Facts of Fii

8/3/2019 Facts of Fii

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5.6 Facts on Foreign Institutional Investor

Definitions:

Q1. Who is a Foreign Institutional Investor (FII)?

Answer. FII means an entity established or incorporated outside India which proposes to make

investment in India.

Q2. What is a sub-account?

Answer. Sub-account includes those foreign corporations, foreign individuals, and institutions,

funds or portfolios established or incorporated outside India on whose behalf investments are

proposed to be made in India by a FII.

Q3. What is a Designated Bank?

Answer. Designated Bank means any bank in India which has been authorized by the Reserve Bank

of India to act as a banker to FII.

Q4. Who is a Domestic Custodian?

Answer. Domestic Custodian means any entity registered with SEBI to carry on the activity of

providing custodial services in respect of securities.

Q5. What is a Broad Based Fund?

Answer. Broad Based Fund means a fund established or incorporated outside India, which has at

least twenty investors with no single individual investor holding more than 10% shares or units of

the fund.

Provided that the fund has institutional investor(s), it is not necessary for that fund to havetwenty investors.

Provided further that the fund has an institutional investor holding more than 10% of shares orunits in the fund, and then the institutional investor must itself be broad based fund.

FII Registration:


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Q6. What are the parameters on which SEBI decides FII applicants eligibility?

Answer.

A.Applicants track record, professional competence, financial soundness, experience, generalreputation of fairness and integrity. (The applicant should have been in existence for at least one

year)

B.whether the applicant is registered with and regulated by an appropriate Foreign RegulatoryAuthority in the same capacity in which the application is filed with SEBI

C.Whether the applicant is a fit & proper person.Q7. Which form needs to be filled in when applying for FII registration?

Answer. "Form A" as prescribed in SEBI (FII) Regulations, 1995.

Q8. Which documents need to be sent with "Form A"?

Answer.

A.Certified copy of relevant clauses (clauses permitting the stated activities) of Memorandum ofAssociation, Article of Association or Article of Incorporation.

B.Audited financial statement and annual report for the last one year (period covered should not beless than twelve months

Q9. How much is the fee for registration as FII?

Answer. US $ 5,000

Q10. When is the registration fee payable?

Answer. At the time of submitting the application forms of registration.

Q11. What is the mode of payment?

Answer. Demand Draft in favour of "Securities and Exchange Board of India" payable at New York

Q12. How many days it takes to get registered as FII?


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Answer. SEBI generally takes seven working days in granting FII registration. However, in cases

where the information furnished by the applicants is incomplete, seven days shall be counted from

the days when all necessary information sought, reaches SEBI.

In cases where the applicant is bank and subsidiary of a bank, SEBI seeks comments from theReserve Bank of India (RBI). In such cases, 7 working days would be counted from the day no

objection is received from RBI.

Q13. What is the validity period of FII registration?

Answer. The FII registration is valid for 5 years. After expiry of 5 years, the registration needs to be

renewed.

Q14. What is the process of renewal?

Answer. It is same as registration process. Along with "Form A" and all the relevant documents, the

applicants are required to fill in additional form (Annexure 1) while applying for renewal.

Q15. Is there any renewal fee?

Answer. Yes, US $ 5,000 needs to be paid for renewal of FII registration.

Q16. When the application for renewal should be submitted

Answer. Three months before expiry of the FII registration.

Q17. What are 100 % debts FIIs/sub-accounts, and what is the process for their registration?

Answer. 100 % debt FIIs are debt dedicated FIIs which invest in debt securities only. The procedure

for registration of FII/sub-account, under 100% debt route is similar to that of normal funds besides

a clear statement by the applicant that it wishes to be registered as FII/sub-account under 100% debt

route.

Q18. Where the application for FII registration should be sent?


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Answer. The FII registration application should be sent to:

Securities and Exchange Board of India

Division of FII & Custodian

Mittal Court "B" Wing, First Floor

224, Nariman Point

Mumbai 400 021, India

Note: In case the applicant is a Bank or "Subsidiary of a Bank" then the application form and

relevant documents need to be submitted in duplicates.

Sub-account registration:

Q19. Who can get registered as sub-account?

Answer.

A. Institution or funds or portfolios established outside India, whether incorporated or not.B. Proprietary fund of FIIC.

Foreign Corporate

D. Foreign Individuals

Q20. Who need to apply for sub-account registration?

Answer. The FII should apply on the behalf of the Sub-account. Both the FII and the Sub-account

are required to sign the Sub-account application form.

Q21. Which form needs to be filled when applying for sub-account registration?

Answer. "Annexure B" to "Form A" (FII application form).

Q22. What documents need to be sent with Annexure A?

Answer. None


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Q23. How much is the fee for sub-account registration?

