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Group no:-5 Pradeep kumar -26 Salil raibole-27 Rajnish Jakhar-28 Rishabh Sood-29 Rishika Mittal-30 Sachin Lakade-32

Foreign portfolio investment India

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Page 1: Foreign portfolio investment India

Group no:-5

Pradeep kumar -26 Salil raibole-27   Rajnish Jakhar-28 Rishabh Sood-29 Rishika Mittal-30 Sachin Lakade-32

Page 2: Foreign portfolio investment India

The Foreign Exchange Management Act 2000 defines Foreign Portfolio Investment as buying and selling of shares, convertible debentures of Indian companies, and units of domestic mutual funds at any of the Indian stock exchanges

It is the passive holding of securities such as foreign stocks, bonds, or other financial assets ,none of which entails active management or control of the securities issues by the investor,

Page 3: Foreign portfolio investment India

In 1992, India opened up its economy and allowed foreign portfolio investment in its domestic stock market

Since then ,FPI has emerged as a major source of private capital inflow in this country

India is more dependent upon FPI than FDI as a source of foreign investment.

During 1992 -2005 more than 50 percent of foreign investment in India came from FPI.

April 8, 2023 3FDI & FPI

Page 4: Foreign portfolio investment India

In Three Broad Ways◦ Inflow of FPI can provide a developing non – debt

creating source of foreign investment.

◦ FPI can induce financial resources to flow from capital – abundant countries, where expected returns are low, to capital scarce countries where expected returns are high.

◦ FPI affects the economy through its various linkage effects via the domestic capital market.

 

Page 5: Foreign portfolio investment India

Ways of Foreign Institutional Investments Foreign Organization set up to invest in India

◦ GDRs/ADRs Raising money from abroad through issue of shares

abroad◦ Offshore Funds

Funds raised outside India to be invested here

Page 6: Foreign portfolio investment India

Foreign Portfolio Investment

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000199

5-96

1996-9

7

1997-9

8

1998-9

9

1999-0

0

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8 (P)200

8-09 (P)

Year

Amou

nt

Net FPIs

GRDs/ADRs

FIIs

Page 7: Foreign portfolio investment India

April 8, 2023 7FDI & FPI

Page 8: Foreign portfolio investment India

FIIs have invested more than Rs 145,000 crore rupees in the Indian stock market

In 1990-helped India to mitigate its foreign exchange shortage and build high level of foreign exchange reserves.

Page 9: Foreign portfolio investment India

Tax rates on interest or dividends

Interest rates

Exchange rates

P.I is the part of capital account on BOP

April 8, 2023 9FDI & FPI

Page 10: Foreign portfolio investment India

Applicant should have track record, professional competence, financial soundness, experience, general reputation of fairness and integrity;

The applicant should be regulated by an appropriate foreign regulatory authority in the same capacity/category where registration is sought from SEBI.

Registration with authorities, which are responsible for incorporation, is not adequate to qualify as Foreign Institutional Investor.

The applicant is required to have the permission under the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of India.

Page 11: Foreign portfolio investment India

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. Besides it also has to appoint a designated bank to route its transactions.

Payment of registration fee of US $ 5,000.00

Page 12: Foreign portfolio investment India

RBI has granted permission to SEBI registered (FIIs) invest in India under Portfolio investment scheme.

All FIIs and their sub-accounts taken together cannot acquire more than24% of the paid up capital of an Indian economy

Investment by individual FIIs cannot exceed 10% of paid up capital.  Investment by foreign registered as sub accounts of FII cannot exceed 5% of paid up capital

April 8, 2023 12FDI & FPI

Page 13: Foreign portfolio investment India

Non Resident Indian (NRIs) and Persons of Indian Origin (PIOs) can purchase/sell shares/convertible debentures of Indian companies on Stock Exchanges under Portfolio Investment Scheme.

For this purpose, the NRI/PIO has to apply to a designated branch of a bank, which deals in Portfolio Investment.

All sale/purchase transactions are to be routed through the designated branch.

An NRI or a PIO can purchase shares up to 5% of the paid up capital of an Indian company. All NRIs/PIOs taken together cannot purchase more than 10% of the paid up value of the company.

Page 14: Foreign portfolio investment India

This limit can be increased by the Indian company to 24% by passing a General Body resolution).

The sale proceeds of the repatriable investments can be credited to the NRE/NRO etc. accounts of the NRI/PIO whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.

The sale of shares will be subject to payment of applicable taxes.

Page 15: Foreign portfolio investment India

PIS is a scheme of Reserve Bank of India defined in schedule 3 of Foreign Exchange Management Act 2000.

It allows NRIs to purchase or sell shares/debentures of Indian companies on a recognized stock exchange by routing such purchase/sale transactions through their account with Bank Branch

An NRI/PIO can purchase share up to 5% of the paid up capital of the Indian company

Page 16: Foreign portfolio investment India

All NRIs/PIOs taken together cannot purchase more than 10% of the paid up value of the company.

It can be increased up to 24% by passing a general body resolution.

Investment can be repatriable or non-repatriable in nature.

In order to invest on a repatriable basis, investor must have an NRI or FCNR bank account in India

Page 17: Foreign portfolio investment India

the amount representing investment should be received by inward remittance through normal banking channels or by debit to NRE Account/FCNR account of the NRI.

The dividend/interest of units may be remitted through normal banking channels or credited to NCR/FCNR account of the investor.

