a study of fiis in india
DESCRIPTION
We analysed how foreign investments started in India and their impact on the economy.TRANSCRIPT
A STUDY OF FIIs IN INDIA
Saagar Malhotra
Nitin Nath SinghNitin Kumar
Repalli Durga Babu
DECLERATION
This is to certify that this project titled “A STUDY OF FIIS IN INDIA” is an outcome of the research work done by our team. This project has not been copied from any published source or website. Our indebtedness to other works on the subject has been duly acknowledged at relevant places
SIGNATURE OF MENTOR SIGNATURE OF STUDENTS
2
EXECUTIVE SUMMARY
Since Indian stock market is vast and attract investors as a hotspot of investment .The Indian market is steadily growing and had allured domestic investors’ community and foreign investors group in the past. The major part of investment in Indian market is attributed to institutional investors among whom foreign investors are of primary importance. One eminent concern in the matter is whether these foreign investors (FII) direct the Indian stock market. This study is based on research on FII origination, FII policies, FII regulations, trends, fluctuations of FII investment, and effects of FIIs on Indian markets at different occasions. The objective of the study is to find out whether there exist relationship between FII and Indian stock market.The Foreign Institutional Investors (FIIs) have emerged as important players in the Indian equity market in the recent past. This study makes an attempt to develop an understanding of the dynamics of the trading behavior and the factors influencing FIIs and returns in the Indian equity market by analyzing daily and monthly data. The study concludes that FIIs follow positive feedback trading on a daily basis, while they follow negative feedback trading on a monthly basis. But the main determinant remains lagged stock returns. The study concludes that FIIs inflows in India are determined by stock market characteristics, macroeconomic factors and international factors.
3
ACKNOWLEDGEMENT
We would like to take this opportunity to express our profound gratitude and deep regard to Mr. Amitabh Gupta, for his exemplary guidance, valuable feedback and constant encouragement throughout the duration of the project. His valuable suggestions were of immense help throughout our project work. His perceptive criticism kept us working to make this project in a much better way. Working under him was an extremely knowledgeable experience for us.
4
TABLE OF CONTENTS
TOPIC PAGE NO:-
CHAPTER -1 - FOREIGN INSTITUTIONAL INVESTORS AND INDIA
INTRODUCTION 8
REVIEW OF LITERATURE 9
FOREIGN INVESTMENT & ITS NEED 10
TYPES OF FOREIGN INVESTMENT 10
ENTRY OF FII’S IN INDIA 11
WHAT MAKES INDIA AN ATTRACTIVE DESTINATION FOR FIIS? 11
CHAPTER – 2 - REGULATORY FRAMEWORK FOR FIIs
REGULATION OF FII’S 15
WHO CAN BE REGISTERD AS FII’S? 15
APPLICATION REQUIRED FOR FII’S 17
DOCUMENTS REQUIRED BY FII’S 18
ELIGIBILITY CRITERIA REQUIRED FOR FII’S REGISTARTION 18
CODE OF CONDUCT FOR FII’S 21
SUB ACCOUNT REGISTRATION 21
SEBI REGULATIONS FOR BEING REGISTERD AS SUB ACCOUNTS 22
TYPES OF SECURITIES IN WHICH FII’S CAN INVEST 22
INVESTMENT LIMITS ON EQUITY INSTRUMENTS BY FII/SUB ACCOUNTS 23
INVESTMENT LIMITS ON DEBT INSTRUMENTS BY FII/SUB ACCOUNTS 23
OTHER INVESTMENT OPPURTUNITIES 24
HOW THE SECURITIES SHOULD BE REGISTERED 25
FII POSITION LIMITS IN DERIVATIVE CONRACT (INDIVIDUAL STOCKS) 25
FII POSITION LIMITS IN INDEX DERIVATIVE CONTRACTS 26
FII POSITION LIMITS IN INTEREST RATE DERIVATES 26
OFFSHORE DERIVATIVES/PARTICIPATORY NOTES 27
EVOLUTION OF POLICY FRAMEWORK 28
5
CHAPTER – 3- FIIs AND THE INDIAN ECONOMY
IMPACT OF FII’S ON STOCK MARKET 31
HOW DO FII FLOWS AFFECT VOLATILITY IN STOCK MARKET? 33
ROLE OF FII’S IN INDIAN ECONOMY - POSITIVE & NEGATIVE 35
CASE STUDIES 37
FII TOP PICKS 38
REGISTERED FIIS 39
CHAPTER - 4 - TRENDS AND ANALYSIS OF FII INVESTMENTS IN INDIA
GROSS PURCHASES, SALES AND NET INVESTMENT TRENDS 41
INVESTMENT TRENDS IN THE EQUITY AND DEBT SEGMENTS OF THE MARKET 44
INVESTMENTS TRENDS IN DIFFERENT SECTORS OF ECONOMY 46
FII INFLOWS IN INDIA – CURRENT SCENARIO 50
FPI DAWN OF A NEW REGIME 51
CHAPTER – 5 – RESEARCH WORK
RESEARCH METHODOLOGY 54
INTERPRETATION OF THE RESULT 55
LIMITATINS OF STUDY 56
CONCLUSION 57
APPENDIX
BIBLIOGRAPHY 59
6
CHAPTER – 1 –FOREIGN INSTITUTIONAL INVESTORS AND INDIA
7
INTRODUCTION
Foreign Institutional Investors have gained a very significant role in the Indian capital markets. Positive fundamentals combined with fast growing markets have made India an attractive destination for foreign institutional investors. In this context this paper examines the journey of FIIs in India, the regulations related to them and the evolution of policy over the years. This paper also analyses the impact of FII net flows on the stock market, their role and studies their investment trend over the years.
8
REVIEW OF LITERATURE
In an effort to integrate Indian economy with the global economy foreign investments were allowed in Indian capital markets from September 1992. This wave of liberalization resulted in appreciation of stock price which was followed by inflow from foreign investors as said by (Bekaert and Harvey, 1998 a,b) and (Henry, 1997).
The stock market shows more and more reaction to foreign investment as the economy liberalizes. A concern with the entry of FIIs is that they are positive feedback traders—traders who buy when the market increases and sell when the market falls. This acts as destabilizing factor because the sales by FIIs lead the stock market to fall further and their buys increase the stock market as concluded by (Dornbusch and Park, 1995), (Radelet and Sachs, 1998). Not only this, these trades push the stock-prices away from the fundamentals as revealed by studies on contemporaneous relation between FIIs investments and equity returns based on monthly data (Bohn and Tesar, 1996, Berko and Clark, 1997).
(Choe et. al., 1998) examined the influence of FIIs on equity returns in Korea before and during the 1997 Asian crisis and they found no evidence of stock prices falling because of a withdrawal of foreign equity investment. Also, it is not necessary that inviting FIIs to the stock market would increase its volatility as argued by (Rene and Stultz, 1997).
(Gordon and Gupta, 2003) observed that FIIs act as market makers and book profits by investing when prices are low and selling when they are high. Hence, there are contradictory findings by various researchers regarding the causal relationship between FII net inflows and returns of BSE/ NSE. Therefore, there is a need to investigate whether FIIs are the cause or effect of stock market fluctuations in India. (Karimullah) examined the impact of foreign institutional investor s FII equity investment behavior in the Indian stock market. It attempts to find out the two-way causality between foreign institutional investors (FIIs) behavior and performance of Indian stock market for the per iod o f January 1997 to June 2007 . th i s a r t i c le seeks to examine the idea tha t financial liberalization induces increased efficiency in the financial market as permission of FIIs equity investment is an important example of financial liberalization. Return in the stock market is used as proxy for the efficiency of the stock market in India. A p a r t f r o m n e t investment of FIIs, the purchase and sales behavior of FIIs are analyzed separately. The results indicate that stock market performance is a major determinant of both the FIIs purchase and sales behavior. But we did not find strong evidence that the variations in the stock market indices are determined by FIIs investment behavior.
9
FOREIGN INVESTMENT AND ITS NEED
Foreign investment refers to the investments made by the residents of a country in the financial assets or production processes of another country.
Foreign investment is important to most economies and is particularly vital for developing countries. Developing countries, in most instances, have both the demand for a good or service, and the labor and natural resources to supply it, but they lack the access to capital necessary to begin producing. Thus, foreign investment bridges the gap between the funds that can be raised internally and the need of funds in the country and provides essential capital to help spark the creation of productive enterprises.
TYPES OF FOREIGN INVESTMENT
1. Foreign Direct Investment : Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country.
2. Foreign Portfolio Investment : Foreign portfolio investment is the entry of funds into a country where foreigners make purchases in the country’s stock and bond markets.
10
Foreign Investments
Foreign Direct
Investment
Foreign Portfolio
Investment
Commercial Loans
Official Flows
3. Commercial Loans : A commercial loan is a type of foreign investment that normally occurs in the form of a bank loan. This kind of investment may occur between nations or between businesses that are in different countries. While a commercial loan may be made by an individual, it would normally occur between larger organizations.
4. Official Flows : The foreign investment known as official flow occurs between nations instead of between companies. In cases of official flow, a more developed or economically prosperous nation will invest money in a nation that is less developed. A recipient nation of an official flow investment will typically receive financial support, as well as higher grade technology and aid in government and economic management.
ENTRY OF FIIS IN INDIA
Until the 1980s, India’s development strategy was focused on self-reliance and import-substitution. There was a general disinclination towards foreign investment or private commercial flows.
