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ROLE OF FII IN INDIAN CAPITAL MARKET
Presented By:Sanketh
Shetty Harish
Guide: Prof. R K Sharma
Evaluator:Mr.Krishnaprasad
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INTRODUCTION
India opened its stock market to foreign
investors in September 1992.
since 1993,received portfolio investmentfrom foreigners in the form FII
In order to trade in Indian equity market
foreign corporation need to register with SEBI
as FII
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FOREIGN INSTITUTIONAL
INVESTOR
A foreign Institutional Investor (an
"FII") as an institution established or
incorporated outside India whichproposes to make investment in
India in securities of companies
incorporated in India (Indian
Companies)
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INVESTMENT IN INDIAN MARKET
During January to April 2010, FIIs invested US$ 6.6billion in equity and US$ 5.94 billion in debt, of whichUS$ 4.4 billion in equity and US$ 2.1 billion in debt was
invested in March 2010. According to SEBI, FIIs transferred a record US$ 17.5
billion in domestic equities during the calendar year2009. FIIs infused a net US$ 1.1 billion in debtinstruments during the said period.
Data sourced from SEBI shows that the number ofregistered FIIs stood at 1711 and number of registeredsub-accounts rose to 5,382 as ofApril 30, 2010.
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IMPORTANT TERMS IN FII
sub-account
Broad Based Fund
Designated Bank
Domestic Custodian
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REGISTRATION PROCEDURE OF
FOREIGN INSTITUTIONAL INVESTOR
As per Regulation 6 of SEBI (FII) Regulations,
1995
The applicant should be regulated by anappropriate foreign regulatory authority .
The applicant is required to have the
permission under the provisions of the
Foreign Exchange Management Act, 1999
from the Reserve Bank ofIndia.
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Cont
Applicant must be legally permitted to invest insecurities 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 andenter into an agreement with the custodian.
Payment of registration fee of US $ 5,000.00
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REGISTRATION PROCESS FOR FII
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FACTORS CONTRIBUTED SIGNIFICANTLY TO
THE FII FLOWS TO INDIA:
Rapidly developing economy
Regulation and Trading Efficiencies
A
ttractive Markets
Encouraging corporate results
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WHO CAN BE REGISTERED AS AN
FII?
Pension Funds
Mutual Funds
Insurance Companies
Investment Trusts
Banks
University Funds
Foundations
Charitable Trusts / Charitable Societies
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MAJOR FOREIGN INSTITUTIONAL
INVESTORS IN INDIA
Deutsche bank Rs 33597 crore
Goldman Sach- Rs 7,307 crore
HSBC Morgan Stanley
Merrill Lynch
CLSA Swiss finance.
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FINANCIAL INSTRUMENTS ARE
AVAILABLE FOR FII INVESTMENTS
Securities in primary and secondary marketsincluding shares, debentures and warrants ofcompanies, unlisted, listed or to be listed on a
recognized stock exchange in India; Units of mutual funds;
Dated Government Securities;
Derivatives traded on a recognized stockexchange;
Commercial papers.
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FOREIGN INSTITUTIONAL INVEST
CANNOT INVEST IN THE FOLLOWING:-
Business of chit fund
Nidhi Company
Agricultural or plantation activities
Real estate business or construction of farmhouses (real estate business does not includedevelopment of townships, construction ofresidential/commercial premises, roads or
bridges.Trading in Transferable Development Rights(TDRs).
