed in all aspects.

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