Role Of FII In INDIAN Capital Market

Presented By:
Sanketh
Shetty Harish

Guide: Prof. R K Sharma

Evaluator:Mr.Krishnaprasad
 Introduction
 India opened its stock market to foreign
investors in September 1992.
 since 1993,received portfolio investment from
foreigners in the form FII
 In order to trade in Indian equity market
foreign corporation need to register with SEBI
as FII
 Foreign Institutional Investor
A foreign Institutional Investor (an
"FII") as an institution established or
incorporated outside India which
proposes to make investment in
India in securities of companies
incorporated in India (“Indian
Companies”)
 Investment In Indian Market
 During January to April 2010, FIIs invested US$ 6.6 billion in
equity and US$ 5.94 billion in debt, of which US$ 4.4 billion
in equity and US$ 2.1 billion in debt was invested in March
2010.
 According to SEBI, FIIs transferred a record US$ 17.5 billion
in domestic equities during the calendar year 2009. FIIs
infused a net US$ 1.1 billion in debt instruments during the
said period.
 Data sourced from SEBI shows that the number of
registered FIIs stood at 1711 and number of registered sub-
accounts rose to 5,382 as of April 30, 2010.
 Important Terms In FII
 sub-account

 Broad Based Fund

 Designated Bank

 Domestic Custodian
 Registration Procedure of Foreign
Institutional Investor
• As per Regulation 6 of SEBI (FII) Regulations,
1995
 The applicant should be regulated by an
appropriate foreign regulatory authority .
 The applicant is required to have the
permission under the provisions of the Foreign
Exchange Management Act, 1999 from the
Reserve Bank of India.
 Cont
Applicant must be legally permitted to invest in securities
outside the country or its in-corporation / establishment.

The applicant must be a "fit and proper" person.

The applicant has to appoint a local custodian and enter

into an agreement with the custodian.

Payment of registration fee of US $ 5,000.00

registration process for FII
Factors contributed significantly to the FII flows
to India:

Rapidly developing economy

Regulation and Trading Efficiencies

Attractive Markets

Encouraging corporate results

WHO CAN BE REGISTERED AS AN FII?

 Pension Funds
 Mutual Funds
 Insurance Companies
 Investment Trusts
 Banks
 University Funds
 Foundations
 Charitable Trusts / Charitable Societies
Major Foreign Institutional Investors in India

• Deutsche bank – Rs 33597 crore

• Goldman Sach- Rs 7,307 crore
• HSBC
• Morgan Stanley
• Merrill Lynch
• CLSA
• Swiss finance.
financial instruments are available for FII
investments
 Securities in primary and secondary markets
including shares, debentures and warrants of
companies, unlisted, listed or to be listed on a
recognized stock exchange in India;
 Units of mutual funds;
 Dated Government Securities;
 Derivatives traded on a recognized stock
exchange;
 Commercial papers.
Foreign Institutional Invest cannot invest
in the following:-
 Business of chit fund
 Nidhi Company
 Agricultural or plantation activities
 Real estate business or construction of farm
houses (real estate business does not include
development of townships, construction of
residential/commercial premises, roads or bridges.
 Trading in Transferable Development Rights (TDRs).
Foreign Institutional Investors Registered in
India
Year FII REGISTERED
1998-1999 450
1999-2000 506
2000-2001 527
2001-2002 490
2002-2003 502
2003-2004 540
2004 -2005 685
2005-2006 882
2006-2007 996
2007-2008 1219
2008-2009 1334
2009-2010 1729
 Main sources of Foreign Institutional
Investors:
1% 1% 1% 2%
2%
4%
USA 4%
UK

W EUROPE
6%

HONG KONG 42%

SINGAPORE

AUSTRALIA

CANADA 17%
MIDDLE EAST

JAPAN

INDIA

OTHERS
 Top 10 Stocks where Foreign Institutional Investors Invested:

Name of the Company Best known for FII Share(%)

Sybly Industries limited Manufacturer of polyster yarn & 74.18
merchendise
India bull Real Estate Real Estate 67.43
HDFC Private sector Bank 59.85
Geodesic Developing products in Information, 53.47
communication & entertainment
space
Amtek Auto Automotive components 50.84
IVRCL Infrastructure Infrastructure like waste water 48.04
treatment transport builder & power
Prajay Engineering Real Estate 42.55
Amtek India 42.55
Jain Irrigation Manufacturing irrigation System 42.02
Logix micro system Software Product Company 41.96
 Debt- Equity pattern Net Investments of FIIs :