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FOREIGN INSTITUTIONAL
INVESTORS REGISTERED IN INDIAYear FII REGISTERED
1998-1999 450
1999-2000 506
2000-2001 527
2001-2002 490
2002-2003 502
2003-2004 540
2004 -2005 685
2005-2006 8822006-2007 996
2007-2008 1219
2008-2009 1334
2009-2010 1729
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Main sources of Foreign Institutional
Investors:
42%
20%
17%
6%
4%
4%
2%1% 1% 1% 2%
USA
UK
W EUROPE
HONG KONG
SINGAPORE
AUSTRALIA
CANADA
MIDDLE EAST
JAPAN
OTHERS
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Top 10 Stocks where Foreign Institutional
Investors Invested:Name of the Company Best known for FII Share(%)
Sybly Industries limited Manufacturer of polyster yarn &merchendise
74.18
India bull Real Estate Real Estate 67.43
HDFC Private sector Bank 59.85
Geodesic Developing products in Information,communication & entertainment space
53.47
Amtek Auto Automotive components 50.84
IVRCL Infrastructure Infrastructure like waste watertreatment transport builder & power
48.04
Prajay Engineering Real Estate 42.55
Amtek India 42.55
Jain Irrigation Manufacturing irrigation System 42.02
Logix micro system Software Product Company 41.96
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Debt- Equity pattern Net Investments of FIIs :
Year Net Investments in
Equity (Rs. in Crores)
Net Investment in Debt
(Rs. in Crores)
1999 6176 120
2000 6386 316
2001 13025.6 217.8
2002 3629.1 1554.9
2003 30256.4 4838.6
2004 28168.31 3083
2005 31312 -5467
2006 36543 4051
2007 71486 9427
2008 -54828 24534
2009 83422 4564
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Category Date Buy Value Sell Value Net Value
FII 07-Sep-2010 2466.94 2487.82 -20.88
FII 06-Sep-2010 2750.18 1803.65 946.53
FII 03-Sep-2010 2016.26 1733.24 283.02
FII 02-Sep-2010 2036.77 1954.46 82.31
FII 01-Sep-2010 2683.31 2323.50 359.81
FII 31-Aug-2010 3120.17 2832.29 287.88
FII 30-Aug-2010 1418.88 1234.47 184.41
FII 27-Aug-2010 1811.62 1919.78 -108.16
FII 26-Aug-2010 3639.32 3915.94 -276.62
FII
25-A
ug-2010 2379.88 2744.84 -364.96FII 24-Aug-2010 2509.54 2318.49 191.05
FII 23-Aug-2010 2411.85 2093.62 318.23
FII 20-Aug-2010 2611.15 1948.29 662.86
FII 19-Aug-2010 3029.90 2208.72 821.18
FII 18-Aug-2010 3118.91 2444.39 674.52
FII 17-Aug-2010 3143.25 2739.16 404.09FII 16-Aug-2010 2753.66 2353.65 400.01
FII 13-Aug-2010 2452.25 2402.10 50.15
FII 12-Aug-2010 3212.88 2994.69 218.19
FII 11-Aug-2010 2722.70 2808.51 -85.81
FII 10-Aug-2010 3125.85 2526.52 599.33
FII 09-Aug-2010 2381.29 1859.17 522.12FII 06-Aug-2010 2668.91 2003.97 664.94
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(Rs. crore)
FII (BSE + NSE) DII (BSE +NSE)
Trade Date Buy Sales Net Buy Sales Net
23/8/10 2,411.85 2,093.62 318.24 1,249.56 1,409.34 -159.78
20/8/10 2,611.15 1,948.29 662.86 1,121.91 1,224.07 -102.15
19/8/10 3,029.90 2,208.72 821.19 1,303.15 1,088.06 215.09
18/8/10 3,118.91 2,444.39 674.52 1,579.43 1,692.94 -113.51
17/8/10 3,143.25 2,739.16 404.09 1,187.88 1,588.00 -400.12
16/8/10 2,753.66 2,353.65 400.01 1,168.44 1,602.35 -433.9113/8/10 2,452.25 2,402.10 50.15 1,625.92 1,592.54 33.37
12/8/10 3,212.88 2,994.69 218.19 1,403.35 2,059.40 -656.05
11/8/10 2,722.70 2,808.51 -85.82 1,784.22 1,760.72 23.50
10/8/10 3,125.85 2,526.52 599.33 1,066.24 1,606.91 -540.66
9/8/10 2,381.29 1,859.17 522.11 1,085.30 1,130.81 -45.50
6/8/10 2,668.91 2,003.97 664.95 954.93 1,295.52 -340.59
5/8/10 2,845.14 2,772.12 73.02 917.46 1,105.27 -187.81
4/8/10 2,715.70 2,027.01 688.68 1,016.87 1,292.76 -275.90
Cumulative since
11.4.2005 2,742,336.54 2,805,521.65 -63,185.10 1,026,835.49 900,648.25 126,187.24
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Reporting Date Debt/EquityInvestment
Route
Gross Purchases(Rs
Crores)
Gross Sales(Rs
Crores)
Net Investment (Rs
Crores)
Net Investment
US($) million
Total for October
Equity
Stock
Exchange23230.70 14939.60 8291.10 1852.93
Primary market &
others 1362.00 43.70 1318.30 294.85
Sub-total 24592.60 14983.60 9609.10 2147.79
Debt
Stock
Exchange3404.00 1915.40 1488.80 335.72
Primary market &
others0.60 1900.30 (1899.70) (424.59)
Sub-total 3404.70 3815.60 (411.00) (88.88)
Total 27997.30 18799.20 9198.10 2058.91
Total for 2010
Equity
Stock
Exchange520719.50 449893.50 70826.00 15487.90
Primary market &
others25118.20 1975.00 23143.30 5033.50
Sub-total 545837.69 451868.41 93969.30 20521.40
Debt
Stock
Exchange137866.41 89426.50 48440.00 10540.20
Primary market &
others23281.20 25545.50 -2264.30 -491.90