Answer. US $ 1,000

Q24. When is the registration fee payable?

Answer. At the time of submitting the application forms.

Q25. What is the mode of payment?

Answer. Demand Draft in the name of "Securities and Exchange Board of India" payable at New

York

Q26. How many days it takes to get a sub-account registered?

Answer. SEBI generally takes three working days in granting FII registration. However, in cases

where the information furnished by the applicants is incomplete, three days shall be counted from

the days when all necessary information sought, reaches SEBI.

Q27. What is the validity period of sub-account registration?

Answer. The validity of sub-account registration is co-terminus with the FII registration under

which it is registered.

Q28. What is the process of renewal of sub-account?

Answer. It is same as initial registration.

Q29. Is there renewal fee?

Answer. Yes, US $ 1,000

Q30. Can OCBs / NRIs permitted to get registered as FII/sub-account?

Answer. No, they are not permitted.

Post-Registration Processes:


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Q31. What is the procedure in case the FII/sub-account changes its name?

Answer. If a registered FII/sub-account undergoes name change, then the FII need to promptly

inform SEBI about the change. It should also mention the reasons for the name change and give an

undertaking that there has been no change in beneficiary ownership.

In case of name change of FII, the request should be accompanied with documents from home

regulator and registrar of the company evidencing approval of name change, and the original FII

registration certificate issued by SEBI should be sent back for necessary amendment.

Q32. What is the procedure for transferring a sub-account from one FII to another?

Answer. The FII to whom the Sub-account is proposed to be transferred has to send a request along

with a declaration that it is authorized to invest on behalf of the Sub-account. The transferor FII

should also submit a No-objection certificate.

Q33. What is the procedure for change of domestic custodian?

Answer. The FII should send a request, along with no-objection certificate from existing domestic

custodian, for change in domestic custodian.

Q34. Can FII/sub-account registration be cancelled on request?

Answer. Yes, the FII would be required to send a request for cancellation of its registration or

registration of its Sub-account/s clearly mentioning the name and registration number of the entity.

The FII should ensure that it / Sub-account has nil cash / securities holdings.

Q35. What if the FII does not renew its/sub-accounts registration?

Answer. The registration of the FII / Sub-account would get expired at due date and it would not be

allowed to trade in Indian securities markets. If it is not interested in renewal but has certain

residual assets, it can apply for disinvestment in terms ofCircular No. FITTC/CUST/12/2001 dated

June 04, 2001 and abides by the guidelines specified in this regard.

Investment Opportunities:
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Q36. Which financial instruments are available for FII investments?

Answer.

A.Securities in primary and secondary markets including shares, debentures and warrants ofcompanies, unlisted, listed or to be listed on a recognized stock exchange in India;

B.Units of mutual fundsC.Dated Government Securities;D.Derivatives traded on a recognized stock exchange;E.Commercial papers.Q37. What are the investment limits on equity investments by FII/sub-account?

Answer.

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

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

C. For the sub-account registered under Foreign Companies/Individual category, the investmentlimit 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.

Q38. What are the investment limits on debt investments by FII/sub-account?

Answer. The FII investments in debt securities are governed by the policy if the Government of

India. Currently following limits are in effect:

For FII investments in Government debt, currently following limits are applicable:

100 % Debt Route US $ 1.55 billion


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70 : 30 Route US $ 200 million

Total Limit US $ 1.75 billion

For corporate debt the investment limit is fixed at US $ 500 million.Q39. What other investment limits are there?

Answer.

Normal FII (70:30 Route) 100% Debt FII

Total investment in equity and equity related

instruments shall not be less than 70% of

aggregate of all investments.

100% investment shall be made in debt

security only.

Q40. In whose name should the securities be registered?

Answer.

A. In the name of FII when making investments on its own behalfB. In the name of sub-account when making investments on behalf of Sub-accountC. In the name of "FII a/c sub-account" when making investments on behalf of Sub-account.

Derivatives Position Limits:

Q41. What are the restrictions on investment in derivatives?

Answer.

A.The FII position limits in a derivative contracts (Individual Stocks)


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The FII position limits in a derivative contract on a particular underlying stock i.e. stock option

contracts and single stock futures contracts are:

For stocks in which the market wide position limit is less than or equal to Rs. 250 Cr, the FIIposition limit in such stock shall be 20% of the market wide limit.

For stocks in which the market wide position limit is greater than Rs. 250 Cr, the FII positionlimit in such stock shall be Rs. 50 Cr.

B.FII Position limits in Index options contractsFII position limit in all index options contracts on a particular underlying index shall be Rs. 250 Cr

or 15 % of the total open interest of the market in index options, whichever is higher, per exchange.