1. Since the initiation of the reform process in the early 1990s, however, India’s policy stance changed substantially, with a focus on harnessing the growing global foreign direct investment (FDI) and portfolio flows.
2. As a part of the reforms process, the Government under its New Industrial Policy revamped its foreign investment policy recognizing the growing importance of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalization of the Indian economy. Simultaneously, the Government, for the first time, permitted portfolio investments from abroad by foreign institutional investors in the Indian capital market.
3. From September 14, 1992 with suitable restrictions, Foreign Institutional Investors were permitted to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India. While presenting the Budget for 1992-93, the then Finance Minister Dr. Manmohan Singh announced a proposal to allow reputed foreign investors, such as Pension Funds etc., to invest in Indian capital market.
1 WHAT MAKES INDIA AN ATTRACTIVE DESTINATION FOR FOREIGN PORTFOLIO INVESTMENTS?
India is one of the fastest growing economies in the world and has emerged as a key destination for foreign investors in recent years. Economic reforms initiated in 1991 have grown in scope and scale and yielded increasingly salutary dividends. Today, India is perceived as one of the most favorable investment destination in the world. Liberal policies, several economic sectors, a globally competitive workforce, and rapid gross domestic product (GDP) and market growth have been identified as the main drivers of foreign investment in India.
1 Source: http://www.investindia.gov.in/
11
1. Strong and robust economy : India has emerged as one of the most attractive destination not only for investment but also for doing business in the recent years. One of the fastest growing economies in the world which has not only sustained global downturn of 2008-09, India is slated to grow at consistently higher rates during next few decades.
2. Demography : India not only supports one of the largest populations in the world, but also one of the youngest. Fifty per cent of its population is below the age of 25 and two-thirds below the age of 35. Also, about 65 per cent of Indians are in the working age group of 15 to 64 years, giving the country a significant edge in terms of cost competitiveness and low labour costs. Moreover, India’s labour force has a strong knowledge base with a significant English-speaking population, making it a top destination for multinational corporations that are looking to expand their overseas operations for market and talent. Two hundred and fifty million people are set to join India's workforce by 2030. As a big chunk of the population shifts into the working age group, the offshoot of that is an increase in disposable income and conspicuous consumption.
3. Increase in consumer spending : Consumer spending in India grew from US$ 549 billion to US$ 1.06 trillion between 2006 and 2011, putting India on the path to becoming one of the world’s largest consumer markets by 2025. India’s consumption is expected to rise 7.3 per cent annually over the next 20 years. By 2040, nine out of every ten Indians will belong to ‘the global middle class group’ with daily expenditures ranging between US$ 10 and US$ 100 per person in today’s purchasing power parity terms. Seventy per cent of this expenditure will be on discretionary items like entertainment, healthcare, communication, education, personal products, services and so on. The absolute number of India’s middle class will touch 1 billion by 2039, with its influence on global middle class consumption captured in the figure below. This rise of India’s “new middle class” is globally significant as it will usher fundamental changes in India and around the world by triggering waves of innovation in the production, distribution and delivery of goods and services, including government services. Innovations - like the US$ 2200 Nano car by Tata Motors, the inexpensive hand-held electrocardiogram (ECG) machine from GE Healthcare, a low-cost water purifier called ‘Tata Swatch’ by Tata Chemicals, a battery-powered ‘ChotuKool’ refrigerator by Godrej, and a mobile phone application called ‘Nokia Life Tools’ by Nokia for rural consumers to access agricultural, educational and entertainment content - are some examples of frugal engineering that are primarily aimed at the Indian market, but will likely find buyers in many other parts of the world as well.
4. Foreign Direct Investment : Trends in India’s Foreign Direct Investment (FDI) are an endorsement of its status as a preferred investment destination amongst global investors. India's strengths span telecommunications, information technology, auto components, chemicals, apparels, pharmaceuticals, and jewelry. India’s steady economic liberalization and its embrace of the global economy have been key factors in attracting FDI. The government recently opened up multi-brand retail and civil aviation markets to 51 and 49 per cent FDI respectively and with more reforms expected in insurance and pension sectors, among others, India will continue to offer compelling opportunities to the global investment community.
Some of the other factors which make India as a magnate of investments are:
12
Indian Government’s constantly evolving investor friendly policy Lower cost of production due to lower labour rates Availability of skilled manpower Abundant natural resources English as one of the major business languages Government’s emphasis on infrastructure improvement India’s location, close to markets of South East Asia, Middle East and also Europe.
13
CHAPTER – 2 –REGULATORY FRAMEWORK FOR FIIs
14
REGULATION OF FIIS
FII flows to India formally began in September 1992 under the foreign portfolio investment (FPI) scheme, when the Guidelines for Foreign Institutional Investment were issued by the Government of India. In November 1995, the Securities and Exchange Board of India (SEBI) enforced the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 (henceforth, referred to as SEBI FII Regulations) to regulate matters relating to FII investment flows. At present, investment by FIIs is jointly regulated by this and Regulation 5(2) of the Foreign Exchange Management Act (FEMA), 1999.
WHO CAN BE REGISTERED AS AN FII?
In India, one who proposes to invest their proprietary funds or on behalf of "broad based" funds or of foreign corporates and individuals and belongs to any of the below given categories can be registered for FII.
Here, SEBI defines Broad Based Fund as, a fund established or incorporated outside India, which has at least twenty investors with no single individual investor holding more than 10% shares or units of the fund. Provided that if the fund has an institutional investor, it shall not be necessary for the fund to have 20 investors.
Provided further that, if the fund has an institutional investor holding more than 10% of shares or units in the fund, then the institutional investor must itself be broad based fund.
Following entities / funds are eligible to get registered as FII:
1. Pension Funds
2. Mutual Funds
3. Insurance Companies
4. Investment Trusts
5. Investment Banks
6. University Funds
7. Endowments
8. Foundations
9. Charitable Trusts / Charitable Societies
Further, the following entities proposing to invest on behalf of broad based funds are also eligible to be registered as FIIs:
1. Asset Management Companies
2. Institutional Portfolio Managers
3. Trustees
15
4. Power of Attorney Holders
5. Nominee Companies
Some of the above mentioned types are described below.
PENSION FUNDS- Pooled contributions from pension plans set up by employers, unions or other organizations to provide for the employee’s or member’s retirement benefits. It manages pension and health benefits for employees, retirees, and their families. FII activity in India gathered momentum mainly after the entry of CalPERS (California Public Employees’ Retirement System), a large US-based pension fund in 2004.
MUTUAL FUNDS - A Mutual fund is a special type of investment institution that acts as an investment conduit. It pools the savings, particularly of the relatively small investors, and invests them in a well-diversified portfolio of sound investment. Mutual funds issue securities (known as units) to the investors (known as unit holders) in accordance with the quantum of money invested by them. The profits and losses are shared by the investors in proportion to their investments.
INSURANCE COMPANIES - A company that offers insurance policies to the public, either by selling directly to an individual or through another source such as an employee's benefit plan. An insurance company is usually comprised of multiple insurance agents. An insurance company can specialize in one type of insurance, such as life insurance, health insurance, or auto insurance, or offer multiple types of insurance.
INVESTMENT TRUSTS - An Investment trust is a form of collective investment .Investment trusts are closed-end funds and are constituted as public limited companies. A collective investment scheme is a way of investing money with others to participate in a wider range of investments than feasible for most individual investors, and to share the costs and benefits.
INVESTMENT BANKS - An investment bank is a financial institution that raises capital, trades in securities and manages corporate mergers and acquisitions. Investment banks profit from companies and governments by raising money through issuing and selling securities in capital markets (both equity, debt) and insuring bonds (e.g. selling credit default swaps), as well as providing advice on transactions such as mergers and acquisitions.
ENDOWMENT FUNDS - An investment fund set up by an institution in which regular withdrawals from the invested capital are used for ongoing operations or other specified purposes. Endowment funds are often used by nonprofits, universities, hospitals and churches. They are funded by donations, which are tax deductible for donors. The principal in this fund remains intact in perpetuity or for a defined time period. This allows for the donation to have an impact over a longer period of time than if it were spent all at once.
CHARITABLE TRUSTS OR CHARITABLE SOCIETIES- Trust created for advancement of education, promotion of public health and comfort, relief of poverty, advancement of religion,
16
or any other purpose regarded as charitable in law. Benevolent and philanthropic purposes are not necessarily charitable unless they are solely and exclusively for the benefit of public or a class or section of it. Charitable trusts (unlike private or non-charitable trust) can have perpetual existence and are not subject to laws against perpetuity. They are wholly or partially exempt from almost all taxes.
ASSET MANAGEMENT COMPANIES - A Company registered with SEBI, which takes investment/divestment decisions for the mutual fund, and manages the assets of the mutual fund. Asset management companies provide investors with more diversification and investing options than they would have by themselves.
INSTITUTIONAL PORTFOLIO MANAGERS - A portfolio manager is either a person who makes investment decisions using money other people have placed under his or her control or a person who manages a financial institution's asset and liability (loan and deposit) portfolios. On the investments side, they work with a team of analysts and researchers, and are ultimately responsible for establishing an investment strategy, selecting appropriate investments and allocating each investment properly for a fund- or asset-management vehicle.
NOMINEE COMPANY- Company formed by a financial institution or another organization which operates an account that holds assets and securities on behalf of the actual owner under the terms of a custodial agreement.
