Role of Foreign Institutional Investors In Indian Stock Market

:Prepared By: Alfiya Vhora Charu Agarwal Dimple Chopra Khusbu Patel Shruti Jain Yashi Singhal

Overview
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ What is FII and FDI FII v/s FDI Why there is need of FII ? Types of FII Who can be registered as an FII? The eligibility criteria for applicant Major players of FII in Indian Stock market Major cause of Market crash in 2008 Share of FII in NSE FII investment in 2009 Regulations of FII Impact of FII on Indian market

Investment in the Country from Abroad
‡ FDI : Foreign Direct Investment

‡ FII : Foreign Institutional Investment

FII v/s FDI
‡ ‡ ‡ ‡ ‡ ‡ ‡

Entry and Exit Production and employment Hot money Primary & Secondary market Short term v/s Long term Investors Registration

Why there is need of FII ?

Types of FII
‡ Normal: Investing in equity and non equity in the ratio of 70:30 ‡ Debt: investing in 100% debt securities

Who can be registered as an FII?

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.

Registration Process

The Eligibility criteria for Applicant
‡ The applicant should have been in existence for at least one year ‡ Permission under the provisions of the Foreign Exchange Regulation Act ‡ The applicant has to appoint a local custodian

Eligible Securities
‡ Securities in the primary and secondary markets ‡ Units of schemes floated by domestic mutual funds ‡ Derivatives traded on a recognized stock exchange ‡ Government Securities

Major Foreign Institutional Investors In Indian Market
‡ ‡ ‡ ‡ ‡

Citigroup Deutsche Group HSBC Global Investments Morgan Stanley & Co. International Ltd. Merrill Lynch Capital Markets Espana

FIIs as major cause of market crash ( Jan 21 to Jan 29 2008)

Share of FII in NSE Listed Companies
End of March 2007 Sectors Banks Engineering Finance FMCG Information Technology Infrastructure Manufacturing Media & Entertainment Petrochemicals Pharmaceuticals Services Telecommunication Miscellaneous Total stake of FIIs End of March 2008 End of June 2008 Percentage Share of Foreign institutional Investors 18.41 11.45 18.18 11.91 14.53 7.15 9.57 15.2 5.83 11.17 13.09 11.17 8.19 10.78 19.15 10.63 17.44 14.07 16 8.86 9.46 11.71 4.73 10.69 10.7 9.12 9.3 10.62 17.1 9.24 15.83 13.46 16.3 8.16 8.51 11.08 5.38 10.3 10.89 9.18 9.94 9.94

Source: www.nseindia.com

Market Capitalization
Indian Stock Market
Market Capitalization Ratio
2006-07 2007-08

13.14%

15.08%

Market Capitalization of FII holdings (Rs. Million)
GDP (Rs. Million) Market Capitalisation of FIIs holding to Total Market Capitalisation of NSE Market Capitalisation- FII holding (Rs.million) Market Capitalization- Total of NSE (in Rs. Million)

5,421,606 41,257,250

7,121,181 47,234,000

16.10% 5,421,606 33,673,500

14.66% 7,121,181 48,581,217

Source: www.nseindia.com

FII Regulations
‡ Limit for FII investments ‡ Allowed to transact business ‡ Equity shares can be borrowed by FIIs only for the purpose of delivery into short sale ‡ No transactions on the stock exchange can be carried forward ‡ Transaction of business in securities

FIIs Investment in 2009
‡ FIIs have made net investments of US$ 10 billion ‡ FII has done investment in different sectors ‡ Infrastructure & Heavy Engineering attracted FII

Year 2009
Month July August September Net Purchase/ Sale (in crores) Rs.11,625.30 Rs.4,028.70 Rs.18,430.60

www.caclubindia.com

Reason for FIIs to Invest
‡The late revival of monsoon ‡Upward revision of economic growth from 5.8 % to 6.1% ‡Better performance of companies in the 1st quarter ended-June 30 ‡ Trade policy with an ambitious target of US$ 200 billion exports for 2010-11

Impact of FII on Indian Market
‡ They increased depth and breadth of the market. ‡ They played major role in expanding securities business. ‡ Their policy on focusing on fundamentals of the shares had caused efficient pricing of shares.

Net Investments of FII from 2003-08

Year
2003 2004 2005 2006 2007 2008 (10/08/08)

Net Investment
30458.7 38965.1 47181.2 36539.7 71486.5 -29169

www.moneycontrol.com

FII s major Impact
‡ Biggest fall of Indian Market in Oct 2007 ‡ Almost 50%of the investment are from the p-notes .This has a negative impact on stock market. ‡ There is a direct relation between FIIs money flow and the movement of sensex.

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