PRESENTATION ON FDI & FII

Presented To:Ms. Pallavi Dawra Presented By:

Parv MahajanVinod KumarSanjeev Kr. Singh

ECONOMIC INDICATOR

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

32392243706473

42839794947857

55744496164178

GDP (IN Rs crore)

GDP (IN Rs crore)

GDP Growth Rate (in %)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

6.9

9.5 9.79.2

6.77.2

GDP Growth Rate (in %)

Inflation Rate

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

6.5

4.45.4

4.7

8.4

1.6

3.84.4

6.7 6.2

9.1

11.4

Chart Title

Inflation (WPI) Inflation (CPI )

Export and Import

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

85206105152

128888166162

189001

117580118908157056

190670

257629

307651

193820

Chart Title

Exports (US$ Mn.) Imports (US$ Mn.)

Trade Balance

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

-140000

-120000

-100000

-80000

-60000

-40000

-20000

0

Trade Balance (US$ Mn.)

Trade Balance (US$ Mn.)

Definition of FDI

Foreign direct investment is that investment, which is made to serve the

business interests of the investor in a company, which is in a different

nation distinct from the investor's country of origin.

The parent enterprise through its foreign direct investment effort seeks to

exercise substantial “Control” over the foreign affiliate company.

Exp. - An American company taking a majority stake in a company in

India.

Modes of FDI1) By Direction Inward Outward

2) By Target Mergers and Acquisitions Horizontal FDI Vertical FDI

3 )By Motive

Resource-Seeking

Market-Seeking

Efficiency-Seeking

FDI Investment Schemes

Available Financial Instruments

Equity Shares, Compulsorily Convertible Preference Shares and compulsorily Convertible Debentures.

Not Available to Investors who are

Citizens of Pakistan OR Entities of Pakistan

Available with approval of FIPB (AP (DIR) No.22 dt.19/12/2007)

To Citizens & Entities of Bangladesh

Factors Affecting FDI

Financial incentives (Funds from local Government)

Fiscal incentives (Exemption from import duties)

Indirect incentives (Provides land and other resources)

Political stability

Market potential & accessibility

Large economy

Market size

FDI in India

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 (till dec.)

4.036.13 5.04 4.32

6.058.96

22.08

29.8927.92

52.10%

-17.90%-14.20%

40.00% 48.10% 146.40% 35.40%

FDI Amount in US bn $ %age growth over

SHARE OF TOP INVESTING COUNTRIES - FDI INFLOWS (US$ Mn.)

Rank Country Total 2000 to 2009

% of

Total of all

Countries

1. Mauritius 39,379 44

2. Singapore 8,071 9

3. U.S.A 6,508 7

4. U.K 5,289 6

5. Netherlands 3,701 4

5. Cyprus 2,579 3

6. Germany 2,379 3

7. France 1,233 1

Share of countries

44%

9%8%5%

4%4%

4%

22%

CONTRIBUTION IN FDI (in %)

MAURITIUS SINGAPORE U.S.A. U.K.JAPAN NETHERLANDS CYPRUS OTHERS

Investing in India – Entry Routes

Investing in India

Automatic RoutePrior Permission

(FIPB)

General ruleNo prior permission requiredOnly information to the Reserve Bank of India within 15 days of inflow/Issue of shares

By exceptionPrior Government Approval needed

Decision generally Within 4-6 weeks

FDI Limit in Different SectorSector/Activity FDI Cap/Equity Entry RouteAirports 100% AutomaticConstruction Development 100% AutomaticPetroleum & Natural Gas

(b) Refining 26% (For PSUs)100% ( Private companies)

FIPBAutomatic

Other than Refining 100% AutomaticTelecommunication

Basic and cellular;STD/ISD 74% Automatic up to 49%

Manufacture of telecom equipment 100% Automatic

Power ( Except Atomic energy); regulations transmission, distribution and Power Trading