POWER OF ATTORNEY HOLDERS- POA is an expression used to describe a document that empowers a specified person or persons to act for and on behalf of the person executing it. The person who executes a power of attorney is called the 'grantor', 'principal' or 'executant'. The person to whom the POA is granted is called the 'constituted attorney', 'agent', 'grantee', or 'power of attorney holder'. A POA can be granted in favor of one or more persons by the same document.
APPLICATION FOR BEING REGISTERED AS FII
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.
This form is then submitted along with a fee of US $ 10000 payable through a Demand Draft in favor of "Securities and Exchange Board of India" payable at New York.
Address for sending of application –
Securities and Exchange Board of IndiaDivision of FII & CustodianPlot No. C4-A, ‘G’ Block,
17
BandraKurla Complex,
Bandra (East), Mumbai – 400 051
DOCUMENTS REQUIRED TO APPLY FOR FII REGISTERATION
Application in Form A duly signed by the authorized signatory of the applicant.Certified copy of the relevant clauses or articles of the Memorandum and Articles of Association or the agreement authorizing the applicant to invest on behalf of its clientsAudited financial statements and annual reports for the last one year, provided that the period covered shall not be less than twelve months.A declaration by the applicant with registration number and other particulars in support of its registration or regulation by a Securities Commission or Self-Regulatory Organization or any other appropriate regulatory authority with whom the applicant is registered in its home country.A declaration by the applicant that it has entered into a custodian agreement with a domestic custodian together with particulars of the domestic custodian.A signed declaration statement that appears at the end of the Form.Declaration regarding fit & proper entity.
THE ELIGIBILITY CRITERIA FOR APPLICANT SEEKING FII REGISTRATION 2
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.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.
2www.sebi.gov.in
18
The validity period for such a registration is 3 years. After expiry of 3 years, the registration needs to be renewed by following the same procedure as illustrated above.
19
YES
NO
NO
YES
The procedure of registration of an FII can be comprehensively illustrated through the flow chart
20
Is the Applicant bank or Bank’s
subsidiary
Duly Filled Form A with all the required documents.
SEBI
RBI
PROCESSING OF THE APPLICATION
Is the applicant eligible?
Issue Registration Certificate Communicate the rejection with reason and return fee.
CODE OF CONDUCT FOR FII’s 3
A Foreign Institutional Investor and its key personnel shall observe high standards of integrity, fairness and professionalism in all dealings in the Indian securities market with intermediaries, regulatory and other government authorities. A Foreign Institutional Investor shall, at all times, render high standards of service, exercise due diligence and independent professional judgment. A Foreign Institutional Investor shall ensure and maintain confidentiality in respect of trades done on its own behalf and/or on behalf of its sub-accounts/clients. A Foreign Institutional Investor shall ensure the following: Clear segregation of its own money/securities and sub-accounts’ money/securities. Arm’s length relationship between its business of fund management/ investment and its other business. A Foreign Institutional Investor shall maintain an appropriate level of knowledge and competency and abide by the provisions of the Act, regulations made thereunder and the circulars and guidelines, which may be applicable and relevant to the activities carried on by it. Every Foreign Institutional Investor shall also comply with award of the Ombudsman and decision of the Board under Securities and Exchange Board of India (Ombudsman) Regulations, 2003.A Foreign Institutional Investor shall not make any untrue statement or suppress any material fact in any documents, reports or information furnished to the Board. A Foreign Institutional Investor shall ensure that good corporate policies and corporate governance are observed by it. A Foreign Institutional Investor shall ensure that it does not engage in fraudulent and manipulative transactions in the securities listed in any stock exchange in India. A Foreign Institutional Investor or any of its directors or manager shall not, either through its/his own account or through any associate or family members, relatives or friends indulge in any insider trading. A Foreign Institutional Investor shall not be a party to or instrumental for creation of false market in securities listed or proposed to be listed in any stock exchange in India; price rigging or manipulation of prices of securities listed or proposed to be listed in any stock exchange in India;Passing of price sensitive information to any person or intermediary in the securities market.”]
SUB-ACCOUNT REGISTRATION
Sub-account includes those foreign corporates, foreign individuals, and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII.
3www.sebi.gov.in
21
The following can get registered as sub accounts in India:
Institution or funds or portfolios established outside India, whether incorporated or not.Proprietary fund of FII.Foreign Corporates.Foreign Individuals.
(A) “foreign corporate” means a body corporate incorporated outside India which fulfills the following conditions:-
its securities are listed on a stock exchange outside India; it has asset base of not less than two billion US dollars; it had an average net profit of not less than fifty million US dollars during the three financial years preceding the date of the application.
(B) “foreign individual” means a foreigner who fulfills the following conditions:-
has a net worth of not less than fifty million US dollars; holds the passport of a foreign country for a period of at least five years preceding the date of application; holds a certificate of good standing from a bank; is the client of the foreign institutional investor or any other entity which belongs to the same group as the foreign institutional investor, for a period of at least three years preceding the date of the application:
SEBI REGULATIONS FOR BEING REGISTERED AS A SUB- ACCOUNT ARE
The FII should apply on the behalf of the Sub-account. Both the FII and the Sub-account are required to sign the Sub-account application form."Annexure B" to "Form A" (FII application form) needs to be filled by the sub accountUS $ 2,000 is to be submitted as the fee at the time of submitting the application through a Demand Draft in the name of "Securities and Exchange Board of India" payable at New YorkOCBs / NRIs are not permitted to get registered as FII/sub-account
TYPES OF SECURITIES IN WHICH THE FIIs CAN INVEST :
The SEBI registered FIIs may invest in the following form of securities in India:
22
Primary and secondary market securities including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognized stock exchange in India
Units of schemes floated by domestic mutual funds, whether listed or not, units of scheme
Floated by a Collective Investment Scheme
Dated Government Securities
Derivatives traded on recognized stock exchanges
Commercial paper
Security receipts
Indian Depository Receipts.
INVESTMENT LIMITS ON EQUITY INSTRUMENTS BY FII/SUB-ACCOUNT
FII, on its own behalf, shall not invest in equity more than 10% of total issued capital of an Indian company.Investment on behalf of each sub-account shall not exceed 10% of total issuedcapital of an India company.For the sub-account registered under Foreign Companies/Individual category, the investment limit is fixed at 5% of total issued capital.
These limits are within overall limit of 24% / 49 % / 74% or the sectorial caps, as applicable and prescribed by Government of India / Reserve Bank of India.
THE INVESTMENT LIMITS ON DEBT INVESTMENTS BY FII/SUB-ACCOUNT 4
The FII investments in debt securities are governed by the policy of the Government of India. Currently following limits are in effect:
For FII investments in Government debt, currently following limits are applicable:
4www.sebi.gov.in www.sebi.gov.in/ faq / fiifaq .pdf
23
100 % DEBT ROUTE US $ 2.0 Billion
70:30 ROUTE US $ 0.6 Billion
TOTAL US $ 2.6 Billion
For corporate debt following limits are applicable:
100 % DEBT ROUTE US $ 1.0 Billion
70:30 ROUTE US $ 0.5 Billion
TOTAL US $ 1.5 Billion
For Upper Tier II instruments following limits are applicable:
100 % DEBT ROUTE US $ 390 Million
70:30 ROUTE US $ 110 Million
TOTAL US $ 500 Million
OTHER INVESTMENT OPPURTUNITIES
NORMAL FII (70:30 ROUTE) 100% DEBT FII
Total investment in equity and equity related instruments shall not be less than
70% of aggregate of all investments.
100% investment shall be made in debt security only.
24
HOW THE SECURITIES SHOULD BE REGISTERED.
In the name of FII when making investments on its own behalf
In the name of sub-account when making investments on behalf of Sub-account
In the name of "FII a/c sub-account" when making investments on behalf of Sub-account.
THE FII POSITION LIMITS IN DERIVATIVE CONTRACTS (INDIVIDUAL
STOCKS) 5
The FII position limits in a derivative contract on a particular underlying stock i.e. stock option contracts and single stock futures contracts are:
The FII position limits in a derivative contract on a particular underlying stock i.e. Stock option contracts and single stock futures contracts are:
For stocks having applicable market-wise position limit (MWPL) of Rs.500 crores or more, the combined futures and options position limit shall be 20% of applicable MWPL or Rs. 300 crores, whichever is lower and within which stock futures position cannot exceed 10% of applicable MWPL or Rs. 150 crores, whichever is lower. For stocks having applicable market-wise position limit (MWPL) less than Rs. 500 crores, the combined futures and options position limit would be20% of applicable MWPL and futures position cannot exceed 20% of applicable MWPL or Rs. 50 crore whichever is lower.
The gross open position across all derivative contracts on a particular underlying stock of a sub-account of a FII should not exceed the higher of:
1% of the free float market capitalization (in terms of number of shares).5% of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts).
This position limits would be applicable on the combined position in all derivative contracts on an underlying stock at an exchange.
FII POSITION LIMITS IN INDEX DERIVATIVE CONTRACTS 6
5www.sebi.gov.in/ faq / fiifaq .pdf
6www.sebi.gov.in/ faq / fiifaq .pdf
25
AT THE LEVEL OF THE FII
FII position limit in all index options contracts on a particular underlying index shall be Rs 500 Crore or 15 % of the total open interest of the market in index options, whichever is higher, per exchange. This limit would be applicable on open positions in all option contracts on a particular underlying index. FII position limit in all index futures contracts on a particular underlying index shall be Rs. 500 Crore or 15 % of the total open interest of the market in index futures, whichever is higher, per exchange. This limit would be applicable on open positions in all futures contracts on a particular underlying index.
