foreign instituitional investors

8/8/2019 Foreign Instituitional Investors

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Foreign

InstitutionalInvestors

&

HR Issues

Prepared by

Akshat Gait, PG065

Anirvan Sen, PG

Debourjeet, PG

Kriti Jain, PG

Rahul Kaushal, PG

Sumit Bhagat, PG


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Foreign Institutional Investors (FIIs)

FIIsThey are the residents of a country who do investments in financial assets and

production process of another country.

SEBIs definition of FIIs presently includes foreign pension funds, mutual funds,

charitable/endowment/university funds etc. as well as asset management

companies and other money managers operating on their behalf.

Institutional investors are organizations which pool large sums of money and

invest those sums in securities, real property and other investment assets. They

can also include operating companies which decide to invest its profits to some

degree in these types of assets.

Types of typical investors include banks, insurance companies, retirement or

pension funds, hedge funds, investment advisors and mutual funds. Their role in

the economy is to act as highly specialized investors on behalf of others.

Example: For instance, an ordinary person will have a pension from his

employer. The employer gives that person's pension contributions to a fund. The

fund will buy shares in a company, or some other financial product. Funds are

useful because they will hold a broad portfolio of investments in many

companies. This spreads risk, so if one company fails, it will be only a small part

of the whole fund's investment.

Eligibility

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.


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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.

Payment of registration fee of US $ 5,000.0

Powers of FIIs

Institutional investors have a lot of influence in the management of corporations

because they are entitled to exercise the voting rights in a company. They can

actively engage in corporate governance. Furthermore, because institutional

investors have the freedom to buy and sell shares, they can play a large part inwhich companies stay solvent, and which go under. Influencing the conduct of

listed companies, and providing them with capital are all part of the job of

investment management.

Foreign Institutional investor types

Pension fund

Mutual fund

Investment trust

Unit trust and Unit Investment Trust

Investment banking

Hedge fund

Foreign Direct Investments (FDIs)

Foreign Direct Investment involves in the direct production activity and also of

medium to long-term nature. Here the investment is done directly into the

projects of the country


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Foreign direct investment (FDI) refers to long term participation by country A into

country B. It usually involves participation in management, joint-venture, transfer

of technology and expertise.

Direct investment excludes investment through purchase of shares

Types of FDIs

Inward Foreign Direct Investment

Outward Foreign Direct Investment

Stock of Foreign Direct Investment


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Need for FIIsIn developing countries there was a great need of foreign capital, not only to

increase their productivity of labor but also helps to build the foreign exchange

reserves to meet the trade deficit.

Why India:

India, being a capital scarce country, has taken lot of measures to attract foreign

investment since the beginning of reforms in 1991. Since independence India

has shut its doors to the external world, hence the investments from other

countries were very low. But now as its has opened it self to the external world,

there is an ample opportunity for the foreign players to come, invest and gain on

the investment. The Sensex has touched 20,000 mark again and it shows the

confidence of the FIIs in India.

Rules and Regulations specific to India

Foreign Institutional Investors (FIIs) are allowed to invest in the primary and

secondary capital markets in India through the portfolio investment scheme(PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian

companies through the stock exchanges in India.

The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of

the Indian company and 10 per cent for NRIs/PIOs. The limit is 20 per cent of the

paid up capital in the case of public sector banks, including the State Bank of

India.

The ceiling of 24 per cent for FII investment can be raised up to sectoral

cap/statutory ceiling, subject to the approval of the board and the general body of

the company passing a special resolution to that effect. And the ceiling of 10 per


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cent for NRIs/PIOs can be raised to 24 per cent subject to the approval of the

general body of the company passing a resolution to that effect.

The ceiling for FIIs is independent of the ceiling of 10/24 per cent for NRIs/PIOs.

The equity shares and convertible debentures of the companies within the

prescribed ceilings are available for purchase under PIS subject to:

- the total purchase of all NRIs/PIOs both, on repatriation and non-repatriation

basis, being within an overall ceiling limit of (a) 24 per cent of the company's total

paid up equity capital and (b) 24 per cent of the total paid up value of each series

of convertible debenture; and

- the investment made on repatriation basis by any single NRI/PIO in the equity

shares and convertible debentures not exceeding five per cent of the paid up

equity capital of the company or five per cent of the total paid up value of each

series of convertible debentures issued by the company.

