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FII FDI - Bachelors in Financial Markets


  • pg 1
									 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, equipment, and organizations. It does not include
foreign investment into the stock markets. Foreign direct
investment is thought to be more useful to a country than
investments in the equity of its companies because equity
investments are potentially "hot money" which can leave at
the first sign of trouble, whereas FDI is durable and generally
useful whether things go well or badly.
 Foreign Institutional Investor - FII
The term is used most commonly in India to refer to outside
companies investing in the financial markets of India.
International institutional investors must register with the
Securities and Exchange Board of India to participate in the
market. One of the major market regulations pertaining to FIIs
involves placing limits on FII ownership in Indian companies.
   FDI facilitates global integration, industrial diversification, privatization,
    infrastructure development, technology up gradation, and acts as an engine of
    external trade and overall growth
  Unlike other capital flows, FDI is a package that embodies capital along with
    technology and managerial, marketing and technical skills
• Presence of multinationals promotes greater efficiency and dynamism in the
   domestic sector and widens trade.
• Training gained by local employees and their exposure to modern organizational
   system and international best practices are valuable assets for the host country
• FDI does not face any such problems, there is repatriation of dividends only when
   the project is profitable.
•   Bonds
•   External Loans from commercial banks
•   Financial derivatives- commercial papers and note issuance, interest rate and
    exchange rate swaps, options and futures etc.
•   Foreign direct investment- equity sharing and participation in management
•   Portfolio investment- buying of shares
•   Quasi equity investment- joint ventures, licensing agreements, franchising,
    management contracts, turnkey contracts, production sharing and international
•    Market seeking- to take advantage of huge domestic markets in host countries
    home country (the country from which the investment originates)
    host country (the destination of the investment)

•   Resource exploiting- driven by availability of mineral and other resources

•   Export enhancing- to shift production base to take advantage of low wage rates but
    technical manpower and availability of resources

•   Efficiency enhancing through technology transfer and infrastructure development
  FDI inflows are determined by a complex set of economic, political and social
  Foreign investors look beyond the array of fiscal incentives offered by the host
  FDI is attracted by sound macro-economic policies, stable economic systems,
   sustained high growth, liberalization of trade, investment and industry, particularly
   by liberal FDI regimes.
• Low wage rates
• Low transactions costs
• Modern financial system
• Efficient infrastructure
• Established legal and institutional set-up
• Transparent rules and regulations
   Real Estate
   Construction Activities
   Service Sector
   Telecommunications
   Electrical equipments that include electronics and computer software
   An Individual
   A group of related individuals
   An incorporated Entity
   A Public or Private Company
   A Group of related enterprises
   A Government Body
   A Trust or other societal organization, or any combination of the above
   Pension Fund
   Mutual Fund
   Investment Trust
   Insurance Co
   Foundation of Charitable Institutions
    Asset Management Companies
   Banks
                  FDI                                        FII
FDI or Foreign Direct Investment is an On the contrary, FII or Foreign
investment that a parent company makes in a Institutional Investor is an investment
foreign                            country. made by an investor in the markets of a
                                          foreign nation
FDI invest in a foreign nation.           In FII, the companies only need to
                                          get registered in the stock
                                          exchange to make investments
FDI is more preferred to the FII as FII is less preferred
they are considered to be the most
beneficial kind of foreign
investment for the whole economy.

Foreign Direct Investment only            The FII investment flows only into
targets a specific enterprise. It aims    the secondary market. It helps in
to    increase     the    enterprises     increasing capital availability in
capacity or productivity or change        general rather than enhancing the
its management control. In an FDI,        capital of a specific enterprise.
the capital inflow is translated into
additional                production
                 FDI                                       FII
The Foreign Direct Investment is          Though the Foreign Institutional
considered to be more stable than         Investor helps in promoting good
Foreign Institutional Investor. FDI not   governance and improving
only brings in capital but also helps     accounting, it does not come out
in good governance practices and          with any other benefits of the FDI.
better management skills and even
technology                     transfer

While the FDI flows into the primary      the FII flows into secondary market

the FDI’s are long term                   FIIs are short-term investments
                FDI                                    FII
FDI is an investment that a parent    FII is an investment made by an
company makes in a foreign            investor in the markets of a foreign
country.                              nation.