In addition to the above, FIIs shall take exposure in equity index derivatives subject to the following limits:
i. Short positions in index derivatives (short futures, short calls and long puts) not exceeding (in notional value) the FII’s holding of stocks.
ii. Long positions in index derivatives (long futures, long calls and short puts) not exceeding (in notional value) the FII’s holding of cash, government securities, T-Bills and similar instruments.
Each Sub-account of a FII would have the following position limits:
A disclosure requirement for any person or persons acting in concert who together own 15% or more of the open interest of all derivative contracts on a particular underlying index.
FII POSITION LIMITS IN INTEREST RATE DERIVATIVE CONTRACTS
AT THE LEVEL OF THE FII
The notional value of gross open position of a FII in exchange traded interest rate derivative
contracts shall be:
US $ 100 million.
In addition to the above, the FII may take exposure in exchange traded in interest rate
derivative contracts to the extent of the book value of their cash market exposure in
Government Securities.
AT THE LEVEL OF THE SUB-ACCOUNT
26
The position limits for a Sub-account in near month exchange traded interest rate derivative
contracts shall be higher of:
Rs. 100 Cr
15% of total open interest in the market in exchange traded interest rate derivative contracts.
OFFSHORE DERIVATIVES/PARTICIPATORY NOTES 7
FII/sub-account may issue, deal in or hold off-shore derivative instruments such as Participatory
Notes, Equity Linked Notes or any other similar instruments against underlying securities, listed or
proposed to be listed on any stock exchange in India.
ENTITIES ENTITALED TO INVEST IN PARTICIPATORY NOTES
Any entity incorporated in a jurisdiction that requires filing of constitutional and/or other
documents with a registrar of companies or comparable regulatory agency or body under
the applicable companies legislation in that jurisdiction;
Any entity that is regulated, authorized or supervised by a central bank, such as the Bank
of England, the Federal Reserve, the Hong Kong Monetary Authority, the Monetary
Authority of Singapore or any other similar body provided that the entity must not only
be authorized but also be regulated by the aforesaid regulatory bodies;
Any entity that is regulated, authorized or supervised by a securities or futures
commission, such as the Financial Services Authority (UK), the Securities and Exchange
Commission (Sub-account), the Commodities Futures Trading Commission (Sub-
account), the Securities and Futures Commission (Hong Kong or Taiwan), Australian
Securities and Investments Commission (Australia) or other securities or futures authority
or commission in any country , state or territory
Any entity that is a member of securities or futures exchanges such as the New York
Stock Exchange (Sub-account), London Stock Exchange (UK), Tokyo Stock Exchange
(Japan), NASD (Sub-account) or other similar self-regulatory securities or futures
authority or commission within any country, state or territory provided that the aforesaid
7www.sebi.gov.in/ faq / fiifaq .pdf
27
mentioned organizations which are in the nature of self-regulatory organizations are
ultimately accountable to the respective securities / financial market regulators.
Any individual or entity (such as fund, trust, collective investment scheme, Investment Company or limited partnership) whose investment advisory function is managed by an entity satisfying the criteria of (A), (B), (C) or (D) above.
EVOLUTION OF POLICY FRAMEWORKHistorical evolution of FII Policy is summarized below:
September 1992 FIIs allowed investing by the Government Guidelines in all securities in
both primary and secondary markets and schemes floated by mutual funds. Single FIIs to
invest 5 per cent and all FIIs allowed investing 24 per cent of a company’s issued capital.
Broad based funds to have 50 investors with no one holding more than 5 per cent. The
objective was to have reputed foreign investors, such as, pension funds, mutual fund or
investment trusts and other broad based institutional investors in the capital market.
November 1996 100 per cent debt FIIs were permitted to give operational flexibility to
FIIs.
April 1997 aggregated limit for all FIIs increased to 30 per cent subject to special
procedure and resolution. The objective was to increase the participation by FIIs.
April 1998 FIIs permitted to invest in dated Government securities subject to a ceiling.
Consistent with the Government policy to limit the short-term debt, a ceiling of USD 1
billion was assigned which was increased to USD 1.75 billion in 2004.
June 1998 Aggregate portfolio investment limit of FIIs and NRIs/PIOs/OCBs enhanced
from 5 per cent to 10 per cent and the ceilings made mutually exclusive. Common
ceilings would have negated the permission to FIIs. Therefore, separate ceilings were
prescribed.
June 1998 Forward cover allowed in equity. FIIs permitted to invest in equity
derivatives. The objective was to make hedging instruments available.
February 2000 foreign firms and high net-worth individuals permitted to invest as sub-
accounts of FIIs. Domestic portfolio manager allowed to be registered as FIIs to manage
the funds of sub-accounts.
28
The objective was to allow operational flexibility and also give access to domestic asset
management capability.
March 2001 FII ceiling under special procedure enhanced to 49 per cent. The objective
was to increase FII participation
September 2001 FII ceiling under special procedure rose to sectorial cap.
December 2003 FII dual approval process of SEBI and RBI changed to single approval
process of SEBI. The objective was to streamline the registration process and reduce the
time taken for registration.
November 2004 Outstanding corporate debt limit of USD 0.5 billion prescribed. The
objective was to limit short term debt flows.
April 2006 outstanding corporate debt limit increased to USD 1.5 billion prescribed. The
limit on investment in Government securities was enhanced to USD 2 bn. This was an
announcement in the Budget of 2006-07
November, 2006 FII investment up to 23% permitted in infrastructure companies in the
securities markets, viz. stock exchanges, depositories and clearing corporations. This is a
decision taken by Government following the mandating of demutualization and
corporatization of stock exchanges.
January and October, 2007 FIIs allowed to invest USD 3.2 billion in Government
Securities (limits were raised from USD 2 billion in two phases of USD 0.6 billion each
in January and October)
June, 2008 while reviewing the External Commercial Borrowing policy, the Government
increased the cumulative debt investment limits from US $3.2 billion to US $5 billion
and US $1.5 billion to US $3 billion for FII investments in Government Securities and
Corporate Debt, respectively.
29
CHAPTER – 3– FIIs AND THE INDIAN ECONOMY
30
IMPACT OF FII’S ON INDIA’S STOCK MARKET
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-100000
-50000
0
50000
100000
150000
200000
FII Net Flows (INR Crore)
FII Net Flows (INR Crore)
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
5000
10000
15000
20000
25000
S & P BSE SENSEX
S & P BSE SENSEX
8 Source: http://www.sebi.gov.in/
9 Source: http://www.sebi.gov.in/
31
Time period
FII Net Flows (INR Crore)
S & P BSE SENSEX
1993 2595.1 3346.061994 6791.2 3926.91995 3853.8 3110.491996 10803.6 3085.21997 6207.3 3658.981998 -1479.9 3055.411999 6697.3 5005.822000 6510.9 3972.122001 12494.8 3262.332002 3677.9 3377.282003 35153.8 5838.962004 42049.1 6602.692005 41663.5 9397.932006 40589.2 13786.912007 80914.8 20286.992008 -41215.5 9647.312009 87987.6 17464.812010 179674.6 20509.092011 39352.8 15454.922012 163350.1 19426.712013 62288 21170.68
32
Value of Sensex and net flow of FII investments
Value of Correlation coefficient (r) Coefficient of determination (r2)+0.786899 0.619211
Correlation Analysis
Indian markets are primarily driven by FII fund flows. The value of Correlation coefficient (r) is +0.786899. This value is positive which means
there is direct relationship between net FII inflow and sensex’s year on year movement. Further the magnitude of r is 0.79 which means there a strong relationship between the variables. A movement in FII is accompanied by a strong movement of the index and in the same direction.Over the years, higher FII inflows have helped SENSEX generate higher returns.
The value of Coefficient of determination (r2) is 0.62. This means that if we take FII inflow as the independent variable and value of Sensex as the dependent variable, then any change in the value of Sensex is explained up to an extent of 62% due to some change in the net FII investments.
A look at the charts shows that the markets peak when FII inflows are the highest and fall when FIIs are missing in action.
Initially the FII investments were relatively low, but with time as SEBI has liberalized FII regulations and increased the caps, FII net flows have gradually increased over the years.
In 2008, the BSE Sensex fell almost 50% due to the global financial meltdown. What hurt in 2008 was not the performance of companies but rapid outflow of $13 billion (Rs 55,000 crore) as investors fled risky assets.
In 2009, governments across the globe implemented plans to boost their economies. India, helped by robust economic growth, became a preferred destination for investors. 85% was the surge in the Sensex in 2009 with FIIs investing a net Rs 84,000 cr, crossing the 2007 level.
In 2010, the trend continued and FIIs pumped in $30 billion (Rs 1.3 lakh crore) into Indian equities, helping the Sensex gain 25%.
In 2011, SENSEX fell by 11% due to fall in FII investment. High inflation, aggressive tightening by RBI and escalation of corruption as an issue were some factors which made them move to less risky assets.
In 2012, net inflows crossed Rs 1.2 lakh crore ($23 billion) which led to a gain of 25% in SENSEX. Market experts believe the recent reforms initiatives undertaken by the
33
government to boost economic growth and investor sentiment have led to a renewed interest among the foreign investors.