This limit would be applicable on open positions in all option contracts on a particular underlying

index.

C.FII Position limits in Index futures contracts:FII position limit in all index futures contracts on a particular underlying index shall be Rs. 250 Cr

or 15 % of the total open interest of the market in index futures, whichever is higher, per exchange.

This limit would be applicable on open positions in all futures contracts on a particular underlying

index.

In addition to the above, FIIs shall take exposure in equity index derivatives subject to the

following limits:

Short positions in index derivatives (short futures, short calls and long puts) not exceeding (innotional value) the FIIs holding of stocks.

Long positions in index derivatives (long futures, long calls and short puts) not exceeding (in

notional value) the FIIs holding ofcash, government securities, T-Bills and similar instruments.

D.FII Position Limits in Interest rate derivative contractsAt the level of the FII


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The notional value of gross open position of a FII in exchange traded interest rate derivative

contracts shall be:

US $ 100 million. In addition to the above, the FII may take exposure in exchange traded in interest rate derivativecontracts to the extent of the book value of their cash market exposure in Government Securities.

At the level of the sub-account

The position limits for a Sub-account in near month exchange traded interest rate derivative

contracts shall be higher of:

Rs. 100 Cr15% of total open interest in the market in exchange traded interest rate derivative contracts.

Offshore Derivatives/Participatory Notes:

Q42. Can FII/sub-account issue Offshore Derivatives / Participatory Notes?

Answer. Yes, FII/sub-account may issue, deal in or hold off-shore derivative instruments such as

Participatory Notes, Equity Linked Notes or any other similar instruments against underlying

securities, listed or proposed to be listed on any stock exchange in India.

Q43. Who can subscribe to/invest in Participatory Notes?

Answer.

A. Any entity incorporated in a jurisdiction that requires filing of constitutional and/or otherdocuments with a registrar of companies or comparable regulatory agency or body under the

applicable companies legislation in that jurisdiction;

B. Any entity that is regulated, authorised or supervised by a central bank, such as the Bankof England, the Federal Reserve, the Hong Kong Monetary Authority, the Monetary Authority of


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Singapore or any other similar body provided that the entity must not only be authorised but also be

regulated by the aforesaid regulatory bodies;

C. Any entity that is regulated, authorised or supervised by a securities or futurescommission, such as the Financial Services Authority (UK), the Securities and Exchange

Commission (Sub-account), the Commodities Futures Trading Commission (Sub-account), the

Securities and Futures Commission (Hong Kong or Taiwan), Australian Securities and Investments

Commission (Australia) or other securities or futures authority or commission in any country , state

or territory ;

D. Any entity that is a member of securities or futures exchanges such as the New YorkStock Exchange (Sub-account), London Stock Exchange (UK), Tokyo Stock Exchange (Japan),

NASD (Sub-account) or other similar self-regulatory securities or futures authority or commission

within any country, state or territory provided that the aforesaid mentioned organizations which are

in the nature of self regulatory organizations are ultimately accountable to the respective securities /

financial market regulators.

E. Any individual or entity (such as fund, trust, collective investment scheme, InvestmentCompany or limited partnership) whose investment advisory function is managed by an entity

satisfying the criteria of (A), (B), (C) or (D) above.

Q44. What are the reporting Requirements for the FII / Sub-account issuing Participatory Notes?

Answer.

A. FII/sub-account who issue/renew/cancel/redeem PNs, require to report on Monthly basis.The report should reach SEBI by the 7th day of the following month.

B. The FII/sub-account merely investing/subscribing in/to the Participatory Notes/AccessProducts/Offshore Derivative Instruments or any such type of instruments/securities with

underlying Indian market securities are required to report on quarterly basis (Jan-Mar, Apr-Jun, Jul-

Sep and Oct-Dec).

C. FIIs/sub-accounts who do not issue PNs but have trades/holds Indian securities during thereporting quarter (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec) require to submit 'Nil' undertaking on a

quarterly basis.


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D. FIIs/sub-accounts who do not issue PNs and do not have trades/ holdings in Indiansecurities during the reporting quarter. (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec): No reports

required for that reporting quarter.

Q45. How to send report on Participatory Notes?

Answer.

A. The format for reporting on issuance/ renewal / redemption of the Participatory Notes isprescribed as per "Annexure B" in our Circular No. IMD/CUST/15/2004 dated April 02, 2004.

B. The reports should be e-mailed only to SEBI.C. In case of Nil-reports, Annexure B is not required. Instead the FII on behalf of its Sub-

account should submit the undertaking prescribed in our circular No. IMD/CUST/9/2003 datedNovember 20, 2003.

