PRESENTED BY

-
SANDIPAN DAS.
FOREIGN INSTITUTIONAL
INVESTOR
Flow of presentation
 How FII started in India?
 What does it mean?
 Who can be registered?
 How to apply?
 Eligibility criteria
 Registration process
 where FII can invest?
 taxation
 Need of FII
 Impact in Indian market
 Volatile in nature
 How they perform?
 FII vs FDI
 Stock market crash












How FII started in India?
 India opened its stock market to foreign investors in
September 1992
 Since 1993, received portfolio investment from foreigners
in the form of foreign institutional investment in equities.
 This has become one of the main channels of FII in India
for foreigners.
 In order to trade in Indian equity market foreign
corporations need to register with SEBI as Foreign
Institutional Investor (FII).
WHAT IS FII?
 Foreign institutional investor means “an institution
established or incorporated outside India which
proposes to make investment in India in securities
 It is used most commonly in India to refer to outside
companies investing in the financial markets of
India.

WHO CAN BE REGISTERED AS AN FII?
 One who propose to invest their proprietary funds or on behalf of "broad
based" funds or of foreign corporates and individuals and belong to any of the
under given categories can be registered for FII.

 Pension Funds
 Mutual Funds
 Investment Trust
 Insurance or reinsurance companies
 Endowment Funds
 University Funds
 Foundations or Charitable Trusts or Charitable Societies who propose to invest
on their own behalf, and
 Asset Management Companies
 Nominee Companies
 Institutional Portfolio Managers
 Trustees
 Power of Attorney Holders
 Bank

HOW TO APPLY
 An application for registration has to be made in Form A, the format of
which is provided in the SEBI(FII) Regulations, 1995 and submitted
with under mentioned documents in duplicate addressed to SEBI as
well as to Reserve Bank of India (RBI) and sent to the following address
within 10 to 12 days of receipt of application.

Address for application
The Division Chief
FII Division
Securities and Exchange Board of India,
224, Mittal Court, 'B' Wing, 1st Floor,
Nariman Point, Mumbai - 400 021.
INDIA.


The eligibility criteria for applicant
As per Regulation 6 of SEBI (FII) Regulations,1995,
Foreign Institutional Investors are required to fulfill the
following conditions to qualify for grant of registration
 Applicant should have track record, professional competence, financial
soundness, experience, general reputation of fairness and integrity;
 The applicant should be regulated by an appropriate foreign regulatory
authority in the same capacity/category where registration is sought
from SEBI. Registration with authorities, which are responsible for
incorporation, is not adequate to qualify as Foreign Institutional
Investor
Eligibility
 The applicant is required to have the permission under the provisions
of the Foreign Exchange Management Act, 1999 from the Reserve Bank
of India.
 Applicant must be legally permitted to invest in securities outside the
country or its in-corporation / establishment.
 The applicant must be a "fit and proper" person.
 The applicant has to appoint a local custodian and enter into an
agreement with the custodian. Besides it also has to appoint a
designated bank to route its transactions.
 Payment of registration fee of US $ 5,000.00

Registration process
Where FII can invest?
Current financial instruments are available for
FII investments
 Securities in primary and secondary markets
including shares, debentures and warrants of
companies, unlisted, listed or to be listed on a
recognized stock exchange in India;
 Units of mutual funds;
 Dated Government Securities;
 Derivatives traded on a recognized stock exchange ;
 Commercial papers
Taxation
Nature of Income Tax Rate:
1. Short-term capital gains30%
2. Long-term capital gains10%.
3. Corporate dividend declared after June 01, 1997Nil
4. Interest Income20%


Short-term Capital Gain: Capital gain on sale of a security held for a
period of less than one year is termed as short-term capital gain
Long-term capital gain: Capital gain on sale of a security held for
period more than one year is termed as Long-term capital gain

YEAR PURCHASE
S
SALES RS.CR US$MN
2001-02 49920 41165

8755

1846
2002-03 47061 44371 2690 562
2003-04 144858 99094 45765 9950
2004-05 217911 171696 46215 10248
2005-06 165032 150886 14146 3262
Why there is need of FII ?
 FII flows supplements and augmented domestic
savings and domestic investment without increasing
the foreign debt of our country
 Capital inflows to the equity market increase stock
prices, lower the cost of equity capital and encourage
the investment by Indian firms
 The expert group opines that FII inflows have some
savings like features
Impact Of FIIs On Indian Markets
 In the past four years there has been more than $41 trillion
worth of FII funds invested in India.
 This has been one of the major reasons on the bull market
witnessing unprecedented growth with the BSE Sensex
rising 221% in absolute terms in this span.
 The present downfall of the market too is influenced as
these FIIs are taking out some of their invested money.
 For long-term value investors, there’s little because for
worry but short term traders are adversely getting affected
by the role of FIIs are playing at the present.
Why FII called good friend for good
time – volatile in nature
 In the Indian stock markets movement of the stock
depends on the limited no of stocks
 As FIIs purchase and sell these stocks there is a high
degree of volatility in the stock market
 If any set of development encourages outflow of
capital that will increase the vulnerability of the
situation in the stock market
 In India there have been five such incidents in the
recent past
How they perform
The degree of volatility can be attributed to the
following reasons:
 The increase in investment by FIIs increases stock indices
the stock prices and encourages further investment . In this
event when any correction takes place the stock prices
decline and there will be pull out by the FIIs in a large
numbers as earning per share declines
 The FIIs manipulate the situation of boom in such a
manner that they wait till the index rises up to a certain
height and exit at an appropriate time. This tendency
increases the volatility further

FII vs FDI
 Where FDI is a bit of a permanent nature, FII flies away at
the shortest political or economical disturbance
 Entry and Exit is relatively very easy for an FII as compared
to FDI. Entry difficult for FDI because of infrastructure
problems. Exit more difficult because of archaic labor laws
 have been blamed for exacerbating small economic
problems in a country by making large and concerted
withdrawals at the first sign of economic weakness.

FDI vs FII….
 FDI is more desirable than portfolio investment
because the investments there under are made
directly in the capital of the company and not in the
secondary market
 FDI helps in increasing production and employment
, FII does not affect production and employment .
 FII investment is frequently referred to as hot money
for the reason that it can leave the country at the
same speed at which it comes in, in case of FDI it
does’nt
FIIs as major cause of market crash
( Jan 21 to Jan 29 2008)
 The Indian capital markets have been left reeling
under the impact of liquidity crunch
caused by multiple factors
 It began with two mega issues of reliance power and
future capital holdings, which drew out huge
amounts of money from the market
 FIIs bowed out from the capital market with more
than Rs 10000 crore

Crises continue….
 As result , the market came crashing down and in two days
Jan. 21 and 22 the market tumbled 2284 points from the
closing levels point of Friday (jan.18)
 The highlight of this fortnight was historic intra-day
shedding of more than 2300 points on BSE on January 22
when trading was halted once at 10 % lower
 The market again fell to 13 % during the trading session



Total inflow and outflow of FII during Jan.
21 to 29
Date Investment
21 Jan. - 2425.7
22 Jan - 2256.2
23 Jan - 2499.
24 Jan - 1351.2
25 Jan - 669.1
28 Jan - 1513.4
29 Jan - 285.1
Total - - 9662
Last day Investment
Reportin
g date
Debt /
equity
Gross
purchas
e ( Rs
crore)
Gross
sales
(Rs
crore)
Net
investm
ent (Rs
crore)
NET
investm
ent us
million $
3 April
2008
equity 2898.6 2918.7 -20.2 5.00
debt 00 00 00 00