In 2013, foreign investors have made net inflows of a staggering amount of Rs 1.10 lakh crore (nearly $20 billion) in stocks here during 2013, while taking their cumulative investments in the country's equity market to a record level of close to $150 billion. The expectation of a stable government that can move reforms process faster led the FIIs to bet on Indian markets despite the US Federal Reserve deciding to taper its monthly bond- buying program.
HOW DO FII FLOWS AFFECT VOLATILITY IN STOCK MARKET?
Volatility refers to the amount of uncertainty or risk about the size of changes in a security value. The increased interest rate of FIIS in Indian equity market has been correlated frequently with the volatility in the stock markets in India. Volatility is a standard measure of financial vulnerability of an economy. Thus, volatility is an unattractive feature that has adverse implications for decisions pertaining to investment in financial assets such as equity shares and other stock market instruments. The persistence of volatility makes the investors risk averse. Investors demand higher risk premium as a compensation for increased risk due to volatility. A higher risk premium implies higher cost of capital and thus lowers investment.
The two charts show the share prices of two companies - LIC Housing Finance and Gujarat NRE Coke plotted against the respective FII Holding in these stocks on a quarterly basis. A couple of noteworthy things from these graphs are-
When % holdings of FIIs increases in a stock its stocks price goes up and when it drops, its share price comes down.
LIC Housing finance had a more or less steady contribution of FII as a percentage of total shareholding till 2007. After a fall in 2008 it bounced back again to a significantly high level
34
by September 2010. However, in case of Gujarat NRE Coke, % of FIIs holdings has fluctuated quite a lot during the same period.
During the crash in 2008 the FII holding in LIC Housing Finance decreased to close to 20%. Some of the FIIs exited from LIC Housing Finance, but still its percentage in total shareholding remained in mid 20s. This was the reason the stock price of LIC Housing Finance went down but did not take a nose dive. Also, LIC housing Finance was able to perform remarkably even during the downturn and has shown consistent growth in the last 5-6 years. Thus, the FIIs started investing back and its percentage shareholding has increased to 41.07% by Sep 2010. This is an example of FII holding in a growing company which has led to greater stock price appreciation rather than adding to its volatility.
But, this was not the case with Gujarat NRE Coke. You could see from the chart that in 2007 FIIs had a total holding of above 35% but it came down drastically to 17% by the end of 2008. The performance of Gujarat NRE during 2005-10 has not been very impressive and also its high debt situation is a cause of worry. This was the basic reason of a sudden exit of FIIs which led to a drastic fall in its share price. Thus we can conclude that the FIIs invested in this company were interested in quick gains. They added to the volatility of the stock which is not good for the retail investors.
ROLE OF FOREIGN INSTITUTIONAL INVESTMENT IN INDIAN ECONOMY
Like any other investors, FIIs are on the lookout for investment opportunities which could give them better rates of return. With this being the prime focus, emerging markets like India, China, Brazil etc. have caught their eye over the last few years. These countries have been growing at a greater pace than other developed countries and subsequently offer better opportunities for the FIIs. With one of the highest GDP growth rates over the last few years, India has also experienced one of the highest Net FII inflows in the world. Other than the growth prospects there are other important parameters like political environment, laws, liquidity of their investment etc. For example, in 2008 with the Sub Prime Crisis in US, fears of a worldwide economic crisis ran amok. This coupled with a liquidity crunch or a preference to sit on cash led to a situation where many FIIs booked profits and pulled out their money. As more and more money was pulled out, it further depleted the investor confidence and the stock market tumbled to 8000 levels. Thus FIIs tend to exit the stock markets prompted by profit booking or negative events like liquidity concerns, fears of a crisis etc.
Thus, though FIIs are a welcome site for any stock market, but they also have the potential to create chaos in the stock market
POSITIVE IMPACT It has been emphasized upon the fact that the stock market reforms like improved market transparency, automation, dematerialization and regulations on reporting and disclosure
35
standards were initiated because of the presence of the FIIs. But FII flows can be considered both as the cause and the effect of the stock market reforms. The market reforms were initiated because of the presence of them and this in turn has led to increased flows.
1. ENHANCED FLOWS OF EQUITY CAPITAL FIIs are well known for a greater appetite for equity than debt in their asset structure. For example, pension funds in the United Kingdom and United States had 68 per cent and 64 per cent, respectively, of their portfolios in equity in 1998. Not only it can help in supplementing the domestic savings for the purpose of development projects like building economic and social infrastructure but can also help in growth of rate of investment, it boosts the production, employment and income of the host country.
2. MANAGEING UNCERTAINTY AND CONTROLLING RISKS FIIs promote financial innovation and development of hedging instruments. These because of their interest in hedging risks, are known to have contributed to the development of zero-coupon bonds and index futures. FIIs not only enhance competition in financial markets, but also improve the alignment of asset prices to fundamentals. FIIs in particular are known to have good information and low transaction costs. By aligning asset prices closer to fundamentals, they stabilize markets. In addition, a variety of FIIs with a variety of risk-return preferences also help in dampening volatility.
3. IMPROVING CAPITAL MARKETS FIIs as professional bodies of asset managers and financial analysts enhance competition and efficiency of financial markets. By increasing the availability of riskier long term capital for projects, and increasing firm’s incentives to supply more information about them, the FIIs can help in the process of economic development.
4. IMPROVED CORPORATE GOVERNANCEGood corporate governance is essential to overcome the principal-agent problem between share-holders and management. Information asymmetries and incomplete contracts between share-holders and management are at the root of the agency costs. Bad corporate governance makes equity finance a costly option. With boards often captured by managers or passive, ensuring the rights of shareholders is a problem that needs to be addressed efficiently in any economy. Incentives for shareholders to monitor firms and enforce their legal rights are limited and individuals with small share-holdings often do not address the issue since others can free-ride on their endeavor. FIIs constitute professional bodies of asset managers and financial analysts, who, by contributing to better understanding of firm’s operations, improve corporate governance. Among the four models of corporate control - takeover or market control via equity, leveraged control or market control via debt, direct control via equity, and direct control via debt or relationship banking-the third model, which is known as corporate governance movement, has institutional investors at its core.
NEGATIVE IMPACT
36
If we see the market trends of past few recent years it is quite evident that Indian equity markets have become slaves of FIIs inflow. And this dependence has to a great extent caused a lot of trouble for the Indian economy. Some of the factors are:
1. POTENTIAL CAPITAL OUTFLOWS Hot money‖ refers to funds that are controlled by investors who actively seek short-term returns. These investors scan the market for short-term, high interest rate investment opportunities. ―Hot money‖ can have economic and financial repercussions on countries and banks. When money is injected into a country, the exchange rate for the country gaining the money strengthens, while the exchange rate for the country losing the money weakens. If money is withdrawn on short notice, the banking institution will experience a shortage of funds.
2. INFLATION Huge amounts of FII fund inflow into the country creates a lot of demand for rupee, and the RBI pumps the amount of Rupee in the market as a result of demand created. This situation leads to excess liquidity thereby leading to inflation where too much money chases too few goods.
3. PROBLEM TO SMALL INVESTORS The FIIs profit from investing in emerging financial stock markets. If the cap on FII is high then they can bring in huge amounts of funds in the country‘s stock markets and thus have great influence on the way the stock markets behaves, going up or down. The FII buying pushes the stocks up and their selling shows the stock market the downward path. This creates problems for the small retail investor, whose fortunes get driven by the actions of the large FIIs.
4. ADVERSE IMPACT ON EXPORTS FII flows leading to appreciation of the currency may lead to the exports industry becoming uncompetitive due to the appreciation of the rupee.
Case Studies
37
31/Dec/1
2
11/Jan/1
3
22/Jan/1
3
02/Feb/1
3
13/Feb/1
3
24/Feb/1
3
07/Mar/1
3
18/Mar/1
3
29/Mar/1
3
09/Apr/1
3
20/Apr/1
3
01/May/1
3
12/May/1
3
23/May/1
3
03/Jun/1
3
14/Jun/1
3
25/Jun/1
3
06/Jul/1
3
17/Jul/1
3
28/Jul/1
3
08/Aug/1
3
19/Aug/1
3
30/Aug/1
3
10/Sep/1
3
21/Sep/1
3
02/Oct/
13
13/Oct/
13
24/Oct/
13
04/Nov/1
3
15/Nov/1
3
26/Nov/1
30
200
400
600
800
1000
1200
Ajanta Pharma
Ajanta Pharma Exponential (Ajanta Pharma)
Ajanta Pharma Limited rose 285% from Rs. 254.60 on 31 December 2012 to Rs. 985 on 3 December 2013, as FIIs increased stake from 1.34% to 2.27% during the same period.
31/Dec/1
2
11/Jan/1
3
22/Jan/1
3
02/Feb/1
3
13/Feb/1
3
24/Feb/1
3
07/Mar/1
3
18/Mar/1
3
29/Mar/1
3
09/Apr/1
3
20/Apr/1
3
01/May/1
3
12/May/1
3
23/May/1
3
03/Jun/1
3
14/Jun/1
3
25/Jun/1
3
06/Jul/1
3
17/Jul/1
3
28/Jul/1
3
08/Aug/1
3
19/Aug/1
3
30/Aug/1
3
10/Sep/1
3
21/Sep/1
3
02/Oct/
13
13/Oct/
13
24/Oct/
13
04/Nov/1
3
15/Nov/1
3
26/Nov/1
30
10
20
30
40
50
60
70
80
90
100
The India Cements Limited
The India Cements Limited Linear (The India Cements Limited)
10 Data taken from http://www.nseindia.com/11 Source: http://www.nseindia.com/
38
The stock had been under pressure due to the controversy related to Chennai Super Kings which is promoted by the company which came into light in May 2013. The stock price fell by 35% from Rs. 90.75 in December 2012 to Rs. 58.90 in December 2013 even though FIIs increased their stake in the company from 29.34% to 35.59% during the same period.
