PRESENTATION ON

FDI & FII

Presented To:
Ms. Pallavi Dawra Presented
By:
Parv Mahajan
Vinod Kumar
ECONOMIC INDICATOR
GDP Growth Rate (in %)
Inflation Rate
Export and Import
Trade Balance
 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
Ø Inward
Ø Outward
2) By Target

Ø Mergers and Acquisitions

Ø Horizontal FDI
Ø Vertical FDI
3 )By Motive

Ø Resource-Seeking
Ø Market-Seeking
Ø 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

Ø Financial incentives (Funds from local Government)

Ø Fiscal incentives (Exemption from import duties)
Ø Indirect incentives (Provides land and other resources)
Ø Political stability
Ø Market potential & accessibility
Ø Large economy
Ø Market size
FDI in India
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
Investing in India – Entry Routes
Investing in India

Prior Permission
Automatic Route
(FIPB)

General rule By exception

No prior permission Prior Government
required Approval needed
Only information to
the Decision generally
Reserve Bank of India Within 4-6 weeks
within 15 days of
inflow/
Issue of shares
 FDI Limit in Different Sector
Sector/Activity FDI Cap/Equity Entry Route
Airports 100% Automatic
Construction 100% Automatic
Development
Petroleum & Natural
Gas
(b) Refining 26% (For PSUs) FIPB
100% ( Private Automatic
Other than Refining 100%
companies) Automatic
Telecommunication
Basic and 74% Automatic up to 49%
cellular;STD/ISD
Manufacture of 100% Automatic
telecom equipment
Power ( Except
Atomic energy);
regulations
transmission,
Ports 100% Automatic
distribution and Power
Roads & Highways 100% Automatic
Trading
Shipping 100% Automatic
 Sectors attracting highest FDI Equity Inflows

Ranks Sector 2006 - 07 2007 - 08 2007 - 08 2007 - 08 Cum % of

( Apr - ( Apr - ( Apr - ( Apr - Inflows total
Till
Mar ) Mar ) Mar ) Mar ) Nov09 Inflows
1. SERVICES 21,047 26,589 28,411 16,566 101,019 22 %
SECTOR (4,664) (6,615) (6,116) (3,438) (22,687)
(fin& non-
financial)
2. COMPUT.S 11,786 5,623 7,329 2,763 42,259 9%
OFT & (2,614) (1,410) (1,677) (575) (9,529)
HARD.

3. TELE 2,155 5,103 11,727 10,811 39,179 8%

COMMUNI (478) (1,261) (2,558) (2,223) (8,600)
CATIONS

4. HOUSING 2,121 8,749 12,621 10,565 34,348 7%

& REAL (467) (2,179) (2,801) (2,189) (7,701)
ESTATE

5. CONSTRUC 4,424 6,989 8,792 8,380 30,557 7%

TION (985) (1,743) (2,028) (1,754) (6,945)
(inroads &
highways)
Advantages of FDI
Ø Economic growth
Ø Trade
Ø Employment and skill levels
Ø Technology diffusion and knowledge transfer
Ø Linkages and spillover to domestic firms
Ø Improved technology.
Ø Management expertise.
Ø Access to international markets
Prohibited Sectors For FDI
Ø Gambling and betting

Ø Lottery Business

Ø Atomic Energy

Ø Retail Trading

Ø 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
 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
Ø hedge funds,
Ø insurance companies,
Ø pension funds and mutual funds.
 Entities / funds eligible to get
registered as FII:
ØPension Funds
ØMutual Funds
ØInsurance Companies
ØInvestment Trusts
ØBanks
ØEndowments
ØFoundations
ØCharitable Trusts / Charitable
Societies
•
Parameters on which SEBI decides FII applicants’
eligibility
Ø 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)
Ø
Ø 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


Ø Whether the applicant is a fit & proper person.

•
Indian stock Market
Year wise FII
Relation among Exchange Rate, Sensex, 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
 Disadvantages


Ø Unavailability of Corporate • Problem of inflation

Debt • Reduces flexibility of Policy
makers
Ø Increase Forex Reserve
• Hot Money
Ø Increase Domestic Savings
• False representation of
and Investments
Economy
Ø Large Availability of Capital
• Can’t be used for long term
• • Problems for small investors
 Differences..
FDI
 FII


Ø FDI is when a foreign Ø FII is when a foreign

company brings capital into company buys equity in
a company or economy to any company through
set up a production or some stock market.
other facility.
Ø
Ø FDI gives some CONTROL in
Ø FII does not give any
operation of foreign
company to the foreign control in operation of
company foreign company
Contd…

FDI
 FII


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

production activity and is investment mostly in
long term in nature. financial market.
Ø It enables a degree of Ø It does not involve in degree
control in the company. of control in the
Ø FDI brings long term company.
capital.
Ø FII brings short term capital.