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A large number of changes that were introduced in the countrys regulatory economic policies heralded
the liberalization era of the FDI policy regime in India and brought about a structural breakthrough in the
volume of the FDI inflows into the economy maintained a fluctuating and unsteady trend during the study
period. It might be of interest to note that more than 50% of the total FDI inflows received by India , came
from Mauritius, Singapore and the USA.
The main reason for higher levels of investment from Mauritius was that the fact that India entered into a
double taxation avoidance agreement (DTAA) with Mauritius were protected from taxation in India.
Among the different sectors, the service sector had received the larger proportion followed by computer
software and hardware sector and telecommunication sector.
According to findings and results, we have concluded that FII did have significant impact on Sensex but
there is less co-relation with Bankex and IT. One of the reasons for high degree of any linear relation can
also be due to the sample data. The data was taken on monthly basis. The data on daily basis can give
more positive results (may be). Also FII is not the only factor affecting the stock indices. There are other
major factors that influence the bourses in the stock market.
Research methodology
Correlation: We have used the Correlation tool to determine whether two ranges of data move
together that is, how the Sensex, Bankex, IT, Power and Capital Goods are related to the FII
which may be positive relation, negative relation or no relation.
We will use this model for understanding the relationship between FII and stock indices returns.
FII is taken as independent variable. Stock indices are taken as dependent variable
Hypothesis Test: If the hypothesis holds good then we can infer that FIIs have significant impact
on the Indian capital market. This will help the investors to decide on their investments in stocks
and shares. If the hypothesis is rejected, or in other words if the null hypothesis is accepted, then
FIIs will have no significant impact on the Indian bourses.
To Examine the trends and patterns in the FDI across different sectors and from different countries
in India
To know in which sector we can get more foreign currency in terms of investment in India
To know which country s safe to invest .
To know how much to invest in a developed country or in a developing.
To know Which sector is good for investment .
To know which country in investing in which country
History
In the years after the Second World War global FDI was dominated by the United States, as much of the
world recovered from the destruction brought by the conflict. The US accounted for around three-quarters
of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to
become a truly global phenomenon, no longer the exclusive preserve of OECD countries.
FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of
global GDP. Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such
as factories, mines and land. Increasing foreign investment can be used as one measure of growing
economic globalization. Figure below shows net inflows of foreign direct investment as a percentage of
gross domestic product (GDP). The largest flows of foreign investment occur between the industrialized
countries (North America, Western Europe and Japan). But flows to non-industrialized countries are
increasing sharply.
1
4
1
5
Outward FDIs
Inward FDIs
This classification is based on the types of restrictions imposed, and the various prerequisites required for
these investments.
Outward FDI: An outward-bound FDI is backed by the government against all types of associated risks. This
form of FDI is subject to tax incentives as well as disincentives of various forms. Risk coverage provided to the
domestic industries and subsidies granted to the local firms stand in the way of outward FDIs, which are also known
as 'direct investments abroad.'
Inward FDIs: Different economic factors encourage inward FDIs. These include interest loans, tax breaks, grants,
subsidies, and the removal of restrictions and limitations. Factors detrimental to the growth of FDIs include
necessities of differential performance and limitations related with ownership patterns.
Horizontal FDI the MNE enters a foreign country to produce the same products product at home.
Vertical FDI the MNE produces intermediate goods either forward or backward in the supply
stream.
16
tax holidays
preferential tariffs
infrastructure subsidies
R&D support
17
Entry Mode
The manner in which a firm chooses to enter a foreign market through FDI.
International franchising
Branches
Contractual alliances
Equity joint ventures
Wholly foreign-owned subsidiaries
Investment approaches:
Greenfield investment (building a new facility)
Cross-border mergers
Cross-border acquisitions
Sharing existing facilities
Political Risk
India has enjoyed successive years of elected representative government at the Union as well as
federal level. India suffered political instability for a few years in the sense there was no single
party which won clear majority and hence it led to the formation of coalition governments.
However, political stability has firmly returned since the general elections in 1999, with strong
and healthy coalition governments emerging. Nonetheless, political instability did not change
India's bright economic course though it delayed certain decisions relating to the economy.
Economic liberalization which mostly interested foreign investors has been accepted as essential
by all political parties including the Communist Party of India Though there are bleak chances of
political instability in the future, even if such a situation arises the economic policy of India
would hardly be affected.. Being a strong democratic nation the chances of an army coup or
foreign dictatorship are minimal. Hence, political risk in India is practically absent.
Commercial Risk
Commercial risk exists in any business ventures of a country. Not each and every product or
service is profitably accepted in the market. Hence it is advisable to study the demand / supply
condition for a particular product or service before making any major investment. In India one
can avail the facilities of a large number of market research firms in exchange for a professional
fee to study the state of demand / supply for any product. As it is, entering the consumer market
involves some kind of gamble and hence involves commercial risk
AMOUNT OF FDI
INFLOWS
In Rs Million
52500.05
In US$
Million
1217.50
1.49
up to 3% of the capital cost of the project is proposed to be paid for technical and
consultancy services including fees for architects, design, supervision, etc.
ii.