FII TOP PICKS
Company Market Cap (Rs Cr)
FII (%)
Housing Development Finance Corporation Ltd.
138895.2 75.91
Shriram Transport Finance Company Ltd.
16403.62 54.68
IDFC Ltd. 18545.01 51.38Strides Arcolab Ltd. 2728.11 49.56Jubilant Foodworks Ltd. 6697.36 47.3812
Housing Development Finance Corporation (HDFC): HDFC is the leader in housing finance segment in country. It provides loans for purchasing residential houses, commercial real estate in country. HDFC has a network of about 351 offices, providing services across 2400 town in India. The company has market capitalization of Rs. 1,38,895crore. The company has the largest Foreign Institutional Investors stake of 75.91%.
Shriram Transport Finance Company (STFCL): STFC is one of the leading vehicle finance company in India. The company finances for various types of vehicle which includes, passenger vehicle, commercial vehicle, multi utility vehicle, construction equipment’s etc. STFC has a market cap of Rs 16403.62 crore. FIIs hold 54.68% stake in the company.
IDFC: IDFC is a infrastructure finance company in India. The company's business segments includes corporate investment banking (project finance, fixed income, investment banking), alternative asset management (private equity, real estate, infrastructure) and public market asset management (mutual fund). The FIIs shareholding in the company stands at 51.38%. Market capitalisation of the company is Rs 18545.01 crore.
Strides Arcolab (SAL): SAL is a pharmaceutical company based in India. It has two manufacturing plants, one in India and other in Italy. The company's core business is to develop Intellectual Property (IP) led products. It markets its product to over 75 countries globally. The pharma company comes at the fourth position in our list, having 49.56% FIIs stake in the company.
Jubilant Foodworks (JFL): JFL, a Jubilant Bhartia group company, commenced its operations in the year 1996. It is the largest and fastest food service company in India, having a market
12 Source: Dion Global
39
share of 67% in the organised Pizza market. The company has a network of 679 Domino's Pizza restaurant across the country. It has the franchise of two international brands viz., Domino's Pizza and Dunkin' Donuts. The FIIs share accounts to 47.38% in the company.
REGISTERED FIIS IN INDIA
Year Registered FIIs
January 2006 833January 2007 1059January 2008 1279January 2009 1609January 2010 1697January 2011 1718January 2012 1767January 2013 1755
CHAPTER - 4 –
40
TRENDS AND ANALYSIS OF FII INVESTMENTS IN INDIA
41
GROSS PURCHASES, SALES AND NET INVESTMENT TRENDS
In order to understand the nature, extent and causes of investment behaviors exhibited by FIIs in the Indian economy it’s imperative to do a trend analysis of the funds that FIIs have poured in over two decades of their entry into the market. The gates of Indian economy were opened for FIIs in September, 1992. Since then the yearly net Investments have mostly been positive with an exception of just two years i.e. 1998-99 and 2008-09. This positive trend in FII investment is an encouraging fact since the same trend for other emerging economies has been a mix bag of positives and negatives. Given below is the data of sales and purchases made by FIIs, over the years, in the tabular form and its appropriate graphical representation.
Period Gross Purchase (Rs. Crore) Gross Sales (Rs. Crore)
Net Investment (Rs. Crore)
1992-93# 131993-94 5593 -466 51271994-95 7631 -2835 47961995-96 9694 -2752 69421996-97 15554 -6979 85751997-98 18695 -12737 59581998-99 16115 -17699 -15841999-00 56856 -46734 101222000-01 74051 -64116 99352001-02 49920 -41165 87552002-03 47060 -44371 26892003-04 144858 -99094 457642004-05 216951 -171071 458802005-06 346976 -305509 414672006-07 520506 -489665 308412007-08 948018 -881839 661792008-09 614576 -660386 -458102009-10 846433 -703776 1426572010-11 992596 -846158 1464382011-12 921285 -827562 937232012-13 904845 -736481 1683642013-14 1020459 -966622 538372014-15* 634402 -518097 116305
# Data from September, 1992 to March, 1993* Data from April, 2014 to August, 2014(Source:http://www.cdslindia.com/publications/FIIDtlsFinYr.html,http://www.moneycontrol.com/india/stockmarket/foreigninstitutionalinvestors/13/42/activity/FII/201404201408, SEBI handbook of statistics on Indian securities market.)
42
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15*
-1500000
-1000000
-500000
0
500000
1000000
1500000
Gross Purchase (Rs. Crore) Gross Sales (Rs. Crore)
Time period
Amou
nt in
cror
e ru
pees
Graph showing the purchase and sales trend by FIIs over the years
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15*
-100000
-50000
0
50000
100000
150000
200000
Net Investment (Rs. Crore)
Net Investment (Rs. Crore)
Graph showing the net investment trend by FIIs over the years.
43
Comments
A look at the FII inflow table and supporting charts helps us to gauge the following points in relation to the behaviour of FIIs over two decades after its arrival in India:
1. The quantum of funds in trade has soared by many folds. For example gross purchases by FIIs in 2013-14 were 182 times of what it was in 1993-94. Similarly gross sales in 2013-14 were over 2000 times of what it was in 1993-94. Even net investments have been as high as 35 times in 2012-13 compared to that in 1994-94.
2. In the financial year 1998-99 the net investments by the FIIs were, for the first since inception, negative. The reasons for this were multivariate. But the most important reason for this negative inflow was the South East Asian crises. Also the execution of Pokhran nuclear tests turned out to be a big negative as several countries imposed bans on lending to projects in India. The net effect was that SENSEX touched its lowest point in recent past, the currency started depreciating and major funds started reducing their equity exposure. As a result FIIs also turned into net sellers.
3. The period following the year 2003-04 turned out to be a bumper period for FII investments in the Indian economy. The major reasons were the policy changes and an improved economic scenario over all. To start with, current account surpluses, higher remittances and rising inflows on account of exports of software services had ensured the strengthening of the Indian rupee. A stronger rupee implies better returns in dollar terms, encouraging foreign investors looking for capital gains. This possibly even triggered a speculative surge in inflows because of expectations that the rupee would rise even further. Returns on stock market investment were also hiked through state policy. The then Finance Minister declared in the Budget for 2003-04: “In order to give a further fillip to the capital markets, it is now proposed to exempt all listed equities that are acquired on or after March 1, 2003, and sold after the lapse of a year, or more, from the incidence of capital gains tax. Long term capital gains tax will, therefore, not hereafter apply to such transactions. This proposal should facilitate investment in equities.” Long term capital gains tax was being levied at the rate of 10 per cent up to that point of time. The surge was no doubt facilitated by this significant concession. More reforms such increase in investment limits and easier registration for FIIs ensured that this boom continued for years to follow.
4. Till end of 2007 FIIs have been the Net Buyers. But they became Net Sellers in 2008-09. In January 2008, the US financial crisis came into light with sub-prime effect, which led to the major financial companies to post heavy losses. In September 2008, this crisis worsened with some of the companies had to file for bankruptcy and some had to take financial aids from government to continue their business operations. This crisis had significant impact on FII investment in India, as investors all over the world lacked confidence on the market. The crisis in confidence resulted in the selling of equities of Rs. 47,706.3 crore in April 2008-March 2009 by. This had significant impact on India’s stock market. When FIIs started withdrawing money from the financial market, the domestic investors became fearful and they also withdrew money from the market. Thus, the Sensex which touched above 21,000 mark in January 2008, had plunged below the 8160 mark in March 2009. After a long spell of growth, the Indian economy experienced a downturn. Industrial growth was faltering, inflation remained at double-digit levels, the current account deficit widened, foreign exchange reserves depleted, the rupee got depreciated, and the Sensex had crashed.
44
5. After their flight last year, foreign institutional investors flocked back to bet on the India’s growth story by pouring in a record over Rs. 90,292.4 crores in domestic equities and Rs. 32,437 crores in debt securities in the financial year 2009-10. The late revival of monsoon, upward revision of economic growth from 5.8 per cent to 6.1 per cent, better-than-expected performance of companies in the quarter ending June 30, 2009, leading to savings in the tax payer’s money, the trade policy with an ambitious target of US$ 200 billion exports for 2010-11 had all revived the confidence of FIIs investors in India. India, which is the second fastest growing economy after China, had lately been a major recipient of foreign institutional investor (FII) funds driven by the strong fundamentals and growth opportunities [1]. (Banaji, 1998)
6. The financial year was major disappointment as far as FIIs are concerned. The year saw the net investment dipping to almost a third of what it was in the previous year. The major fears were onset after the tapering policy announced by Federal Reserve Bank. India was identified as a fragile nation in context of tapering because its capital markets were heavily reliant on foreign capital, the macroeconomic indicators were not positive, foreign reserves were depleting and currency was depreciating. As a result FII started pulling the plug.
