Contents

Õ Definition
Õ Types of foreign investment
Õ FDI & its characteristics
Õ FII & P-notes
Õ FDI Vs FII
Õ NRI Deposit
Õ Conclusion
Ú
 n's definition
Õ { Foreign investment in not considered
as cost of capital but also something
that provides´ :

1.Modern Technology
2.Modern Management
3.Practice employment opportunitiesµ
and a new market for products
produced in India.
 Foreign Investments

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 Foreign Direct Investment

(FDI)

Foreign Entity
wants to enter in But HOW?
the Indian Market

Portfolio Investment Scheme

( PIS)ĺFII
ñeed of Foreign Investent
ΠImprovement of Economical
infrastructure
ΠTechnological Up gradation
ΠManaging Balance of Payments
ΠExploitation of Natural Resources
ΠScope of Employment
ΠImprovement of export competitiveness
ΠBenefit to consumers
j
es of foreign Investent
Õ Foreign Direct Investment (FDI)
a. Greenfield investment
b. Mergers and Acquisition

Õ Foreign Portfolio Investment (FPI)

a. GDR/ADR.
b. Foreign Institutional Investment (FII).
d
FDI ?
1. Gain a foothold in a new geographic
market.

2. Increase a firm¶s global competitiveness

and positioning.

3. Fill gaps in a company¶s product lines in

a global industry.

4. Reduce costs in areas such as R&D,

production, and distribution.
Me ning of FDI ?

FDI is an important constituent of the

globalization efforts of the world
economy

The foreign investors acquire

ownership of assets in the host country
firms in proportion to their equity
holdings.
Õ Foreign direct investment (FDI) is a
measure of foreign ownership of
productive assets, such as factories,
mines and land.

Õ Increasing foreign investment can be

used as one measure of growing
economic globalization.
MAJOR BODIES COñSjIjjED
FOR FDI :
1991- Foreign Investment Promotion Board FIPB

1996- Foreign Investment Promotion Council

FIPC

1999- Foreign Investment Implementation Authority

FIIA

2004- Investment Commission

Secretariat for Industrial Assistance (SIA)

Intern tion  Direct Investent
Fows:

Period FDI Outflow FDI Inflows Net

1960-69 ü 42.18 bn ü 5.13 bn + ü 37.04 bn
1970-79 ü 122.72 bn ü 40.79 bn + ü 81.93 bn
1980-89 ü 206.27 bn ü 329.23 bn - ü 122.96 bn
1990-99 ü 950.47 bn ü 907.34 bn + ü 43.13 bn
2000-07 ü 1,629.05 bn ü 1,421.31 bn + ü 207.74 bn
Total ü 2,950.69 bn ü 2,703.81 bn + ü 246.88 bn
Sh re of to investing countries in FDI infows
Aug 1991 to 2002 oct

ank country % in total

Mauritius 38.7
USA 17.1
Japan 6.8
UK 5.2
Germany 5
Netherlands 4.5
Korea(south) 3.1
France 2.8
Italy 2.4
Singapore 2.3
jo 1o sectors ttr cting FDI
infows 1991-2004
Drugs and Cement and Metallic
Food pharma gypsum industries
processing 4% 4% 3%
5%
Electrical
equipment
Chemicals 23%
8%

Transport
Fuels
industry
12%
14%

Service
industry
Tele- 14%
communication
13%
Õ The main countries or continent, which are
highly benefited by the FDI in the recent
years are:

Õ Africa
Õ Asia
Õ Latin America
Õ North America
Õ Parts of Europe
India Japan Investment Relations
‡ ]apan 3rd largest investor : US$ 2.18 billion (November2007)
± USü 168 million in 2005
± USü 104 million in 2006 (Jan -Sept)
‡ Top sectors
± Transportation (55%), Electrical Equipment (7%),
‡ About 350 ]apanese companies present in India.
‡ ]apan Global Investments
± USü31 billion in 2004
± USü46 billion in 2005
± Around USü10 billion in East Asia
‡ ]apan cell set up in to facilitate establishment and operation of
]apanese investments.
Japanese FDI Projects over 2005-2007




