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Group 2:• Abhishek Pandey• Adityavardhan • Alisha Grover• Ankit Godale• Anindita Neogi• Surya Deepthi

INTRODUCTION TO FII

What is FI?

What is FII?

History of FII

Example –-STAR India, a unit of 21st Century Fox,

has acquired the entire broadcast business of MAA Television Network Ltd.

-Infosys has announced that it would buy Panaya.

APPLICANT PROCEDURES

An application for registration has to be made in Form A, the format of which is provided in the SEBI(FII) Regulations, 1995 and submitted with under mentioned documents in duplicate addressed to SEBI as well as to Reserve Bank of India (RBI) and sent to the following address within 10 to 12 days of receipt of application.

Address for applicationThe Division Chief FII Division Securities and Exchange Board of India, 224, Mittal Court, 'B' Wing, 1st Floor, Nariman Point, Mumbai - 400 021. INDIA.

ELIGIBILITY The applicant is required to have the permission under

the provisions of the Foreign Exchange Management Act, 1999 from the Reserve Bank of 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

FII REGISTRATION PROCESS

SALIENT FEATURES OF FIIS

An initial registration with SEBI is required to enter the market Nominee companies, affiliated and subsidiary companies of an FII

will be treated as separate FIIs. May seek separate registration FIIs shall also seek various permissions under FERA from the RBI,

both SEBI and RBI registration will be under a single window approach

FIIs seeking initial registration with SEBI shall be required to hold a registration from the securities commission in their country of domicile

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CONTD

SEBI’s initial registration would be valid for 5 years. RBI’s general permission under FERA to the FII will also hold good for five years, both will be renewable

Disinvestment will be allowed only through stock exchanges in India including OTCEI

SEBI may permit sales other than through stock exchanges, provided the sale prices are not significantly different

All secondary market operations would be only through the recognized intermediaries. FIIs not to take delivery of purchased and give delivery of sold securities

TYPES OF FIIS

Pension Funds: It manages pension and health benefits for employees, retirees, and their families

Mutual Funds: Collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, or other such securities

Investment Trust: A way of investing money with others to participate in a wider range of investments than feasible for most individual investors, and to share the costs and benefits of doing so

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TYPES OF FIIS (CONTD..) Investment Banks: A financial institution that raises

capital, trades in securities and manages corporate mergers and acquisitions

Endowment Funds: A transfer of money or property donated to an institution, usually with the stipulation that it be invested, and the principal remain intact in perpetuity or for a defined time period

Charitable Trusts: A trust created for advancement of education, promotion of public health and comfort, relief of poverty, furtherance of religion, or any other purpose regarded as charitable in law

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TYPES OF FIIS (CONTD..)

Asset Management Companies: It is an investment management firm that invests the pooled funds of retail investors in securities in line with the stated investment objectives

Nominee Companies: Company formed by a bank or other fiduciary organization to hold and administer securities or other assets as a custodian on behalf of an actual owner

Institutional Portfolio Managers: Investments by registered Foreign Institutional Investors or Non-Resident Indians made through a stock exchange

FII REGULATION Foreign Institutional Investors (FIIs) are registered under

the Securities and Exchange Board of India (SEBI) . In accordance with Section 2(f) of the SEBI (FII) Regulations 1995

Registration of FIIs and monitoring of investments made by them through the portfolio investment route under the SEBI (FII) regulations 1995

Background of FII in India Ministry of Finance set up a Working Group on Foreign

Investment (WGFI) in 2010 Committee on Rationalization of Investment Routes and

Monitoring of Foreign Portfolio Investments” set up under K. M. Chandrashekhar

SEBI issued operating guidelines for Designated Depository Participants (DDP) for granting registration to Foreign Portfolio Investors (FPI).

FII REGULATIONS : TRANSITION TO FPIS WHO IS AN FPI : An FPI has been defined to mean a person who satisfies the prescribed eligibility criteria and has

been registered under the FPI Regulations. All existing Foreign Institutional Investors (FIIs) and QFIs are to be merged into one category called FPI.

ELIGIBILITY CRITERIA FOR FPI : It should not be Indian resident or a Non-Resident Indian. It should be a resident of a country: whose central bank is a member of the Bank for International

Settlements; against whom the Financial Action Task Force (FATF) has not issued any warnings It should legally be permitted to invest in securities outside the country of its incorporation or

establishment or place of business.

REGISTRATION OF AN FPI : FPI registration is to be undertaken and granted by Designated Depository Participants (DDPs) on

behalf of SEBI.