Monitoring Foreign Investments

The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in

Indian companies on a daily basis.

For effective monitoring of foreign investment ceiling limits, the Reserve Bank

has fixed cut-off points that are two percentage points lower than the actual

ceilings. The cut-off point, for instance, is fixed at 8 per cent for companies in

which NRIs/ PIOs can invest up to 10 per cent of the company's paid up capital.

The cut-off limit for companies with 24 per cent ceiling is 22 per cent and forcompanies with 30 per cent ceiling, is 28 per cent and so on. Similarly, the cut-off

limit for public sector banks (including State Bank of India) is 18 per cent.

Once the aggregate net purchases of equity shares of the company by

FIIs/NRIs/PIOs reach the cut-off point, which is 2% below the overall limit, the


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Reserve Bank cautions all designated bank branches so as not to purchase any

more equity shares of the respective company on behalf of FIIs/NRIs/PIOs

without prior approval of the Reserve Bank. The link offices are then required to

intimate the Reserve Bank about the total number and value of equity

shares/convertible debentures of the company they propose to buy on behalf of

FIIs/NRIs/PIOs. On receipt of such proposals, the Reserve Bank gives

clearances on a first-come-first served basis till such investments in companies

reach 10 / 24 / 30 / 40/ 49 per cent limit or the sectoral caps/statutory ceilings as

applicable. On reaching the aggregate ceiling limit, the Reserve Bank advises all

designated bank branches to stop purchases on behalf of their FIIs/NRIs/PIOs

clients. The Reserve Bank also informs the general public about the `caution andthe `stop purchase in these companies through a press release.

Current Investment Status of FIIs in India

Foreign institutional investors (FIIs) poured inflows heavily to bet on the India

growth story. As per data released by the Securities and Exchange board of India

(SEBI), FIIs invested US$ 2055.74 million in equities between July 1 and July 21,

2010, and US$ 1566.98 million in debt between the same period. During January

to June 2010, FIIs invested US$ 6878.50 million in equity and US$ 6083.90

million in debt. Data sourced from SEBI shows that the number of registered FIIs

stood at 1713 and number of registered sub-accounts rose to 5,426 as of June

30, 2010

Impact of FII in India

This shows the importance of FII in the overall foreign investment programme.

As India is in the process of liberalizing the capital account, it would have

significant impact on the foreign investments and particularly on the FII, as this

would affect short-term stability in the financial markets. Hence, there is a need

to determine the push and pull factors behind any change in the FII,so that we


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can frame our policies to influence the variables which drive-in foreign

investment. It is, however, instructive to bear in mind that these national

affiliations do not necessarily mean that the actual investor funds come from

these particular countries. Given the significant financial flows among the

industrial countries, national affiliations are very rough indicators of the home of

the FII investments. In particular institutions operating from Luxembourg,

Cayman Islands or Channel Islands or even those based at Singapore or Hong

Kong are likely to be investing funds largely on behalf of residents in other

countries. Nevertheless, the regional breakdown of the FIIsdoes provide an idea

of the relative importance of Different regions of the world in the FII flows

Foreign Institutional Investments are very much needed for India. They are

necessary for the continuous development of our country. The economy of our

country has shown a better performance and has led to the economic growth due

to the FIIs. Though there are threats from the Foreign Institutional Investments

we should be positive and see the future of our country. In last 50 years, India

has developed a strong and professionally competent technical, marketing and

business manpower in Livestock production and Information TechnologyThis is an added advantage over many developing countries of Asia and Africa.

Availability of competent and comparatively low-cost manpower in India is a great

asset which is attracting foreign investors. As a result of stagnancy or in some

cases reduction in agricultural production, demand for several inputs like

machinery and equipment, feeds, pharmaceuticals etc. has reduced in some

countries of America and Europe.

foreign instituitional investors

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