Year Net Investments in Net Investment in

Equity (Rs. in Crores) Debt

(Rs. in Crores)

1999 6176 120

2000 6386 316

2001 13025.6 217.8

2002 3629.1 1554.9

2003 30256.4 4838.6

2004 28168.31 3083

2005 31312 -5467

Category Date Buy Value Sell Value Net Value
FII 07-Sep-2010 2466.94 2487.82 -20.88
FII 06-Sep-2010 2750.18 1803.65 946.53
FII 03-Sep-2010 2016.26 1733.24 283.02
FII 02-Sep-2010 2036.77 1954.46 82.31
FII 01-Sep-2010 2683.31 2323.50 359.81
FII 31-Aug-2010 3120.17 2832.29 287.88
FII 30-Aug-2010 1418.88 1234.47 184.41
FII 27-Aug-2010 1811.62 1919.78 -108.16
FII 26-Aug-2010 3639.32 3915.94 -276.62
FII 25-Aug-2010 2379.88 2744.84 -364.96
FII 24-Aug-2010 2509.54 2318.49 191.05
FII 23-Aug-2010 2411.85 2093.62 318.23
FII 20-Aug-2010 2611.15 1948.29 662.86
FII 19-Aug-2010 3029.90 2208.72 821.18
FII 18-Aug-2010 3118.91 2444.39 674.52
FII 17-Aug-2010 3143.25 2739.16 404.09
FII 16-Aug-2010 2753.66 2353.65 400.01
FII 13-Aug-2010 2452.25 2402.10 50.15
FII 12-Aug-2010 3212.88 2994.69 218.19
FII 11-Aug-2010 2722.70 2808.51 -85.81
FII 10-Aug-2010 3125.85 2526.52 599.33
FII 09-Aug-2010 2381.29 1859.17 522.12
FII 06-Aug-2010 2668.91 2003.97 664.94
 (Rs. crore)
FII (BSE + NSE) DII (BSE +NSE)
Trade Date Buy Sales Net Buy Sales Net
23/8/10 2,411.85 2,093.62 318.24 1,249.56 1,409.34 -159.78
20/8/10 2,611.15 1,948.29 662.86 1,121.91 1,224.07 -102.15
19/8/10 3,029.90 2,208.72 821.19 1,303.15 1,088.06 215.09
18/8/10 3,118.91 2,444.39 674.52 1,579.43 1,692.94 -113.51
17/8/10 3,143.25 2,739.16 404.09 1,187.88 1,588.00 -400.12
16/8/10 2,753.66 2,353.65 400.01 1,168.44 1,602.35 -433.91
13/8/10 2,452.25 2,402.10 50.15 1,625.92 1,592.54 33.37
12/8/10 3,212.88 2,994.69 218.19 1,403.35 2,059.40 -656.05
11/8/10 2,722.70 2,808.51 -85.82 1,784.22 1,760.72 23.50
10/8/10 3,125.85 2,526.52 599.33 1,066.24 1,606.91 -540.66
9/8/10 2,381.29 1,859.17 522.11 1,085.30 1,130.81 -45.50
6/8/10 2,668.91 2,003.97 664.95 954.93 1,295.52 -340.59
5/8/10 2,845.14 2,772.12 73.02 917.46 1,105.27 -187.81
4/8/10 2,715.70 2,027.01 688.68 1,016.87 1,292.76 -275.90

Cumulative since 2,742,336.54 2,805,521.65 -63,185.10 1,026,835.49 900,648.25 126,187.24

11.4.2005
 Investment Gross Purchases(Rs Gross Sales(Rs Net Investment (Rs Net Investment
Reporting Date Debt/Equity
Route Crores) Crores) Crores) US($) million