D. The reporting should be done in MS Excel format only.

6.1 Attractive features for FII investment

There are several good reasons for investing in India

One of the largest economies in the world. Strategic location - access to the vast domestic and South Asian market. A large and rapidly growing consumer market up to 300 million people, constitute the market forbranded consumer goods - estimated to be growing at 8% per annum. Demand for several consumer

products is growing at over 12% per annum.

Foreign investment is welcome; approval is required but is automatic in sixty categories ofIndustries.

Skilled man-power and professional managers are available at competitive cost. One of the largest manufacturing sectors in the world, spanning almost all areas ofmanufacturing activities.


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One of the largest pools of scientists, engineers, technicians and managers in the world. Rich base of mineral and agricultural resources. Long history of market economy infrastructure Sophisticated financial sector. Vibrant capital market with over 9,000 listed companies and market capitalisation of US$ 154billion (March,1996)

Well developed R&D infrastructure and technical and marketing services. Policy environment that provides freedom of entry, investment, location, choice of technology,production, import and export.

Well balanced package of fiscal incentives. A sophisticated legal and accounting system. English is widely spoken and understood. Rupee is convertible on Current Account at market determined rate. Free and full repatriation of capital, technical fee, royalty and dividends. Foreign brand names are freely used. No income tax on profits derived from export of goods. Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for fiveyears for 100 per cent Export Oriented units and units in Export Processing Zones.

Corporate Tax applicable to the foreign companies of a country, with which agreement foravoidance of Double Taxation exists, can be one which is lower between the rates prevailing in any

one of the two countries and the treaty rate.

A long history of stable parliamentary democracy.In addition to reason that they can influence the market, there are many factors in India that their

favor. Things like our strong GDP growth, our companies that show global standards, the long-term

outlook on the dollar and interest rates in the US. Out of all these there is one big advantage, which

India has that other developing nations lack that is our world-class financial system. Indian capital

markets are technologically comparable to any advanced market. We have all the modern financial

instruments like derivatives, commodity derivatives, stable forex market etc.


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Growth in the economy: The Indian economy is second fastest-growing economy in the world. It

is growing at around eight percent from the last five years and at around six percent from the last 10

years.

Growth of businesses: The fast growth in the economy resulted in a dramatic growth in businesses.Thus, the returns that FIIs get in India are quite good.

Easy registration: India has reduced a lot of procedural bottlenecks for FIIs to register. Fairly

simple Securities and Exchange Board of India (SEBI) registration and some other formalities are

all it takes before an FII can enter the domestic stock market and start trading. The procedure to exit

is also quite simple.

Favourable environment: Due to a positive environment in India, the number of FIIs registered

with the SEBI has now gone up to more than 1,000 (the number was around 800 a year ago).

Saturation in global economies: Economies in developed countries are growing at a stable rate of

2-3 percent per annum, and hence provide lesser opportunities.

Dollar rate: Weakness in the US dollar (due to increasing current account deficit in the US,

problems due to crisis in sub-prime market etc) has prompted foreign investors to reduce exposure

to dollar investments.

FII activity has increased the volatility and valuation of domestic companies significantly in the last

couple of years. FII fund inflows into the markets have seen major re-rating on price-to-earning

from the 2003 levels. Prior to 2003, the Sensex price-to-earning ratio used to be around 12-13. It

has now gone up by about 20 times. The uptrend seen in the domestic markets in the last 3-4 years

can be directly linked to FII inflows.

These are some of the factors that FIIs look for while investing in various companies and sectors:

Credit rating: FIIs look for companies with good credit ratings. Studies say that generally, FIIs

maintain investments in almost all index (BSE and NSE) companies.

Outlook of company: FIIs have a good team of analysts. They analyse various financial parameters

of companies before selecting a company to investment in. They also analyse the overall outlook of


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the sector in which the company is operating. For example, companies operating in sectors like

telecom, banking, real estate etc.

Management of company: FIIs look for market position and potential of companies. They also

look at the management and leadership of the company.

FII inflows have been the major drivers of liquidity and volatility in the domestic markets. Due to

FIIs being active, the markets see huge upward moves on any positive news on the global front and

also quick reactions to any adverse news. Growth in the local mutual funds' kitty is seen as a

cushion against FII movements, but given the momentum of the FII movements, volatility in the

markets is still seen. In a nutshell, FIIs have magnified the overall volatility (rate of upward and

downward movements) in the domestic markets

To sum it up, we have a technologically and functionally advanced financial system, which is

reliable and safe in addition to a good macro-economic environment, which could be influenced by

FIIs. What more would the FIIs as for. Even we have our big Indian growth story the main reason,

which drives the FIIs to India, is their ability to influence Indian markets, as they want.