 
 
 
Maruti udhyog 699 New factory for car
production & diesel
engine plant
Mcc Pta 364 Increasing capacity of
Haldia plant
Toyota motor 128 Increasing its capacity
corporation
Honda 314 Increasing its capacity
and building new
factory
sakata inx 54 Increasing its capacity
Fors of foreign direct investent th t re
rev ent in the deveoing countries cross the
word:

Õ Monetary collaborations
Õ Capital market through Euro issues
Õ Joint Ventures
Õ Private placements and preferential
allotments
Õ Technical allotments
j
es of FDI
Õ an individual;
Õ a group of related individuals;
Õ an incorporated or unincorporated entity;
Õ a public company or private company;
Õ a group of related enterprises;
Õ a government body;
Õ an estate (law), trust or other societal
organization; or
Õ any combination of the above
Infr structure
Õ 100% FDI is permitted in following activities :

- Electricity generation(except atomic energy)

- Electricity transmission
- Electricity distribution
- Mass rapid transport system
- Roads and highways
- Toll roads
- Vehicular bridges
- Ports and harbors
- Hotel and tourism
Adv nt ges to the FDI
Õ Stable democratic environment over 55
years of independence
Õ Large and growing market
Õ World class scientific, technical and
managerial power
Õ Cost effective and highly skilled labor
Õ Abundance of natural resources
Õ Large English speaking population
Õ Well-established legal system with
independent judiciary
Õ Developing banking system with vibrant
capital market
Õ Well developed accountancy
,legal, actual and consultancy profession
Õ Surveys by leading organizations rate
India among the top three investment
hot spot and one of the fastest growing
economies of the world.
DISADVAñjAGES jO j E FDI
Õ Industrial
Sector Dominance in the
Domestic Market.

Õ TechnologicalDependence on
Foreign Technology Sources.

Õ Disturbance of Domestic Economic

Plans in Favor of FDI-Directed
Activities.
FORBIDDEñ jERRIjORIES

FDI is not permitted in the following industrial

sectors:

Õ Arms and ammunition.

Õ Atomic Energy.

Õ Railway Transport.

Õ Coal and lignite.

Õ Mining of iron, manganese, chrome,
gypsum, sulphur, gold, diamonds,
copper, zinc.

Õ Lottery Business

Õ Agricultural or plantation activities

Õ Housing and Real Estate Business

dh
there is need of FII ?
Õ FII flows supplements and augmented
domestic savings and domestic investment
without increasing the foreign debt of our
country
Õ Capital inflows to the equity market
increase stock prices, lower the cost of
equity capital and encourage the
investment by Indian firms
Õ The expert group opines that FII inflows
have some savings like features
 ow FII st rted in Indi ?
Õ India opened its stock market to foreign
investors in September 1992
Õ Since 1993, received portfolio
investment from foreigners in the form of
foreign institutional investment in
equities.
Õ This has become one of the main
channels of FII in India for foreigners.
Õ In order to trade in Indian equity market
foreign corporations need to register
with SEBI as Foreign Institutional
Investor (FII).
 FIIs

Who are they ?

FII means foreign companies investing in the

financial markets of India.

International institutional investor must

register with (SEBI).

Limits ownership in indian companies.