REGISTRATION FEES : Category I FPIs are exempt from payment of registration fees. A registration fee of USD 3,000 and USD 300 is payable by Category II & III FPIs respectively for a

block of three years. 13

CATEGORIES OF FPI

• Government related investors such as Central Bank

• International/Multilateral organizationsCategory-1• Appropriately regulated Broad based funds. • Mutual funds,insurance companiesCategory-2• Charitable trusts, corporate bodies, individuals • Not covered under Category-1Category-3

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CERTIFICATE OF REGISTRATION:

Applicant to furnish any

info as required by

SEBI

Within 30 days of

application D.P. shall grant the

certificate of registration

Liable for rejection in case of false

and misleading information

INVESTMENT RESTRICTIONS A FPI shall be permitted to invest only in the following

securities: Securities in the primary and secondary markets; Units of schemes floated by domestic mutual funds Collective investment schemes; Derivatives traded on a recognized Stock exchange; Treasury bills and dated government securities; Commercial papers issued by an Indian company; Rupee denominated credit enhanced bonds; Security receipts issued by asset reconstruction

companies; Perpetual debt instruments Capital instruments; Debentures (NCDs)/ bonds issued by an Indian company

in the infrastructure sector.

DDP shall ensure that only registered FPIs invest in the Indian capital markets.

Securities shall be registered in the name of FPI as a beneficial owner for the purpose of Depositories Act,1996

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Need For FII

• Supplements and augmented domestic savings and domestic investment without Increasing the foreign debt of our country

• Capital inflows to the equity market increase stock prices, lower the cost of equity capital and encourage the investment by Indian firms

• Provide access to cheap Global Credit

P NOTES P-notes are a way for foreigners to invest in the Indian

markets without registering themselves with Securities and Exchange Board of India

To avail advantage of the tax laws of certain countries

Who Invests in Participatory Notes? Investors ineligible to apply for FII status The participatory note route is quick and easy To hide their Identity

P-NOTES PROCESS

UK based investor

Foreign Broking House(UK)

Foreign Broking House(India)

X Shares

Issues P-notes with X shares as underlying asset

Conformation of Shares Purchased

Buy X shares

Buy X Shares

Buys

ADVANTAGES OF P-NOTES

Convenient for foreign investors, because participatory notes

are like contract notes transferable by approval

P-note provide high degree of anonymity

Some of the entities want their investment through P notes to

take advantage of the tax laws of certain preferred countries

It is important source of investment in Indian capital market

It strengthen rupee against the dollar

FII OUTFLOW IN 2015

There are two main reasons behind the outflow of FIIs: China Slow downa) Global Slowdownb) Yuan devaluationc) FIIs general sentiment for EMs affected by China slowdown Hike in the interest rate by US Feda) Hike in interest appreciates the dollar and depreciates rupeeb) Demand for dollar increases, which leads to the outflow of FII

from Indian market

EFFECTS OF FII FLOWS ON INDIAN STOCK MARKET

While strong inflow of funds from foreign institutional investors (FIIs) has been a reason to cheer, it could turn into a nightmare if the global investors make a sudden exit send the markets crashing

FII flow has been on the rise since start of liberalization

In past 4 years there has been more than $41 trillion worth of FII funds invested in India

As FIIs purchase and sell stocks , it results in high volatility in stock markets

Outside cash flows through FIIs, in India, are vital from the strategy point of view

EFFECT OF FII ON INDIAN ECONOMY

•FIIs as major cause of market crash

•FIIs bowed out from capital market with more than 10000 crore

•Began with Reliance power and future capital holdings issues

FII FLOWS : SECTOR WISE

Sector wise FII for 2014-15

Automobiles & Auto Components Total Financial ServicesBanks Other Financial Services1Capital Goods Chemicals & PetrochemicalsCoal Commercial Services & SuppliesConstruction Materials Consumer DurablesDiversified2 Diversified Consumer ServicesFood, Beverages & Tobacco Forest MaterialsGeneral Industrials Hardware Technology & EquipmentHealthcare Equipment & Supplies Healthcare ServicesHotels, Restaurants & Tourism Household & Personal ProductsMedia Metals & MiningOil & Gas Pharmaceuticals & BiotechnologyRealty RetailingSoftware & Services Telecom ServicesTelecommunications Equipment Textiles, Apparels & AccessoriesTransportation AirlinesLogistics Marine Port & ServicesRoads & Highways ShippingSurface Transportation Transport Related ServicesUtilities3 SovereignOthers4

FII VS FDI

FII Outside companies/investors investing in financial markets of India International institutional Investors must register with Securities

and Exchange Board of India to participate in the marketFDI An investment made by a company in one country, into a company

based in another country The investing company may make its overseas investment in a

number of ways – either by setting up a subsidiary or associate company in the foreign country, by acquiring shares of an overseas company or through a merger or joint ventre.

It enables a degree of control in the company Brings long term capital as compared to FII

FII & EXCHANGE RATE MOVEMENT As a result of the incessant shift in the economic

structure of scope and area of business, exchange rates gathered attention and became an imperative determinant for sustainable business operations

This emergent consequence has made FII’s and exchange rates, two extremely vital variables for economy

Demand & Supply Say US imports from India, then it is creating a demand

for rupee thus Indian Rupee appreciates w.r.t the dollar. If India imports then the dollar appreciates w.r.t the Indian Rupee

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