ROLE OF FII IN STOCK MARKET (2)

1

ROLE OF FII IN STOCK MARKET

A PRESENTATION BY :

SAURABH MAHESHWARI

NCMP

2

Road Map for Presentation

Introduction to Stock Market

Introduction to Foreign Investment

FII in Indian Stock Market

Advantages & Disadvantages of FII

Conclusion

3

Introduction to Stock Market

4

WHAT IS STOCK MARKET ? A place where stocks, debentures or

other securities are bought & sold An association of stock brokers who

meet to buy and sell stocks according to fixed regulations

The market in which shares are issued and traded through stock exchange

It is under Capital Market Segment

5

CLASSIFICATION OF STOCK MARKET

STOCK MARKET

PRIMARY MARKET SECONDARY MARKET

WHERE SECURITIES ARE SOLD FOR THE

FIRST TIME

WHERE PREVIOUSLY

ISSUED SECURITIES ARE BOUGHT & SOLD

6

ORGANIZATIONAL STRUCTURE & COMPONENTS OF STOCK MARKET

IndividualsCorporationsInstitutions

BanksGovernment

Supply of Money Capital

InvestorsLenders

1.New Issue Market2. Stock Exchange

3. Financial Institution

Intermediaries & Clearing House

IndividualsCorporationsInstitutions

EntrepreneursGovernment

Demand for Money Capital

Borrowers

7

INVESTMENT INSTRUMENTS IN STOCK MARKET

EQUITY SHARE DEBENTURES OPTIONS ETF (EXCHANGE

TRADED FUND) FUTURES

8

MEDIUM OF INVESTMENT IN STOCK MARKET

Investment through Broker

Investment through Mutual Funds

Investment through SIP

Investment through Portfolio Managers

9

PARTICIPANTS IN STOCK MARKET

TRADER INVESTOR JOBBER SPECULATOR ARBITRAGEUR BROKER DII FII

10

Introduction to Foreign Investment

FOREIGN INESTMENT

WHAT IS FOREIGN INVESTMENT?

11

Investment by foreign countries on behalf of Foreign Investor

Investment in the form of FDI

Investment in the form of FII

OVERVIEW OF FDI

FDI stands for Foreign Direct Investment, a component of a country’s national financial accounts

Foreign Direct Investment is investment of foreign assets into domestic structures, equipments, and organizations.

It does not include foreign investment into stock market

12

OVERVIEW OF FII

FII stands for Foreign Institutional Investor, denotes all those investors or investment companies that are not located within the territory of the country in which they are investing

“SEBI”’s definition of FII presently includes foreign pension funds, mutual fund etc as well as asset management companies and other money managers operating on their behalf

13

DISTINCTION BETWEEN FDI & FII

It is Long-Term Investment

Investment in Physical Assets

Aim to increase enterprise capacity or productivity or change management control

It is generally Short-Term Investment

Investment in Financial Assets

Aim to increase capital availability

14

Investment

Assets

Aim

DISTINCTION CONTINUES……. FDI flows into

the primary market

Entry & Exit relatively difficult

FDI is eligible for profits of the company

FII flows in secondary market

Entry & Exit relatively easy

FII is eligible for capital gain

15

Market

Entry & Exit

Purpose

DISTINCTION CONTINUES……. Does not tend

to be speculative

Direct Impact on employment of labor & wages

Tends to be speculative

No Direct Impact on employment of labor & wages

16

Speculation

Impact

FII REGISTRATION PROCESS

17

FII INVESTMENT PROCESS

18

FII in Indian Stock Market

19

REGISTERED FIIs IN INDIA FROM 2006 TO 2011

20*DATA HAS TAKEN FROM SEBI

OVERVIEW OF FIIs IN INDIA 2011

21

  FIIs NO COUNTRIES

TOTAL NO OF FIIs IN INDIA 1731 47

*ALL DATA HAS TAKEN FROM SEBI

SR. NO COUNTRY NAME FIIs IN INDIA

1UNITED STATES OF AMERICA 575

2 UNITED KINGDOM 2043 LUXEMBOURGE 1174 MAURITIUS 1055 HONGKONG 806 SINGAPORE 777 CANADA 778 AUSTRALIA 649 IRELAND 62

10 GREAT BRITAIN 44

TOTAL   1405

WHAT ARE FIIs LOOKING FOR ?

Demand Potential Good Projects Revenue Potential Stable Policy Optimal Risk

Allocation Framework

Rate of Interest Spectulation Profitability Economic

Condition Government

Policies Political Factors

22

FACTORS AFFECTING FII?

INVESTMENT LIMITS ON EQUITY & DEBT INVESTMENT

23

FII, on its own behalf, shall not invest in equity more than 10% of total issued capital of an Indian company.

Investment on behalf of each sub-account shall not exceed 10% of total issued capital of an India company.

For the sub-account registered under Foreign Companies/Individual category, the investment limit is fixed at 5% of issued capital.

These limits are within overall limit of 24% / 49 % / or the sectoral caps a prescribed by Government of India / Reserve Bank of India.

INVESTMENT LIMIT CONTI……..

24

investment limits on debt investments by FIIFor FII investments in Government debt, currently following limits are applicable:

100 % Debt Route US $ 1.55 billion70 : 30 Route US $ 200 millionTotal Limit  S $ 1.75 billion

For corporate debt the investment limit is fixed at US $ 500 million.

FII INVESTMENT FROM 2000 TO JUNE 2011

25

SENSEX VS FII 2000 TO 2011 (JUNE 2011)

26

YEARS

FII NET INVESTMENT (RS. IN CR.)

SENSEX

2000 6370 5934

2001 13294 4036

2002 3647 3363

2003 30792 3370

2004 38698 6026

2005 45808 6420

2006 31281 9472

2007 70940 14182

2008 -53051 20827

2009 85367 9323

2010 134292 17540

2011 -2548 18860

SHAREHOLDING PATTERN OF FII AT THE END OF MARCH 2011 FOR COMPANIES LISTED AT NSE

27

PROS & CONS OF FII

28

PROS OF FII

Enhance Competition & efficiency of financial market

Enhanced flow of equity capital improves capital structures towards building the investment gap

Financial innovation and development of hedging instruments

Improve Capital Markets

29

Cons of FII Problem of Inflation : Huge

amounts of FII fund inflow into the country creates a lot of demand for rupee, and the RBI pumps the amount of Rupee in the market as a result of demand created.

Problem for Small Investor : The FII buying pushes the stocks up and their selling shows the stock market the downward path. This creates problems for the small retail investor, whose fortunes get driven by the actions of the large FIIs.

30

CONCLUSION The Indian stock market has come of age and

has substantially aligned itself with the international order.

Market has also witnessed a growing trend of 'institutionalization' that may be considered as a consequence of globalization.

It is influence of the FIIs which changed the face of the Indian stock markets. Screen based trading and depository are realities today largely because of FIIs.

31

CONCLUSION CONTI…..

FIIs are the trendsetters in any market. FIIs have started playing a critical role in the

movement of stock prices A positive contribution of the FIIs has been

their role in improving the stock market infrastructure.

The FIIs are playing an important role in bringing in funds needed by the equity market.

32

33