FII can enter the stock market        FDI cannot enter and exit that
easily and also withdraw from it      easily.

Foreign Direct Investment targets a   The FII increasing capital
specific enterprise                   availability in general.
The Foreign Direct Investment is      Less Stable
considered to be more stable than
Foreign Institutional Investor
•   India has been rated as the 4th most attractive investment
    destination in the world, according to the global survey
    conducted by E &Y .

•   According to a report by National Council Of Applied
    Economics (NCAER),
•   “ In the first nine months of 2007-08 , the net capital flows rose to
    US $ 83 Billion from US $ 30 billion the country received during the
    corresponding period of the previous year”

•   According to the survey conducted by KPMG , India will see the
    largest overall growth in its share of foreign investment, and is
    likely to become a world leader for investment and

•   Sector wise a large portion of FDI has been flowing into the skill-
    intensive and high value added services industries, particularly
    financial services and information technology
   India, in fact, dominates the global service industry in terms of
    attracting FDI with its mix of low costs, excellent technical skills
    and languages, mature vendors and liberal supportive
    government policies.

   Global investors are also showing interest in other sectors like
    telecommunication, energy, construction, automobiles,
    electrical equipments.

   Leading Japanese, Korean, European , French and American
    automobile companies have set up their manufacturing base
    in India.

   Currently the FDI inflows into the Indian real estate sector was
    estimated to be between US$ 5 billion to US$ 5.50 billion
   Investment in the Indian Real Estate market is set to increase
    to US$ 20 billion.
   Many big names in the international retail are also entering
    the Indian Markets, Global players like Wal- Mart, Marks &
    Spencer’s have lined up investments.
   Even the mobile services market has seen a FDI inflows woth
    US$ 24 billion into the Indian telecommunication sector as
    compared to US$ 3.84 billion in March 2008.
   The economy has resulted in India emerging as the fastest
    growing market for many global players. This has resulted in
    many companies lining up aggressive investment plans for
    the Indian Markers.

   Panasonic is planning to line up US$200 million investment in
    India over the next 3 years for setting up new units, brand
    positioning and upgrading its facilities.

   Japanese engineering major, Toshiba plans to put up a
    power boiler plant at Ennore, north of Chennai with an initial
    investment of around US$ 232.91 Million.

   Dell would be investing more in India to commensurate with
    the growth of its products.
   Intel Corp will invest US$ 40 billion in partnership with Indian IT
    companies to create an end to end IT solution for the health
    sector in the country .

   Cairn India, the Indian arm of British oil and gas company
    Carin Energy, will invest about US$ 2 billion over the next 18
    months for the development of oil fields abd building a

   HPCL and Mittal Energy will together put in US$ 81.94 Billion
    worth investment in developing a petrol hub.
   Havells India will bring in US$ 64.92 million as issue of shares
    and convertible warrants.
   Essar Power will infuse upto US$ 2 billion as foreign equity for
    undertaking various downstream projects including power
    and coal mining.

   Coca –Cola India Plans to invest US$ 250 Million over the next
    three years in equipment purchases, brand promotion and

   Goldman Sachs ( Mauritius ) NBFC LLC will invest US$ 46.51
    Million in NBFC activities.

   A Merrill Lynch & Co entity has bought 49 percent equity in
    several residential projects in Chennai, Bangalore, Kochi and
    Indore for US$ 345.78 million.
   The Government would soon remove the compulsory disinvestment
    clause on overseas companies in major sectors like food processing and
    chemicals, a move aimed at simplifying foreign direct investment (FDI)
    rules further. The finance ministry is weighing the proposal after the
    Department of Industrial Policy and Promotion suggested waiving the
    clause for all companies that have decided on disinvestment.

   The Government may allow 49 percent FDI in segments such as gems &
    jewellery and apparel after National Council of Applied Economic
    Research (NCAER), which studies the effects of multi-brand retail in
    India, submits its report.

   Restructuring the Foreign Investment Promotion Board ( FIPB)

   The Union Minister of Commerce & Industry, has stated that Foreign
    Direct Investment (FDI) up to 100 percent is permitted under the
    automatic route in most of the sectors .
   Progressively raising the FDI cap in other sectors like telecom,
    aviation, banking, petroleum and media sectors among the others.

   Removal of the investment cap in the small scale industries sector

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