FDI & FII in India
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Transcript of FDI & FII in India
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.