INVESTMENT TRENDS IN THE EQUITY AND DEBT SEGMENTS OF THE MARKET
At the commencement of FII regime, such funds were allowed to invest either 100% in equity only or in equity and debt in the ratio of 70:30. Such a limit proved to be restrictive on the creation of a true debt market. All of this was up for change in the year 1996. Like in other countries, the restrictions on FI investments began to be progressively liberalized. From November 1996, any registered FII willing to make 100 per cent investment in debt securities were permitted to do so subject to specific approval from SEBI as a separate category of FIIs or sub-accounts as 100 per cent debt funds. But the Foreign Institutional Investments made their debut in debt from March 1997 onwards. The result of all this exercise was the creation of a debt market that was set to become an integral component of FII investments in coming years. The following table and graph provide comparative data about debt and equity investments by FIIs over the years.
Period Equity (Rs. Crore)
Debt (Rs. Crore) Total Investment (Rs. Crore)
1992-93 13 0 131993-94 5127 0 51271994-95 4796 0 47961995-96 6942 0 69421996-97 8546 29 85751997-98 5267 691 59581998-99 -717 -867 -15841999-00 9670 453 101232000-01 10207 -273 99342001-02 8072 690 87622002-03 2527 162 2689
45
2003-04 39960 5805 457652004-05 44123 1759 458822005-06 48801 -7334 414672006-07 25236 5605 308412007-08 53404 122775 1761792008-09 -47706 1895 -458112009-10 110221 32438 1426592010-11 110121 36317 1464382011-12 43738 49988 937262012-13 140033 28334 1683672013-14 79709 -28060 516492014-15* 53,566 62,738 116304
# Data from September, 1992 to March, 1993* Data from April, 2014 to August, 2014(Source:http://www.cdslindia.com/publications/FIIDtlsFinYr.html,http://www.moneycontrol.com/india/stockmarket/foreigninstitutionalinvestors/13/42/activity/FII/201404201408, SEBI handbook of statistics on Indian securities market.)
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15*
-100000
-50000
0
50000
100000
150000
200000
Trends in investments in Equity and Debt by FIIs
Equity (Rs. Crore) Debt (Rs. Crore)
46
The 100% debt market for FII had emerged in 1996 but it had largely remained under the shadow of equity market for over a decade. Meanwhile the government had been trying to make debt market more attractive by taking several steps. This includes allowing FIIs to invest in dated Government securities (April 1998), increasing of limits on investment in dated government securities (2004), simplification of registration procedures among others. All these efforts yielded results only in 2007-08 when for the first time net investment in debt segment was more than that in equity. Surprisingly enough, debt segment stayed positive even in the year 2008-09 when the world was going through financial crisis and net sales in equity segment was to the tune of 45,811 crore rupees. On the basis of this it was assumed that investment in debt segment would be higher in the ensuing year and would help to stabilise Indian economy. Expectations came true albeit the fact that investment in equity segment had been tremendously high in 2009-10. The inflow pattern of 2010-11 had been similar to that of previous year. In the next year equity investment fell by a great quantum while debt investment rose. As a result debt investment was higher than equity invest only for the second time ever since. The following two years were decelerating from debt point of view. The figure stood at a negative 28,060 for 2013-14 on back of tapering fear and weak economic outlook. However the segment has turned bullish again with investment of about 62,738 crore rupees in 2014 till august, a total of 9,000 crore more than that in equity.
INVESTMENTS TRENDS IN DIFFERENT SECTORS OF ECONOMY
Net InvestmentJuly 1-15, 2014
Assets Under Control (AUC) as on July 15, 2014
IN INR Cr. IN INR Cr.Sectors Equity Debt Total Equity Debt TotalAutomobiles & Auto Components 209 0 209 93,784 0 93,784Total Financial Services 485 2,084 2,569 4,59,247 40,133 4,99,380Banks 235 0 235 2,75,925 89 2,76,014Other Financial Services1 249 2,084 2,333 1,83,322 40,044 2,23,366Capital Goods -218 0 -218 1,13,504 51 1,13,555Chemicals & Petrochemicals 55 0 55 16,376 0 16,376Coal -235 0 -235 12,910 0 12,910Commercial Services & Supplies 29 0 29 12,833 0 12,833
Construction Materials -177 0 -177 36,316 370 36,686Consumer Durables -6 0 -6 5,932 0 5,932Diversified2 -21 0 -21 3,559 0 3,559Diversified Consumer Services 0 0 0 263 0 263Food, Beverages & Tobacco -3,665 0 -3,665 83,201 0 83,201
47
Forest Materials 46 0 46 690 0 690General Industrials -52 0 -52 10,954 0 10,954
Hardware Technology & Equipment -4 0 -4 87 0 87
Healthcare Equipment & Supplies -9 0 -9 229 0 229Healthcare Services 24 0 24 6,288 125 6,413Hotels, Restaurants & Tourism 21 0 21 6,833 0 6,833Household & Personal Products 194 0 194 47,660 0 47,660Media 316 -13 303 23,952 839 24,792Metals & Mining -18 237 219 57,627 624 58,251Oil & Gas 655 0 655 1,10,310 2,209 1,12,519Pharmaceuticals & Biotechnology 899 0 899 1,10,160 25 1,10,185Realty -148 0 -148 20,142 250 20,392Retailing 58 0 58 4,307 0 4,307Software & Services 133 0 133 2,36,618 0 2,36,618Telecom Services 40 0 40 42,507 460 42,967Telecommunications Equipment 1 0 1 163 0 163Textiles, Apparels & Accessories 213 0 213 22,424 0 22,424Transportation 243 0 243 25,232 0 25,232Airlines 6 0 6 101 0 101Logistics 37 0 37 1,850 0 1,850Marine Port & Services 195 0 195 12,559 0 12,559Roads & Highways 21 0 21 2,530 0 2,530Shipping -3 0 -3 1,467 0 1,467Surface Transportation 0 0 0 24 0 24Transport Related Services -13 0 -13 6,701 0 6,701Utilities3 635 15 650 71,359 1,107 72,466
Sovereign 0 3,715 3,715 01,08,93
8 1,08,938Others4 8,554 4,382 12,935 68,536 47,844 1,16,380
Grand Total 8,259 10,420 18,67817,04,00
72,02,97
4 19,06,981
48
1 "Other Financial Services" includes Financial Sector other than "Bank". Sub-category under”Other Financial Services" are as follows: - Financial Institutions, Holding Companies, - Housing Finance Companies, Investment Companies, Other Finance companies (including NBFCs)
2AS per BSE Classification Companies under "Diversified" are as follows:Mercator Limited, Kutch Salt & Allied Industries Ltd., SVARTCORP, Advanced Micronic Devices Ltd., VBC Industries Ltd,, Cosco (India) ltd., DCM Shriram Consolidated Ltd., Cimmco Ltd, Gillanders Arbuthnot & Co. Ltd., ADITYA BIRLA NUVO LTD., KESORAM IND, Empire Industries Ltd., BALMER LAWRI, 3M INDIA LTD
3Sub-category under "Utilities" are as follows:Electric Utilities, Other Utilities (Including Pipelines).
49
Assets Under Control (AUC) of FIIs as on July 15, 2014
Automobiles & Auto Components
Total Financial Services
Banks
Other Financial Services
Capital Goods
Chemicals & Petrochemicals
Coal
Commercial Services & Supplies
Construction Materials
Consumer Durables
Diversified
Diversified Consumer Services
Food, Beverages & Tobacco
Forest Materials
General Industrials
Hardware Technology & Equipment
Healthcare Equipment & Supplies
Healthcare Services
Hotels, Restaurants & Tourism
Household & Personal Products
Media
Metals & Mining
Oil & Gas
Pharmaceuticals & Biotechnology
Realty
Retailing
Software & Services
Telecom Services
Telecommunications Equipment
Textiles, Apparels & Accessories
Transportation
Airlines
Logistics
Marine Port & Services
Roads & Highways
Shipping
Surface Transportation
Transport Related Services
Utilities
Sovereign
Others
50
FII INFLOWS IN INDIA – CURRENT SCENARIO ANALYSIS
The first half of 2014 has been prosperous for the Indian economy as whole. But the FIIs have been resoundingly bullish on the capital markets of the country. As a testimony the FIIs have made an investment of more than 1,20,00crore rupees in the period of January to June in 2014. There has been a substantial influx of funds in both the equity and debt segments in the period. This major inflow of foreign funds has been against the wind as in 2013 it was predicted that the tapering by Federal Reserve bank would have an adverse impact on investor sentiments all over but particularly in ‘fragile five’ economies which included India. India was identified as a fragile nation in context of tapering because its capital markets were heavily reliant on foreign capital, the macroeconomic indicators were not positive, foreign reserves were depleting and currency was depreciating. While the problems seemed aplenty a year back, the increase in inflow this year seem to be a different story. A major chunk of the inflow has occurred in the march to June portion of the period. The major reasons for this amplified inflow of FII are as follows:
Positive economic indicatorsThe positive macroeconomic indicators turned out to be a major boost for the economy. With a current account deficit of $ 45 billion, fiscal deficit at 4.6 % of GDP, and estimated GDP growth rate of 5.2% Indian economy seemed to be in much better shape than before. This provided a reason good enough to attract FIIs.
Easy money policies The central banks of major economies of the world have been trying to infuse liquidity in their countries. The central banks of the US, the UK, Japan, etc. have adopted a policy of making capital available at near-zero interest rates since 2008. The easy money policies adopted by these banks have provided a tailwind to FII flows.