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6.2 Reasons for FIIs inflow in Indian market

Indian GDP growth rate moving ahead will be 7-8%. India will move ahead and China will get a slow down. Fair Valuation and better corporate governance will further catch FII's attention The next Infrastructure boom, high consumption and outsourcing will accelerate the growth storyand will change the Indian picture in the world table.

Dollar would decline over the period to come. Huge expansions by almost all the big and mid size companies will further add the market cap ofthe BSE and NSE.

VAT a great measure for Indian Government has joined the list of 130 vat implementedcountries. This is bringing more revenue.

6.3 Reasons for FIIs outflow in Indian market

Political uncertainty, if any arises. Review of Fringe benefits tax and cash withdrawal tax to be revisited as this may affectCompany's bottom line in cascading tax way.

6.4 Benefits and costs of FII investments:

The terms of reference asking the Expert Group to consider how FII inflows can be

encouraged and examine the adequacy of the existing regulatory framework to adequately address

the concern for reducing vulnerability to the flow of speculative capital do not include an


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examination of the desirability of encouraging FII inflows. Yet, for motivating the consideration of

the policy options, it is useful to briefly summarize the benefits and costs for India of having FII

investment. Given the Groups mandate of encouraging FII flows, the available arguments that

mitigate the costs have also been included under the relevant points.

BENEFITS:

Reduced cost of equity capital: FII inflows augment the sources of funds in the Indian capital

markets. In a commonsense way, the impact of FIIs upon the cost of equity capital may be

visualized by asking what stock prices would be if there were no FIIs operating in India. FII

investment reduces the required rate of return for equity, enhances stock prices, and fosters

investment by Indian firms in the country.

Imparting stability to India's Balance of Payments: For promoting growth in a developing

country such as India, there is need to augment domestic investments, over and beyond domestic

saving, through capital flows. The excess of domestic investment over domestic savings result in a

current account deficit and this deficit is financed by capital flows in the balance of payments. Prior

to 1991, debt flows and official development assistance dominated these capital flows. This

mechanism of funding the current account deficit is widely believed to have played a role in the

emergence of balance of payments difficulties in 1981 and 1991. Portfolio flows in the equity

markets, and FDI, as opposed to debt-creating flows, are important as safer and more sustainable

mechanisms for funding the current account deficit.

Knowledge flows: The activities of international institutional investors help strengthen Indian

finance. FIIs advocate modern ideas in market design, promote innovation, development of

sophisticated products such as financial derivatives, enhance competition in financial

intermediation, and lead to pullovers of human capital by exposing Indian participants to modern

financial techniques, and international best practices and systems.

Strengthening corporate governance: Domestic institutional and individual investors, used as

they are to the ongoing practices of Indian corporate, often accept such practices, even when these

do not measure up to the international benchmarks of best practices. FIIs, with their vast experience

with modern corporate governance practices, are less tolerant of malpractice by corporate managers

and owners (dominant shareholder). FII participation in domestic capital markets often lead to


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vigorous advocacy of sound corporate governance practices, improved efficiency and better

shareholder value.

Improvements to market efficiency: A significant presence of FIIs in India can improve market

efficiency through two channels. First, when adverse macroeconomic news, such as a bad monsoon,unsettles many domestic investors, it may be easier for a globally diversified portfolio manager to

be more dispassionate about India's prospects, and engage in stabilising trades. Second, at the level

of individual stocks and industries, FIIs may act as a channel through which knowledge and ideas

about valuation of a firm or an industry can more rapidly propagate into India. For example, foreign

investors were rapidly able to assess the potential of firms like Infosys, which are primarily export-

oriented, applying valuation principles that prevailed outside India for software services companies.

COSTS:

Herding and positive feedback trading: There are concerns that foreign investors are chronically

ill-informed about India, and this lack of sound information may generate herding (a large number

of FIIs buying or selling together) and positive feedback trading (buying after positive returns,

selling after negative returns). These kinds of behavior can exacerbate volatility, and push prices

away from fair values. FIIs behavior in India, however, so far does not exhibit these patterns.

Generally, contrary to herding, FIIs are seen to be involved in very large buying and selling at the

same time.

BoP vulnerability: There are concerns that in an extreme event, there can be a massive flight of

foreign capital out of India, triggering difficulties in the balance of payments front. India's

experience with FIIs so far, however, suggests that across episodes like the Pokhran blasts, or the

2001 stock market scandal, no capital flight has taken place. A billion or more of US dollars of

portfolio capital has never left India within the period of one month. When juxtaposed with India's

enormous current account and capital account flows, this suggests that there is little evidence of

vulnerability so far.

Possibility of taking over companies: While FIIs are normally seen as pure portfolio investors,

without interest in control, portfolio investors can occasionally behave like FDI investors, and seek

control of companies that they have a substantial shareholding in. Such outcomes, however, may


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not be inconsistent with India's quest for greater FDI. Furthermore, SEBI's takeover code is in place,

and has functioned fairly well, ensuring that all investors benefit equally in the event of a takeover.