Ports 100% Automatic

Roads & Highways 100% Automatic

Shipping 100% Automatic

Sectors attracting highest FDI Equity Inflows

Ranks Sector 2006-07 (Apr-Mar)

2007-08 (Apr- Mar)

2007-08 (Apr- Mar)

2007-08 (Apr- Mar)

Cum Inflows Till Nov09

% of total Inflows

1. SERVICES SECTOR

(fin& non-financial)

21,047

(4,664)

26,589 (6,615)

28,411

(6,116)

16,566

(3,438)

101,019

(22,687)

22 %

2. COMPUT.SOFT & HARD.

11,786

(2,614)

5,623

(1,410)

7,329

(1,677)

2,763

(575)

42,259

(9,529)

9 %

3. TELE

COMMUNICATIONS

2,155

(478)

5,103

(1,261)

11,727

(2,558)

10,811

(2,223)

39,179

(8,600)

8 %

4. HOUSING & REAL ESTATE

2,121 (467)

8,749 (2,179)

12,621 (2,801)

10,565 (2,189)

34,348 (7,701)

7 %

5. CONSTRUCTION

(inroads & highways)

4,424 (985)

6,989 (1,743)

8,792 (2,028)

8,380 (1,754)

30,557 (6,945)

7 %

Advantages of FDI

Economic growthTradeEmployment and skill levelsTechnology diffusion and knowledge transferLinkages and spillover to domestic firmsImproved technology. Management expertise. Access to international markets

Prohibited Sectors For FDI Gambling and betting

Lottery Business

Atomic Energy

Retail Trading

Agricultural or plantation activities of Agriculture

(excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations other than Tea Plantations)

Foreign Institutional Investor

• An investor or investment fund that is from or

registered in a country outside of the one in

which it is currently investing.

Institutional investors include

hedge funds,

insurance companies,

pension funds and mutual funds.

Entities / funds eligible to get registered as FII:

Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks Endowments Foundations Charitable Trusts / Charitable Societies

Parameters on which SEBI decides FII applicants’ eligibility

Applicant’s track record, professional competence, financial soundness, experience,

general reputation of fairness and integrity. (The applicant should have been in existence for at least one year)

whether the applicant is registered with and

regulated by an appropriate Foreign Regulatory

Authority in the same capacity in which the application is filed with SEBI

Whether the applicant is a fit & proper person.

Indian stock Market

Year wise FII

20012002

20032004

20052006

20072008

2009

-60000

-40000

-20000

0

20000

40000

60000

80000

100000

Chart Title

YEARFII in Rs Cr.

Axis Title

Relation among Exchange Rate, Sensex, FII

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

Series1

Series2

Series3

Sensex

Exchange Rate

FII

Foreign Institutional Investor

• Foreign Institutional Investors can individually purchase up to 10% and collectively up to 24% of the paid up share capital of any company.

• This limit of 24% can be increased to sectoral cap/ statutory limit applicable to the Indian company by passing Board or shareholder resolution.

• FIIs can purchase shares through open offer/ private placement/ stock exchange.

• shares purchased by FII through stock exchange can’t be sold through a private arrangement.

Positives and Negatives of FII

Advantages

Unavailability of Corporate

Debt

Increase Forex Reserve

Increase Domestic Savings

and Investments

Large Availability of Capital

Disadvantages

• Problem of inflation

• Reduces flexibility of Policy

makers

• Hot Money

• False representation of

Economy

• Can’t be used for long term

• Problems for small investors

Differences..

FDI

FDI is when a foreign

company brings capital into a

company or economy to set up

a production or some other

facility.

FDI gives some CONTROL in

operation of foreign company

to the foreign company

FII

FII is when a foreign

company buys equity in any

company through stock

market.

FII does not give any control

in operation of foreign

company

Contd…

FDI

FDI involves in direct

production activity and is

long term in nature.

It enables a degree of

control in the company.

FDI brings long term

capital.

FII

FII is mostly the short term

investment mostly in

financial market.

It does not involve in degree

of control in the company.

FII brings short term capital.