Stock
23230.70 14939.60 8291.10 1852.93
Exchange
Equity Primary market &
1362.00 43.70 1318.30 294.85
others
Sub-total 24592.60 14983.60 9609.10 2147.79
Total for October
Stock
3404.00 1915.40 1488.80 335.72
Exchange
Debt Primary market &
0.60 1900.30 (1899.70) (424.59)
others
Sub-total 3404.70 3815.60 (411.00) (88.88)
  Total   27997.30 18799.20 9198.10 2058.91
Stock
520719.50 449893.50 70826.00 15487.90
Exchange
Equity Primary market &
25118.20 1975.00 23143.30 5033.50
others
Sub-total 545837.69 451868.41 93969.30 20521.40
Total for 2010
Stock
137866.41 89426.50 48440.00 10540.20
Exchange
Debt Primary market &
23281.20 25545.50 -2264.30 -491.90
others
Sub-total 161147.50 114971.90 46175.70 10048.30
  Total   706985.19 566840.31 140145.00 30569.70
Cumulative total Equity   4023145.00 3615338.25 407807.50 93132.80
since Debt   408328.00 329893.59 78434.70 17509.50
November 1992 till
October 06, 2010
Total   4431473.00 3945232.00 486242.19 110642.30
 Trends in FII Derivative Trades on 07/10/2010 in crores

06-OCT-2010 Index Futures 31454 975.44 54884 1700.45

Index Options 87056 2651.89 80580 2430.43

Stock Futures 39610 1211.08 75520 2387.54

Stock Options 12892 448.29 13774 472.6

Total for
Index Futures 312809.00 9497.60 339909.00 10361.08
October

  Index Options 645894.00 19290.68 586551.00 17413.22

  Stock Futures 390387.00 12060.30 480051.00 14826.72

  Stock Options 36219.00 1285.65 38262.00 1332.60

Total for 2010 Index Futures 18043828.00 476604.81 18558108.00 490217.50

  Index Options 35497080.00 924960.50 30975330.00 808795.00

  Stock Futures 17591448.00 534235.00 17688034.00 537730.12

  Stock Options 1230689.00 42411.90 1434093.00 49822.70

 FII behavior during Financial Crisis 2008:
Months Net FIIs Rs in Crores Direction of Flow

January 17227 Negative

February 4882.6 Positive

March 124.5 Positive

April 975.2 Positive

May 4672.2 Negative

June 10577.5 Negative

July 1012.7 Negative

August 2065.7 Negative

September 7936.6 Negative

 FIIs as major cause of market crash
( Jan 21 to Jan 29 2008)
• The Indian capital markets have been left reeling under the
impact of liquidity crunch caused by multiple factors
• It began with two mega issues of reliance power and future
capital holdings, which drew out huge amounts of money from
the market
• FIIs withdraw from the capital market with more than

Rs 10000 crore
 Impact Of FIIs On Indian Markets
• In the past four years there has been more than $41 trillion
worth of FII funds invested in India.
• The present downfall of the market too is influenced as these
FIIs are taking out some of their invested money.
• Long-term value investors v/s short term traders
FII and Economy:

• Appreciation of the rupee :

• Higher forex reserves .
• Creating wealth .

• Direct effect on Inflation.

 Why there is need of FII ?

• FII flows supplements and augmented domestic savings and

domestic investment without increasing the foreign debt of our
country
• Capital inflows to the equity market increase stock prices,
lower the cost of equity capital and encourage the investment
by Indian firms
 Why FII called good friend for good time –
volatile in nature
• In the Indian stock markets movement of the stock depends on
the limited no of stocks
• As FIIs purchase and sell these stocks there is a high degree of
volatility in the stock market
• If any set of development encourages outflow of capital that
will increase the vulnerability of the situation in the stock
market
 Determinants of Foreign Institutional Investment:

 Equity returns
 Risk
 Inflation
 Exchange rate
 Foreign Institutional Investment: A Cost – Benefit
Analysis:
• Benefits:

 Reduced cost of equity

 Stability in the balance of payment

 Knowledge flows
 Strengthening corporate governance

 Improving market efficiency

 Foreign Institutional Investment: A Cost – Benefit
Analysis:

• COSTS:

 Herding and positive feedback training

 Balance of payment vulnerability

 Possibility of takeovers
 CONCLUSION
The Indian stock markets have really come of age there were so many
developments in the last 15 years that make the markets on par with the
developed markets.
The foreign capital is free and unpredictable and is always on the look
out of profits Flls frequently move investments, and those swings can
be expected to bring severe price fluctuations resulting in increasing
volatility.
The growth of institutional investors in the market is having its own
advantages as well as its own share of problems on the brighter side
almost always purchase stocks on the basis of fundamentals.