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6.5 Effects of FII flow on the recipient country economy

As such, FII flows to the secondary equity market do not have any direct link with the level of real

investment in the economy. It is only by enhancing the efficiency and liquidity of capital markets

that such a flow can contribute to growth. Securities markets in developing countries are typicallyboth narrow and shallow. Therefore, FII participation may, a priori, induce considerable instability

in these markets. The effect of such mobile capital flows can, however, be quite complicated and

therefore are highly controversial. In fact, country experiences differ considerably. Some studies

found clear evidence of benefits of such flow in the form of equity market development, capital

market integration, lowering cost of capital, and hence tend to question policy concerns regarding

resource mobilization, market co-movements, contagion and volatility expressed by some policy

makers and academics to be largely unwarranted. The causes of the instability and volatility of

short-term portfolio capital flows to emerging markets are often related to the way in which

investment funds are managed in order to confront uncertainty. It has been alleged that international

portfolio investors seek liquidity and use quick exit as a means of containing downside risk, thus

making frequent marginal adjustments to their portfolios. Further, shifts in the portfolio

composition of global investors are largely ascribed to changes in their perceptions of country

solvency rather than to variations in underlying asset value. A common conclusion from research,

however, is that institutions sometimes panic, disregard fundamentals and spread crisis even to

countries with strong fundamentals. The literature also notes that individuals, too, can contribute to

this destabilisation process by fleeing from funds, particularly mutual funds and forcing fund

managers to sell when fundamentals do not warrant such sale.

Empirical results of the effect of FII activities on the volatility of return are rather divided; some

studies do not find that foreign investors have any destabilising impacts on stock prices. Evidences

to the contrary showing that foreign investors cause higher volatility in the market compared to

domestic investors or that stocks in which foreign investors mainly trade experience higher

volatility compared to those in which they do not show much interest also exist. These studies also

show that volatility caused by FII jumped significantly around the crises period.


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6.6 FII holdings in Indian markets drops

FII ownership in Indian stock markets dropped to 15.5%levels last seen in December 2003,

which were early days of the big bull rally that climaxed in January 2008 when Sensex the

benchmark index of the Bombay Stock Exchange reached its lifetime high of 21,206.77 points.

The index saw seven-fold rise from about 3,000 points to more than 21,000 points between 2003

and early-2008, the biggest Bull Run in its history. It ended with a 52% slump in 2008, as global

investors fled from high-risk equity assets, hit by a worldwide financial crisis. The (ownership)

level is almost of an age gone by, according to a mid-February India strategy report by equity

analysts at Citigroup Global Markets India Pvt. Ltd. The value of FII ownership in Indian stocks,

however, is much higher than what it was in 2003 and estimated value at about Rs 4.84 trillion.

FIIs sold more than $13 billion worth of Indian stocks in 2008, after investing $17 billion in 2007,

betting on the decoupling theory, which said that the Indian economy will be resilient to the outside

world. The theory was proved wrong in 2008.

In 2009 so far, FIIs have sold another $2.1 billion of Indian stocks, driving the benchmark stock

index down 14%. FIIs had started a buying trend around December 2008 and early January, but the

Satyam episode reversed the trend again.

B. Ramalinga Raju, chairman of Satyam Computer Services Ltd, Indias fourth largest software

exporter, on 7 January confessed to a Rs7,136 crore fraud. Indias large fiscal deficit is seen as a

big worry. FIIs could review their India strategy after the new government takes over in June

1.9 Investment in Indian Companies by FIIs/NRIs/PIOs:

The current list of companies allowed to attract investments from FIIs/NRIs/PIOs with their

respective ceilings is

Companies in which NRIs/PIOs investment is allowed up to 24% of their Paid-up Capital1. Alembic Chemical Works Co. Ltd2. Amar Investments Ltd, Calcutta.


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3. Anglo-India Jute Mills Co.Ltd4. Arvind Mills, Ahmedabad5. Ashima Syntex Ltd, Ahmedabad6. Ashoka Viniyoga Ltd7. Bharat Nidhi Ltd8. BLB Shares & Financial Services Ltd9. BPL Ltd10. Burr Brown (India) Ltd11. Camac Commercial Company Ltd12. Ceenik Exports (India) Ltd13. Cifco Finance Ltd, Mumbai14. Classic Financial Services & Enterprises Ltd, Calcutta15. CPPL Ltd,(Reliance Ind. Infrastructure Ltd), Mumbai16. CRISIL17. DCM Shriram Consolidated Ltd18. Dharani Sugars & Chemicals Ltd.19. Dolphin Offshore Enterprises (I) Ltd20. Essar Oil Ltd21. Essar Shipping Ltd, Bangalore22. Essar Steel Ltd23. Eveready Industries India Ltd24. Fabworth (I) Ltd25. Ferro Alloys Corporation Ltd, Tumsar26. Global Tele Systems Ltd27. Grasim Industries Ltd28. Hamco Mining & Smelting Ltd29. Hindustan Development Corp Ltd, Calcutta30. Hindusthan Nitroproducts (Gujrat) Ltd31. Hindustan Transmission Products Ltd, Mumbai32. HMG Industries Ltd, Mumbai33. India Securities Ltd