Page 18: Foreign portfolio investment India

Through private arrangements with the approval of the RBI.

sale or transfer of shares and debentures of Indian companies to other NRIs◦  No permission is required from RBI, however

transferee would require permission for purchase of the shares.

◦ Short-selling or selling the shares bought by NRI investors before delivery is prohibited.

Page 19: Foreign portfolio investment India

Investors under the PIS are liable to pay Capital Gains Tax on their investments which depends on the tenure of their stocks.

Prevailing rates are deducted at source by the designated bank.

Page 20: Foreign portfolio investment India

A NRI can operate the PIS through only one selected branch.

To operate from more than one branch, special permission from the RBI is required.

Documents required by designated banks to apply for the PIS.

PIS application form RPI or NRI Form, with details of shares bought from

the primary market Tariff Sheet of the PIS Demat Account opening form

Page 21: Foreign portfolio investment India

NRIs can approach, PNB’s any of the following branches

RBI had allotted specific code to the banks dealing in PIS.

Sr No Name of Branch Code allotted by RBI

1 PNB House, Fort, Mumbai – 400 001

4401

2 ECE House, K.G.Marg, New

Delhi-110 001

4402

3 Brabourne Road, Kolkata

4403

Page 22: Foreign portfolio investment India

PIS (NRE) Account◦ Application for PIS ◦ Letter of Authority for operating the account ◦ Acceptance of Fee Schedule for PIS ◦ Form RPI (with Repatriation benefits) ◦ Annexure-I (For shares purchased through

Primary Market as NRI on Repatriable basis) ◦ Nomination Form ‘DA-1’

Page 23: Foreign portfolio investment India

PIS (NRO) Account ◦ Application for PIS ◦ Letter of Authority for operating the account ◦ Acceptance of Fee Schedule for PIS ◦ Form NPI (without Repatriation benefits) ◦ Annexure-II (Shares purchased as NRI through

Primary Market on non-repatriation basis) ◦ Annexure-III (Shares purchased through

Primary/Secondary Market during resident status/received in inheritance)

◦ Nomination Form ‘DA-1’.

Page 24: Foreign portfolio investment India

India’s foreign investment policies allow FDI up to 26 per cent and FII of (an additional) 23 per cent in stock exchanges. Under the regulation.

FIIs and the NRIs are allowed to invest in Indian Depository Receipts (IDRs)

FPI have been allowed to trade in IRFs, but limits have been put in place to keep their influence under check

Page 25: Foreign portfolio investment India

Portfolio flows as a non-debt creating investment flow has increased its share in the total foreign investment flows.

During the year 2003-04 these flows’ share in the capital flows touched an all time high of about 67.8 percent

Page 26: Foreign portfolio investment India

Funds that are created abroad specifically targeting investment in India

Examples:◦ 3i India Infrastructure Fund◦ CC Art Limited◦ Urban Infrastructure Real Estate Fund◦ Tara Feeder Fund◦ India Optima Fund◦ CNC India Investments, I L.P

Page 27: Foreign portfolio investment India
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No. 44: Foreign Investment Inflows(US $ million)

Item 2003-04 2004-05 2005-06 2006-07 2007-08 (P) 2008-09 (P)

1 10 11 12 13 14 15

A. Direct Investment (I+II+III) 4,322 6,051 8,961 22,826 34,835 35,180 

I. Equity (a+b+c+d+e) 2,229 3,778 5,975 16,481 26,864 27,995 

a. Government (SIA/FIPB) 928 1,062 1,126 2,156 2,298 4,699 

b. RBI 534 1,258 2,233 7,151 17,127 17,998 

c. NRI — — — — — — 

d. Acquisition of shares * 735 930 2,181 6,278 5,148 4,632 

e. Equity capital of unincorporated bodies # 32 528 435 896 2,291 666 

II. Reinvested earnings + 1,460 1,904 2,760 5,828 7,679 6,428  III. Other capital ++ 633 369 226 517 292 757

B. Portfolio Investment (a+b+c) 11,377 9,315 12,492 7,003 27,271 –13,855 

a. GDRs/ADRs # # 459 613 2,552 3,776 6,645 1,162 

b. FIIs ** 10,918 8,686 9,926 3,225 20,328 –15,017 

c. Offshore funds and others — 16 14 2 298 —Total (A+B) 15,699 15,366 21,453 29,829 62,106 21,325

Page 32: Foreign portfolio investment India

Helped in mitigating foreign exchange shortages

Have a strong influence on the Indian stock market.

Stock market depth(ratio of stock market capitalization to GDP)

Development of secondary market took place, however primary market has not shown any significant effect.

Page 33: Foreign portfolio investment India

Rapid growth of private placements markets which are preferred due to:

• can be tailored to specific needs of entrepreneurs

• Issuing securities not under regulation till recent past.

• Withdrawal of domestic retail investors from stock markets.(1.37% of total household savings)

Page 34: Foreign portfolio investment India

Irregularities, uncertainties and lack of protection measures result in decline

FIIs also much less active due to prolonged lock in period for the primary markets.

Page 35: Foreign portfolio investment India

Beneficial if well functioning stock markets support the economic development of the country.

Impose significant fiscal cost on economy as has to maintain the value of rupee in a very narrow band.

Have to ensure the attractivenss for the investors

Page 36: Foreign portfolio investment India

THANK YOU