Aic tion for FII registr tion

Õ Applicant should have track record,

professional competence, financial
soundness, experience, general reputation
of fairness and integrity

Õ The applicant is required to have the

permission under the provisions of the
Foreign Exchange Management Act, 1999
from the Reserve Bank of India.
 KEY POINTS

Õ Foreign Institutional Investor can individualy

purchase up to 10% and collectively 24% of
the paid up share capital of an Indian
company.
Õ The limit of 24% can be increased as
applicable to the Indian company by passing a
board resolution.
Õ FII¶s can purchase shares through open offers
or stock exchange.
Õ Shares purchased by FII through stock
exchange cannot be sold through private
arrangement.
Entr
otions for FII
Incorporated Entity : By incorporating a company under
the Companies Act,1956 through

Joint Ventures
Wholly Owned Subsidiaries

Unincorporated Entity : As a foreign Company through

Liason Office/Representative Office

Project Office
Branch Office

Such offices can undertake activities permitted under the

Foreign Exchange Management Regulations,2000.
Õ FII can raise money through
participatory notes or off share
derivative instruments for investment in
the underlying Indian securities.

Õ FII¶s in addition to investment under the

FII route can invest under the FDI route.
 Iort nce
Õ They bring liquidity to the to the table. Which in turn
enhances the process of cash flow to the business

Õ One reason institutional investors are important to the

current business world is that they can have more clout than
individual investors.

Õ Because they can own large blocks off stock in a

corporation, they can exercise more influence in how they
company is run.

Õ Moreover, institutional investors are generally more

knowledgeable than individuals and have the resources to
follow and understand what a business is doing.
FIIs s  or c use of  rket
cr sh
( J n 21 to J n 29 2008)
Õ The Indian capital markets have been left
reeling under the impact of liquidity crunch
caused by multiple factors

Õ It began with two mega issues of reliance

power and future capital holdings, which
drew out huge amounts of money from the
market
Crisis continue«
FIIs bowed out from the capital market with more
than s 10000 crore

Õ 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)

Õ 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

Õ The market again fell to 13 % during the trading

session
Most ctive foreign institution 
investors in Indi
Õ HSBC
Õ MERRILL LYNCH
Õ CITI GROUP
Õ CLSA
 dhat Does 
 

 Mean?

Participatory Notes ² or P-Notes or PNs ² are instruments

issued by registered foreign institutional investors to overseas
investors, who wish to invest in the Indian stock market without
registering themselves with the market regulator, the Securities
and Exchange Board of India.

Financial instruments used by hedge funds that are not

registered with SEBI to invest in Indian securities. Indian-based
brokerages to buy India-based securities / stocks and then issue
participatory notes to foreign investors.

Any dividends or capital gains collected from the underlying

securities go back to the investors.
ñOñ RESIDEñj IñDIAñS
Õ Generally policy and facility for FDI available to NRI¶s

Õ Following additional concessions are available to NRI¶s :

1 NRI investment in construction development projects

inclusive of housing sectors up to 100% where as conditions
prescribed under press note 2 of 2005 are not applicable

2 NRI investment in domestic airlines sector up to 100%

Further NRI¶s are permitted to invest on repatriable basis in

partnership firms and proprietary concerns on prior approval
of Reserve Bank of India
¬ROS of FII
è

  

 


 
 

 
FII vs FDI
Õ Where FDI is a bit of a permanent
nature, FII flies away at the shortest
political or economical disturbance

Õ 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
COñjD««
Õ 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

Õ FDI helps in increasing production and

employment , FII does not affect production and
employment .

Õ FII investment is frequently refered to as hot

money for the reason that it can leave the
country at the same speed in which it comes
in, in case of FDI it doesn¶t
 "





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ef: Handbook of Statistics of Indian Economy 2006,

I: www.rbi.org.in
Concusion«
Õ Economics occupies centre stage in 2004
elections

Õ Rising expectations; rising prosperity

Õ Legal regime: more stable and predictable

Õ Bureaucracy: changing with the times

Õ The Future beckons

Bibiogr h

Õ Indian economic book 2006
Õ www.rbi.org
Õ Trade Liberalisation and foreign
investment in india (Vibha Mathur)
Õ Wikipedia
Õ A book on Indian business advisor by
(Abhijit Roy & Rakesh Roy)