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34. IVP Ltd.35. Jagatjit Industries Ltd, New Delhi36. Jai Parabolic Springs Ltd, New Delhi37. Jaysynth Dyechem Ltd38. Jindal Strips Ltd39. Jindal Iron & Steel Co.Ltd40. JJ Spectrum Silk Ltd41. Kartjikeya Paper & Boards Ltd42. Lakhani India Ltd43. Matsushita Television And Audio India Ltd44. M.P.Agro Fertilisers Ltd, Bhopal45. Macleod Russel (I) Ltd,46. Mazda Enterprises Ltd,Mumbai47. Media Video Ltd48. Multimetals Ltd, Mumbai49. National Steel Industries Ltd50. Nicholas Laboratories India Ltd, Mumbai51. O.P. Electronics Ltd, Mumbai52. Oriental Housing Development Finance Corp Ltd53. Padmini Technologies Ltd54. Panacea Biotech Ltd.55. Pearl Polymers Ltd, New Delhi56. Piramal Healthcare Ltd57. PNB Finance & Industries Ltd58. Rajath Leasing & Finance Ltd59. Rama Petrochemicals Ltd.60. Rama Phosphates Ltd.61. Reliance Industries Ltd, Mumbai62. Rishra Investment Ltd, Calcutta63. Rossell Industries Ltd, Calcutta64. Sahu Properties Ltd


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65. Sanghvi Movers Ltd66. Saurashtra Paper & Board Mills Ltd67. Saw Pipes Ltd68. Sayaji Hotel Ltd69. Sharyans Resources Ltd70. Shrenuj & Company Ltd71. Shibir India Ltd, Calcutta72. Shriram Industries Enterprises Ltd,N.Delhi73. Silverline Industries Ltd74. Sonata Software Ltd75. SRF Ltd76. Sterling Lease Finance Ltd, Mumbai77. Svam Software Ltd78. Synthetics and Chemicals Ltd,Mumbai79. The Champdany Industries Ltd, Calcutta80. The Dharamsi Morarji Chemical Company Ltd81. The Investment Trust of India Ltd82. The Morarjee Goculdas Spinning & Weaving Company Ltd,Mumbai83. Tolani Bulk Carrier Ltd84. Uniworth International Ltd85. Valecha Engineering Ltd86. VisualSoft Technologies Ltd87. Weltermann International Ltd88. Woolworth (India) Ltd89. Zora Pharma Ltd

Companies in which NRIs/PIOs investment is allowed up to 17% of their Paid-up CapitalGarware Shiping Corporation Ltd.

Companies where NRI investment has reached 8% and further purchases are allowed only withprior approval RBI


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1. Astra IDL Ltd.2. M/s. Codura Exports Ltd.3. IDL Industries Ltd.4. Nexus Software Ltd.5. Dalmia Cement (Bharat) Ltd.

Companies where NRI investment has already reached 10% and no further purchases can beallowed

1. DSQ Biotech Ltd2. Global Trust Bank Ltd.3. Madras Aluminium Co. Ltd4. SPL Ltd5. Seirra Optima Ltd6. The Baroda Rayon Corp7. Tai Industries Ltd.

Companies where NRI investment has already reached 22% and no further purchases can beallowed

None

Companies in which FII Investment is allowed up to 30% of their paid up capital1. Aptech Ltd2. Asian Paints (India) Ltd3. Capital Trust Ltd4. Container Corporation of India5. Ferro Alloys Corporation Ltd6. Garware Polyester Ltd7. GIVO Ltd (formerly KB&T Ltd)8. Gujarat Ambuja Cements Ltd9. Infotech Enterprises Ltd.


