FOREIGN DIRECT INVESTMENT AND FOREIGN INSTITUTIONAL INVESTORS

PRESENTED BY:ANKIT SABLOK NIKUNJ WALIA KAVITA ASNORA SAURABH TRIVEDI

CONTENT
T FOREIGN DIRECT INVESTMENT TYPES OF FDI ADVANTAGES OF FDI DISADVANTAGES OF FDI DIFFERENCE BETWEEN FDI AND FII FOREIGN INSTITUTIONAL INVESTORS FIIS IN INDIA T ADVANTAGES OF FIIS T HOW TO INCREASE FDI IN RETAIL SECTOR IN INDIA?

FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country. Once a firm undertakes FDI it becomes a multinational enterprise FDI is undertaken by firms so that they can take advantage of resources that are either unavailable in the home country or because these resources are available at costs lower than those in their home country. The firm has significant control of its foreign operation and can affect managerial decisions of the foreign operation. It usually involves participation in management, joint-venture, transfer of technology and expertise.

TYPES OF FDI
BY DIRECTION 1.INWARD FDI 2.OUTWARD FDI BY TARGET 1. GREENFIELD INVESTMENT 2. MERGERS AND ACQUISITIONS 3. JOINT VENTURE

Inward FDI: Inward FDI for an economy can be defined as the capital provided from a foreign direct investor residing in a country, to that economy, which is residing in another country. Here, investment of foreign capital occurs in local resources. Flow of Inward FDI may face restrictions from factors like restraint on ownership and disparity in the performance standard. EXAMPLE: General Motors decides to open a factory in Malaysia. They are going to invest some capital. That capital is inward FDI for Malaysia.

Outward FDI
When investment is made by a domestic company in the foreign country than there is outflow of FDI from domestic country to foreign country. Foreign direct investment, which is outward, is also referred to as direct investment abroad. Outward FDI faces restrictions under a host of factors as described below: Industries related to defence are often set outside the purview of outward FDI to retain government's control over the defense related industrial complex. Subsidy scheme targeted at local businesses. Government policies, which lend support to the phenomenon of industry nationalization

GREENFIELD INVESTMENT
A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. In addition to building new facilities, most parent companies also create new longterm jobs in the foreign country by hiring new employees. Developing countries often offer prospective companies taxbreaks, subsidies and other types of incentives to set up green field investments. Governments often see that losing corporate tax revenue is a small price to pay if jobs are created and knowledge and technology is gained to boost the country's human capital.

MERGERS AND ACQUISITIONS

1. Horizontal A merger in which two firms in the same industry combine. Often in an attempt to achieve economies of scale and/or scope. 2. Vertical A merger in which one firm acquires a supplier or another firm that is closer to its existing customers. Often in an attempt to control supply or distribution channels. 3. Conglomerate A merger in which two firms in unrelated businesses combine. Purpose is often to diversify the company by combining uncorrelated assets and income streams 4. Cross-border (International) M&As Cross A merger or acquisition involving a Indian and a foreign firm, either the acquiring or target company.

ADVANTAGES OF FDI
Foreign Direct Investment plays a vital role in the development of India's economy. It is an integral part of the global economic system. FDI ensures a huge amount of domestic capital, production level, and employment opportunities in the developing countries, which is a major step towards the economic growth of the country. Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production.

DISADVANTAGES OF FDI
One of the most important disadvantages of foreign direct investment is that the economically backward section of the host country is always inconvenienced when the stream of foreign direct investment is negatively affected. The differences of language and culture that exist between the country of the investor and the host country could also pose problems in case of foreign direct investment.

Adverse effects on the balance of payments, when a foreign subsidiary imports a substantial number of its inputs from abroad, there is a debit on the current account of the host countrys balance of payments.

Difference between FDI AND FII

Both FDI and FII is related to investment in a foreign country. FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. On the contrary, FDI or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. In FII, the companies only need to get registered in the stock exchange to make investments. But FDI is quite different from it as they invest in a foreign nation. The Foreign Institutional Investor is also known as hot money as the investors have the liberty to sell it and take it back. But in Foreign Direct Investment, this is not possible. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor.

Cont..
FDI translated the capital inflow into additional production it increase the enterprises capacity. While FII investment flows into the secondary market it helps in increasing the capital availability FDI helps in good governance practices and better management skills while FII helps in promoting good governance and improving accounting FDI are long term investment while FII are short term investment FDI flows into primary market, the FII flows into secondary market India is far more than that of FII but it had adopted the method of FDI.LIKE:-MARUTI SUZUKI

FII
FII is defined institution organized outside of INDIA for the purpose of making investment into Indian securities market under the regulation of SEBI.. It includes mutual funds AMC, university funds, charitable trust etc FII can invest their own funds as well as invest on behalf of their overseas client registered with SEBI.. Positive tidings about the indain economy combined with a fast growing market have made an INDIA attractive destination for FIIs.. A domestic portfolio manager can also register itself as an FII to manage the funds of sub funds

FIIS IN INDIA
    

Entered in 1992 Why India? 2nd largest emerging market 4th largest economy Strong macro economic fundamentals of companies Transparent regulatory system Lists 6500 companies on BSE

Advantages of FII s
Enhanced flows of equity capital Helps improve capital structures and contributes towards building the investment gap Managing uncertainty and controlling risks FII inflows help in financial innovation and development of hedging instruments It not only enhances competition in financial markets, but also improves the alignment of asset prices to fundamentals

WHAT INDIA SHOULD DO TO INCREASE FDI PARTICULARLY IN RETAIL SECTOR.

FOR EXAMPLE:---

 Allow foreign companies to sell their products in india directly through their retail shop.. To allow FDI in multi-brand retail in INDIA More branding to msme so that they reach ot the world vast markets. Allow domestic modern retailers which is likely to provide acess for domestic suppliers to international retailing. More of the investments in logistics of retail chain. A reduction in customs duty and other entry taxes would be greatly channelize funds to boost up the economy. Improvement in supply chain management. To allow investments by investor such as FII, Venture capital funds, and other financial investors in sector. Restructuring the industries in a proper manner.