Sub-total 161147.50 114971.90 46175.70 10048.30
Total 706985.19 566840.31 140145.00 30569.70
Cumulative total
since
November 1992 till
October 06, 2010
Equity 4023145.00 3615338.25 407807.50 93132.80
Debt 408328.00 329893.59 78434.70 17509.50
Total 4431473.00 3945232.00 486242.19 110642.30
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06-OCT-2010 Index Futures 31454 975.44 54884 1700.45
Index Options 87056 2651.89 80580 2430.43
Stock Futures 39610 1211.08 75520 2387.54
Stock Options 12892 448.29 13774 472.6
Total for
October Index Futures 312809.00 9497.60 339909.00 10361.08
Index Options 645894.00 19290.68 586551.00 17413.22
Stock Futures 390387.00 12060.30 480051.00 14826.72
Stock Options 36219.00 1285.65 38262.00 1332.60
Total for 2010 Index Futures 18043828.00 476604.81 18558108.00 490217.50
Index Options 35497080.00 924960.50 30975330.00 808795.00
Stock Futures 17591448.00 534235.00 17688034.00 537730.12
Stock Options 1230689.00 42411.90 1434093.00 49822.70
Trends in FII Derivative Trades on 07/10/2010 in crores
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FII behavior during Financial Crisis 2008:
Months Net FIIs Rs in Crores Direction of Flow
January 17227 Negative
February 4882.6 Positive
March 124.5 Positive
April 975.2 Positive
May 4672.2 Negative
June 10577.5 Negative
July 1012.7 Negative
August 2065.7 Negative
September 7936.6 Negative
October 14248.6 Negative
November 3362.1 Negative
December 1629.3 Positive
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FIIs as major cause of market crash
( Jan 21 to Jan 29 2008)
The Indian capital markets have been left reeling under the
impact of liquidity crunch caused by multiple factors
It began with two mega issues of reliance power and future
capital holdings, which drew out huge amounts of money from
the market
FIIs withdraw from the capital market with more than
Rs 10000 crore
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Impact Of FIIs On Indian Markets
In the past four years there has been more than $41 trillion
worth of FII funds invested in India.
The present downfall of the market too is influenced as these
FIIs are taking out some of their invested money.
Long-term value investors v/s short term traders
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Appreciation of the rupee :
Higher forex reserves .
Creating wealth .
Direct effect on Inflation.
FII AND ECONOMY:
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Why there is need of FII ?
FII flows supplements and augmented domestic savings and
domestic investment without increasing the foreign debt of our
country
Capital inflows to the equity market increase stock prices,
lower the cost of equity capital and encourage the investment
by Indian firms
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Why FII called good friend for good time
volatile in nature
In the Indian stock markets movement of the stock depends on
the limited no of stocks
As FIIs purchase and sell these stocks there is a high degree of
volatility in the stock market
If any set of development encourages outflow of capital that
will increase the vulnerability of the situation in the stock
market
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Determinants of Foreign Institutional
I
nvestment:
Equity returns
Risk
Inflation
Exchange rate
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Foreign Institutional Investment: A
Cost Benefit Analysis: Benefits:
Reduced cost of equity
Stability in the balance of payment
Knowledge flows
Strengthening corporate governance
Improving market efficiency
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Foreign Institutional Investment: A Cost
Benefit Analysis:
COSTS:
Herding and positive feedback training
Balance of payment vulnerability
Possibility of takeovers
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The Indian stock markets have really come of age there were so many
developments in the last 15 years that make the markets on par with the
developed markets.
The foreign capital is free and unpredictable and is always on the look
out of profits Flls frequently move investments, and those swings can
be expected to bring severe price fluctuations resulting in increasing
volatility.
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The growth of institutional investors in the market is having its own
advantages as well as its own share of problems on the brighter side
almost always purchase stocks on the basis offundamentals.