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FOREIGN PORTFOLIO INVESTMENTS IN INDIACAUSES AND IMPACT
Reema D’Souza- PG14069Sneha Singh- PG14083
Akanksha Gandhi- PG14091Shweta Ghag- PG14097
Chaitra Mhatre- PG14101
Foreign Portfolio Investment
• FPI is securities and other financial assets passively held by foreign investors
• Origin of FPI
• After the Second World War, developing countries made efforts to achieve rapid economic growth and to alleviate problems of poverty and unemployment
• Rapid growth of international trade.
• The developing countries faced shortage of capital.
• Capital flows in the form of foreign aid
• Developing countries faced difficulty in implementing the conditionality’s of undertaking from IMF and World Bank
Foreign Portfolio Investment
Foreign Investment in IndiaForeign Capital Investment
in India
Foreign Direct Investment Foreign Portfolio Investment
• The foreign direct investment (FDI) is the investment in the construction of physical capital in the capital- importing country.
• FPI is securities and other financial assets passively held by foreign investors
Foreign Portfolio Investment• FPI does not provide the investor with direct ownership of financial
assets, and thus no direct management of a company.
• It is relatively liquid, depending on the volatility of the market invested
in.
• Involves short-term positions in financial assets of international markets, and is similar to investing in domestic securities.
Foreign Portfolio InvestmentCategories of FPI
• Category I (Low Risk) which would include Government and entities like Foreign Central banks, Sovereign wealth Funds, Multilateral Organizations, etc.
• Category II (Moderate Risk) which would include Regulated entities such as banks, Pension Funds, Insurance Companies, Mutual Funds, Investment Trusts, Asset Management Companies, University related endowments (already registered with SEBI)
• Category III (High Risk) which would include all other FPIs not eligible to be included in the above two categories
Foreign Portfolio InvestmentForeign
Portfolio Investment
FII GDRs/ADRs Offshore Funds
• FII: Investments made by foreign institutions like pension funds, foreign mutual funds etc. in the financial markets.
• GDRs and ADRs: They are instruments which signify the purchase of share of Indian companies by foreign investors or American investors respectively
• Off-shore funds: The schemes of mutual funds that are launched in the foreign country
Composition of FPI
Depository Receipts:
• A Depository Receipt (DR) is a financial instrument representing certain securities (e.g. shares, bonds etc.)
• Securities are deposited with the domestic custodian bank and DR’s are issued by depository bank in targeted country.
• Depository receipts are negotiable security.
ADR’s & GDR’s
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
240
15202082
6831366
645270
768 831477 600 459 613
2552
3776
8769
GDR/ ADR in India
Year
US
$ M
illi
on
Financial Institution Investment:
• A foreign institutional investor (FII) is a person or a group of people operating or registered in a country that’s not their domicile.
• Foreign institutional investor groups often operate as hedge funds, pension funds, insurance companies, and mutual funds.
• FII’s in India are regulated by SEBI.
• India has changed its foreign investor laws to allow FIIs to own up to 100% of Indian companies in certain industries.
Financial Institutional Investment
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
-5000
0
5000
10000
15000
20000
25000
11665 1503 2009 1926
979
-390
2135 1847 1505377
10918
86869926
3225
20328
Financial Institutional Investment - India
Year
US
$ M
illi
on
Offshore Funds & Others:
• An offshore fund refers to a mutual fund that invests its assets abroad and not in domicile country.
• Offshore funds offer investors access to international markets and major exchanges.
• In India a few companies that have offshore mutual funds are Reliance, Kotak and TATA.
Offshore Funds & Others
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
0
50
100
150
200
250
300
350
400
450
6 4 3
382
239
56
20
204
59
123
82
39
2 016 14 2
298
Offshore Funds & Others
Year
US
$ M
illio
n
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08-5000
0
5000
10000
15000
20000
25000
30000
35000
Composition of FPI - India
FII GDR/ ADR Offshore funds and OthersFPI Moving average (FPI)
Year
US
$ M
illio
n
Benefits of FPI
• Portfolio Diversification
• International Credit
• Benefit from Exchange Rate
• Access to bigger market
• 1992-Indian government allowed the foreign investors to invest in the financial marketsSEBI regulations-encourage FIIs to invest in IndiaADR/GDRs helps to overcome limitations Indian companies like Reliance, Kotak and TATA started having offshore mutual funds
• In 1993-94 FII investment has increased consistently from 1.6 billion dollars to approximately 127.8 billion dollars till December 2011
• In 1996-97 the share of ADR/GDR flows was 41 % and that of FII flows was 58%.
• In 1997-98 and 1998-99 there was a reversal in FII investment due to the impact of the Asian crisis.
• In1999-2000 FII flows to the Indian economy revived but again dipped to 2.77 billion dollars in 2002-03.
TRENDS IN FPI
• In 2001-02 international financial markets were also taking measures to attract firms in the emerging markets to list on their stock exchanges-resulted investment flowing into India through the ADR/GDR route
• In 2003-04 FIIs flows were up to 10.9 billion dollars increase in the limit of investment by FIIs in the securities of the Indian companies increase in the number of sectors in which the investment could be made
• In 2007-08 the share of ADR/GDR flows was 24% and that of FII flows was 75%.
• In 2009-10 FII flows accounted for 89% of the total flows while ADR/GDR flows were 10% of the total flows but no investment on account of offshore funds.
FII/FPI INVESTMENTS
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
-100000
-50000
0
50000
100000
150000
200000
FII/FPI Investments
equity debt
NET PORTFOLIO INVESTMENTS
2000-01 2008-09 2009-10 2010-11
-100000
-50000
0
50000
100000
150000
200000
Net portfolio investments(in crores)
SECTOR WISE FPI/FII INVESTMENTS
Automobiles & Auto Components
Total Financial Services
Banks
Other Financial Services1
Capital Goods
Chemicals & Petrochemicals
Construction Materials
Food, Beverages & Tobacco
Household & Personal Products
Pharmaceuticals & Biotechnology
Telecom Services
0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000
Sector wise FPI/FII investments( IN CRORES)
Debt Equity
FPI Impacts on Indian Economy
• Stock Market •Currency Rate • Inflation
FPI Investments (INR Crore)19
92-9
3
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
2013
-14
2014
-15
**
-100000
-50000
0
50000
100000
150000
200000
45,765
66,179
-45,811
142,658
51,649Series1
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
-15% -10% -5% 0% 5% 10% 15% 20% 25%
4%
5%
7%
19%
-1%
-4%
12%
6%
-10%
3%
0%
Change in the Indian Currency Rate
2005 2006 2007 2008 2009 2010 2011 2012 2013 20140.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
5.57%6.53%
5.51%
9.70%
14.97%
9.47%
6.49%
11.17%
9.13%
5.86%
Historic Inflation India (CPI) – by year
2004 2006 2008 2010 2012 2014 2016
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0%
53%
28%
5%
-2%
21%
1%-2%
12%
28%
Change in Closing Stock Price (NSE)