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10. Mastek Ltd11. Orchid Chemicals and Pharmaceuticals Ltd12. Pentasoft Technologies Ltd (Pentafour Communications Ltd)13. Polyplex Corporation Ltd14. Ranbaxy Laboratories Ltd15. Software Solutions Integrated Ltd16. Sonata Software Ltd17. The Credit Rating Information Services of India Ltd.18. The Paper Products Ltd19. Vikas WSP Ltd

Companies in which FII Investment is allowed up to 40% of their paid up capital

1. Balaji Telefilms Ltd.2. M/s. Burr Brown (India) Ltd.3. M/s. Elbee Services Ltd.4. Hero Honda Motors Ltd.5. Jyoti Structures Ltd6. Maars Software International Ltd.7. Padmini Technologies Ltd8. Pentamedia Graphics Ltd.9. Thiru Arooran Sugars Ltd.10. UTV Software Ltd.11. VisualSoft Technologies Ltd12. M/s. Silverline Technologies Ltd.13. Ways India Ltd14. SSI Ltd

Companies in which FII Investment is allowed up to 49% of their paid up capital


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1. Blue Dart Express Ltd2. CRISIL3. HDFC Bank Ltd4. Hindustan Lever Ltd5. Himachal Futuristic Communications Ltd6. Infosys Technologies Ltd.7. NIIT Ltd.8. Dr. Reddy's Laboratories9. Panacea Biotec Ltd10. Reliance Industries Ltd.11. Reliance Petroleum Ltd.12. Sofia Software Ltd13. Sun Pharmaceutical Industries Ltd14. United Breweries Ltd.15. United Breweries (Holdings) Ltd.16. Zee Telefilms Ltd.

Companies in which NRI/FII Investment is allowed upto 49% of their paid up capitalICICI Bank Ltd.

Companies in which FII Investment is allowed up to sectoral cap/statutory ceiling of their paidup capital

1. GTL Ltd. - (74%)2. Housing Development Finance Corporation Ltd. - (74%)3. Infosys Technologies Ltd. - (100%)4. Pentamedia Graphics Ltd. - (100%)5. Pentasoft Technologies Ltd. - (100%)6. Mascon Global Ltd. - (100%)7. Punjab Tractors Ltd. - (64%)8. Satyam Computer Services Ltd - (60%)


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Companies where 22% FII investment limit has been reached and further purchases are allowedwith prior approval of RBI

1. ACC Ltd.2. Digital GlobalSoft Ltd.

Companies where 28% FII investment limit has reached and further purchases are allowed withprior approval of RBI

None

Companies where 38% FII investment limit has reached and further purchases are allowed withprior approval of RBI

None

Companies in which the Caution limit (47%) in respect of maximum permissible foreign holdingincluding NRI/PIO/FII Investment as stipulated by Government has been reached

None

Companies where 49% limit has been reached and no further purchases will be allowedNone

Public Sector banks including SBI in which 18% limit has been reached.None

Public Sector banks including SBI in which 20% limit has been reached.State Bank of India

Companies falling under 24% and 30%None


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Companies in which the Ban limit in respect of maximum permissible foreign holding includingGDR/ADR/FDI/NRI/PIO/FII Investment as stipulated by Government has been reached

1. ICICI Ltd. Companies in which the Caution limit (47%) in respect of maximum permissible foreign holdingincluding GDR/ADR/FDI/NRI/PIO/FII Investments as stipulated by Government has reached

None

2.2 Growth of Indiabulls

Year 2000-01:

One of Indias first trading platforms was set up by Indiabulls Financial Services Ltd. with the

development of an in-house team.

Year 2001-03: The service offered by Indiabulls was increased to include Equity, F&O,

Wholesale Debt, Mutual fund, IPO Financing/Distribution and Equity Research.

Year 2003-04: In this particular year Indiabulls ventured into Distribution and Commodities

Trading business.

Year 2004-05: This was one of the most important years in the history of Indiabulls.

In this year:

Indiabulls came out with its initial public offer (IPO) in September 2004.

Indiabulls started its Consumer Finance business.

Indiabulls entered the Indian Real Estate market and became the first company to bring

FDI in Indian Real Estate.


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Indiabulls won bids for landmark properties in Mumbai.

Year 2005-06: The world renowned investment banks like Merrill Lynch and Goldman Sachs

increased their shareholding in Indiabulls. It also became a market leader in securities

brokerage industry, with around 31% share in Online Trading. The worlds largest hedge

fund, Farallon Capital and its affiliates committed Rs. 2000 million for Indiabulls

subsidiaries Viz. Indiabulls Credit Services Ltd. and Indiabulls Housing Finance Ltd. In the

same year, the Steel Tycoon Mr. LN Mittal promoted LNM India Internet venture Ltd. acquired

8.2% stake in Indiabulls Credit Services Ltd.

Year 2006-07: In this year, Indiabulls Financial Services Ltd. was included in the prestigious

Morgan Stanley Capital International Index (MSCI). The company also received an in

principle approval from Government of India for development ofmulti product SEZ in

the state of Maharashtra.

Documents

Facts of Fii