Relatively better position for IndiaIndia has attracted flows on account of its relative attractiveness among emerging markets, many of which such as China and Russia have been facing their own issues. While China has been facing an economic slowdown, Russian stocks have been affected by geopolitical issues, including a conflict in Ukraine. The Russian currency, the rouble, has fallen to an all-time.
Appreciation in the value of rupees. The Indian currency had depreciated to its all-time low value in 2013 on the back of information flowing from various sources. This year, however the currency has regained a bit. This appreciation in the value of rupee adds to the returns of FIIs and hence provides an additional incentive.
Expectations from political environmentThe general elections provided an opportunity to speculate on the possibility of a stable government at the centre. A stable and decision making political regime is a positive factor in decision making process of FIIs. With general elections around such
51
expectations increased. The inflows have remained accelerated even post the election results reinforcing such expectations.
FPI - DAWN OF A NEW REGIME
With an aim to attract foreign investment in India, simplify compliance requirements and have uniform guidelines for various categories of foreign investors like Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs), SEBI had notified in January 2014 the SEBI (Foreign Portfolio Investors) Regulations, 2013 (FPIs Regulations). FPIs Regulations have been framed by SEBI keeping in view the provisions of SEBI (Foreign Institutional Investors) Regulations, 1995, QFIs framework and the recommendations of the “Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments” which was formed under the Chairmanship of Mr. K. M. Chandrasekhar. Although the regulations were notified in January its implementation got delayed due to certain regulatory and taxation hurdles. The new foreign portfolio investor (FPI) regulations, which replaced the two-decade old foreign institutional investors (FII) regime, in the Indian market got operational from 2nd June 2014. .Existing FIIs and sub-accounts that are due for renewal will have to register under new FPI regime. On the other hand, existing QFIs will have to register within a year.
Salient Features of the SEBI (Foreign Portfolio Investors) Regulations, 2013 are as under:
Foreign Portfolio InvestorsIn order to provide for uniform entry norms for foreign portfolio investors in India, existing FIIs, Sub Accounts and QFIs shall be merged into a new investor class termed as Foreign Portfolio Investors (FPIs). FPIs will be required to seek registration with Designated Depository Participants (DDPs) authorized by SEBI. DDPs will be empowered to register FPIs on behalf of SEBI. The applicant FPIs need to meet risk based Know Your Client (KYC) requirements and obtain registration in any one of the following categories based on their risk based KYCClassification of FPIs into 3 categories:
Category - I – this would include Government and Government related entities such as Foreign Central Banks, Sovereign Wealth Funds, Multilateral Organizations / Agencies.
Category - II - this would include appropriately regulated broad based funds such as Mutual Funds, Investment Trusts, Insurance / Reinsurance Companies, other broad based funds; appropriately regulated entities such as Banks, Asset Management Companies, Investment Managers / Advisors, Portfolio Managers; University Funds, Pension Funds and University related Endowments already registered with SEBI as FII/Sub Account.
Category - III – All other foreign investors investing in India under Portfolio Investment Scheme (PIS) route (not included in above 2 categories) such as Endowments, Charitable Societies / Trust, Foundations, Corporate Bodies, Trusts, Individuals, Family Offices, etc.
The registration granted to FPIs by the DDPs on behalf of SEBI shall be permanent unless suspended or cancelled by SEBI. All existing FIIs and Sub Accounts may continue to buy, sell or otherwise deal in securities under the FPI regime.
52
Investment avenuesFPIs shall be allowed to invest in all those securities, wherein FIIs are allowed to invest. Category I and Category II FPIs shall be allowed to issue, or otherwise deal in Offshore Derivative Instruments (ODIs), directly or indirectly. Such ODIs can be issued only to persons who are regulated by an appropriate foreign regulatory authority after ensuring compliance with KYC norms.
Designated Depository ParticipantsDDP shall be an Authorized Dealer Category-1 bank authorized by Reserve Bank of India (RBI), Depository Participant (DP) and Custodian of Securities registered with SEBI. Depository shall forward the application of DDP along with its recommendation to SEBI for grant of approval. SEBI registered Custodian of Securities shall be deemed to be DDP subject to conditions. SEBI approved Qualified Depository Participant not meeting the DDP eligibility criteria may operate as DDP for a period of 1 year. DDPs shall carry out necessary due diligence and obtain appropriate declarations and undertakings before registering FPIs.
Anticipated Advantages
Single window clearanceFPI regulations provide a single window clearance to all the foreign participants. Earlier the Sub accounts had to be registered as FII to invest in Indian capital market. Now all participants can get a direct registration through DDPs.
Risk based KYCUnder FII regime all the participants had to undergo the same stringent KYC norms before they could invest hence delaying the investment process. Under the new regime KYC norms are applicable on the basis of the category the fund belongs to. As such less documentation is required for systematically important funds.
Uniform tax rateThe rates of tax applicable on QFIs were higher than those on FIIs in the previous regime. A uniform tax regime provides a better incentive.
53
CHAPTER – 5 – RESEARCH WORK
54
RESEARCH METHODOLOGY
For the purpose of conducting this study the value of Sensex is taken as on the last working day of respective years. The quantum of FII investment is taken in the context of a calendar year. The source of information for above data is official website of Bombay stock exchange. These two data’s have been used as variables for further calculation.
Tool Used For Data AnalysisKarl Pearson’s coefficient of correlation has been used as the data sets are real and it gives an informative and accurate statement of the strength of the linear association between the two variables. Here, our variables are BSE SENSEX and FII Investments.Coefficient of determination has been used to determine quantum of change BSE SENSEX the attributable to FII investment.
Value of Sensex and net flow of FII investments
Correlation analysis
55
Time period
FII Net Flows (INR Crore)
S & P BSE SENSEX
1993 2595.1 3346.061994 6791.2 3926.91995 3853.8 3110.491996 10803.6 3085.21997 6207.3 3658.981998 -1479.9 3055.411999 6697.3 5005.822000 6510.9 3972.122001 12494.8 3262.332002 3677.9 3377.282003 35153.8 5838.962004 42049.1 6602.692005 41663.5 9397.932006 40589.2 13786.912007 80914.8 20286.992008 -41215.5 9647.312009 87987.6 17464.812010 179674.6 20509.092011 39352.8 15454.922012 163350.1 19426.712013 62288 21170.68
Value of Correlation coefficient (r) Coefficient of determination (r2)+0.786899 0.619211
INTERPRETATION OF THE RESULT
The value of Correlation coefficient (r) is +0.786899. This value is positive which means there is direct relationship between net FII inflow and sensex’s year on year movement. Further the magnitude of r is 0.79 which means there a strong relationship between the variables. A movement in FII is accompanied by a strong movement of the index and in the same direction.
The value of Coefficient of determination (r2) is 0.62. This means that if we take FII inflow as the independent variable and value of Sensex as the dependent variable, then any change in the value of Sensex is explained up to an extent of 62% due to some change in the net FII investments.
56
LIMITATIONS OF THE STUDY
1. Sensex is a volatile index. Its value is subject to change as a transaction takes place. So taking the values of any particular day is less representative of movement of index in a year.
2. The sample space is small. The research has taken only one value for a year. The accuracy of coefficient of correlation can be improved by taking monthly data. Still better if daily values are to be compared.
3. Shortage of space and time to conduct such an in depth analysis.
57
CONCLUSION
FIIs have been investing in the Indian capital market for over 2 decades now.In the due course of time, foreign capital has become increasingly significant source of finance. Hence there has been growing presence of FIIs in Indian stock market evidenced by the manifold increase in their investments. In developing countries like India, foreign capital helps in escalating theproductivity of labor and to build up foreign exchange reserves to meet the current account deficit. On the flip side, foreign capital is free and unpredictable and is always on the lookout of profit, the reason being, the portfolio managers of these FIIs are always on their toes for booking profits for their dynamic portfolios across countries
On the evaluation of their investment trends and the movement of Sensex we have found that there is a strong positive relation between the two. It can be stated that while high inflows of FIIs has helped the Sensex scale new heights in certain years, the years marked by their absence have caused the Sensex to take a plunge.
58
APPENDIX
59
BIBLIOGRAPHY
WEBSITES AND WEBLINKS
1. http://www.investindia.gov.in/ 2. http://www.sebi.gov.in/sebiweb/ 3. http://www.moneycontrol.com/ 4. http://www.nseindia.com/ 5. http://articles.economictimes.indiatimes.com/ 6. http://businesstoday.intoday.in/ 7. http://www.thehindu.com/business 8. (http://blogs.reuters.com9. http://www.business-standard.com10. http://shodhganga.inflibnet.ac.in 11. http://timesofindia.indiatimes.com12. http://indiainbusiness.nic.in13. http://indianresearchjournals.com14. http://www.scribd.com
JOURNAL AND PUBLICATIONS
FII operations in Indian capital market and testing of hypothesis Handbook of Statistics on Indian Securities Market 2013 Handbook of Statistics on the Indian Securities Market 2004 Foreign Institutional Investors in India - An Overview FII Regulatory flyer Foreign capital flow and Indian capital market: an appraisal-Pooja Singh
(VSRD International Journal of Business and Management Research, Vol. III Issue XI November 2013) Do FIIs impact volatility of Indian stock market? - Jatinder loomba*
(International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 7, July 2012, ISSN 2277 3622)
60