PRESENTATION ON FDI & FII

Presented To: Ms. Pallavi Dawra

Presented By: Parv Mahajan Vinod Kumar Sanjeev Kr. Singh

ECONOMIC INDICATOR GDP (IN Rs crore)

GDP (IN Rs crore) 6164178 5574449

4947857
4283979 3239224

3706473

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

GDP Growth Rate (in %)

GDP Growth Rate (in %)

9.5 6.9

9.7

9.2

6.7

7.2

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Inflation Rate
Chart Title
Inflation (WPI) Inflation (CPI ) 11.4 8.4 6.5 5.4 3.8 4.4 4.4 6.7 4.7 1.6 6.2 9.1

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Export and Import

Chart Title
Exports (US$ Mn.) Imports (US$ Mn.) 307651 257629 190670 166162 189001 193820 117580

157056
118908 105152 85,206 128888

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Trade Balance
Trade Balance (US$ Mn.)
0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

-20000

-40000

-60000 Trade Balance (US$ Mn.) -80000

-100000

-120000

-140000

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 FDI
1) 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
FDI
Amount in US bn $ %age growth over

29.89

27.92

22.08

8.96 6.13 4.03 52.10%

FY 2001 FY 2002

5.04

4.32

6.05

146.40% 40.00% 48.10% 35.40%

FY 2003 FY 2004 -17.90% -14.20% FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 (till dec.)

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

Rank Country Total 2000 to 2009 % of Total of all

Countries
1. 2. 3. 4. 5. 5. 6. 7. Mauritius Singapore U.S.A U.K Netherlands Cyprus Germany France 39,379 8,071 6,508 5,289 3,701 2,579 2,379 1,233 44 9 7 6 4 3 3 1

Share of countries
CONTRIBUTION IN FDI (in %)
MAURITIUS JAPAN SINGAPORE NETHERLANDS U.S.A. CYPRUS U.K. OTHERS

22% 4% 4% 4% 5% 8% 9%

44%

Investing in India Entry Routes

Investing in India

Automatic Route
General rule No prior permission required
Only information to the Reserve Bank of India within 15 days of inflow/ Issue of shares

Prior Permission (FIPB)

By exception Prior Government Approval needed Decision generally Within 4-6 weeks

FDI Limit in Different Sector

Sector/Activity Airports Construction Development FDI Cap/Equity 100% 100% Entry Route Automatic Automatic

Petroleum & Natural Gas

(b) Refining Other than Refining Telecommunication Basic and cellular;STD/ISD Manufacture of telecom equipment Power ( Except Atomic energy); regulations transmission, distribution and Power Trading Ports Roads & Highways 100% 100% Automatic Automatic 74% 100% Automatic up to 49% Automatic 26% (For PSUs) FIPB 100% ( Private companies) Automatic 100% Automatic

Sectors attracting highest FDI Equity Inflows

Ranks Sector 2006-07 (AprMar)
21,047 (4,664)

2007-08 (AprMar)
26,589 (6,615)

2007-08 (AprMar)
28,411 (6,116)

2007-08 (AprMar)
16,566 (3,438)

Cum Inflows Till Nov09

% of total Inflows
22 %

1.

SERVICES SECTOR (fin& nonfinancial) COMPUT. SOFT & HARD. TELE COMMUN ICATIONS

101,019 (22,687)

2.

11,786 (2,614) 2,155 (478) 2,121 (467) 4,424 (985)

5,623 (1,410) 5,103 (1,261) 8,749 (2,179) 6,989 (1,743)

7,329 (1,677) 11,727 (2,558) 12,621 (2,801) 8,792 (2,028)

2,763 (575) 10,811 (2,223) 10,565 (2,189) 8,380 (1,754)

42,259 (9,529) 39,179 (8,600) 34,348 (7,701) 30,557 (6,945)

9%

3.

8%

4.

HOUSING & REAL ESTATE CONSTRU CTION (inroads & highways)

7%

5.

7%

Advantages of FDI Economic growth Trade Employment and skill levels Technology diffusion and knowledge transfer Linkages and spillover to domestic firms Improved 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

Applicants 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

Chart Title
100000

80000
60000 Axis Title 40000 20000 0 -20000 -40000 -60000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YEAR FII in Rs Cr.

10000

15000

20000

25000

-5000 5000 0

-15000 YEAR Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07

-10000 Aug-07
Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08

Sep-08
Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10

Relation among Exchange Rate, Sensex, FII

FII

Sensex

Exchange Rate

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 cant be sold through a private arrangement.

Positives and Negatives of FII

Advantages Unavailability of Corporate Disadvantages
Problem of inflation Reduces flexibility of Policy makers Hot Money

Debt
Increase Forex Reserve Increase Domestic Savings and Investments Large Availability of Capital

False
Economy

representation

of

Cant be used for long term

Problems for small investors

Differences..
FDI
FDI is when a foreign

FII FII is when a foreign stock

company brings capital into a

company or economy to set up a production or some other

company buys equity in any

company market. through

facility.
FDI gives some CONTROL in operation of foreign company

FII

does in

not

give

any of

control

operation

to the foreign company

foreign company

Contd
FDI FDI involves in direct FII FII is mostly the short term

production activity and is

long term in nature. It enables a degree of

investment mostly in
financial market. It does not involve in degree of control in the company. FII brings short term capital.

control in the company.

FDI brings long term capital.