MMS A

FOREIGN INSTITUTIONAL INVESTORS

FOREIGN INSTITUTIONAL INVESTORS

SUBMITTED TO PROF. BHARGAVI

SUBMITTED BY
SWAPNAGANDHA BHENDE (06) MITESH GALA (15) NIDHI MEHTA (32) NANDITA PUROHIT (41)
IMIT

THA!!AR (54)

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A

FOREIGN INSTITUTIONAL INVESTORS

"ONTENT

S#.N$. Int'(d)*ti(n # " $ ! 6 0 ; :

T$%&'

P()* N$. " 0 0 # ! #6 #: "$ "0

India + An Att'a*ti,e -estinati(n .(' FII/s FII In,est&ents + 1hat &a2es the& signi.i*ant G'(wth (. FII/s 3(w hea4th5 is FII 6a'ti*ipati(n FII/s + M(,ing the Ma'2et 7ene.its 8 9(sts (. FII/s Iss)es and 9ha44enges Fa*ing FII/s in India 9(n*4)si(n

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A

FOREIGN INSTITUTIONAL INVESTORS

INTRODU"TION
Inte'nati(na4 p('t.(4i( .4(ws a'e, as (pp(sed t( .('eign di'e*t in,est&ent, 4i<)id in nat)'e and a'e &(ti,ated =5 inte'nati(na4 p('t.(4i( di,e'si.i*ati(n =ene.its .(' indi,id)a4 and instit)ti(na4 in,est('s in ind)st'ia4 *()nt'ies> The5 a'e )s)a445 )nde'ta2en =5 instit)ti(na4 in,est('s 4i2e pensi(n .)nds and &)t)a4 .)nds> S)*h .4(ws a'e, the'e.('e, 4a'ge45 dete'&ined =5 the pe'.('&an*e (. the st(*2 &a'2ets (. the h(st *()nt'ies 'e4ati,e t( w('4d &a'2ets> 1ith the (pening (. st(*2 &a'2ets in ,a'i()s e&e'ging e*(n(&ies t( .('eign in,est('s, in,est('s in ind)st'ia4 *()nt'ies ha,e in*'easing45 s()ght t( 'ea4i?e the p(tentia4 .(' p('t.(4i( di,e'si.i*ati(n that these &a'2ets p'esent> F('eign *(&panies@Indi,id)a4s a'e pe'&itted t( in,est in e<)it5 sha'es t'aded in Indian St(*2 &a'2ets i. the5 a'e 'egiste'ed as a F('eign Instit)ti(na4 In,est(' (FII) (' i. the5 ha,e a s)= a**()nt in India> In,est&ent in Indian se*)'ities is a4s( p(ssi=4e th'()gh the p)'*hase (. G4(=a4 -ep(sit('5 Re*eipts (G-R), A&e'i*an -ep(sit('5 Re*eipts (A-R), F('eign 9)''en*5 9(n,e'ti=4e 7(nds and F('eign 9)''en*5 7(nds iss)ed =5 Indian iss)e's, whi*h a'e 4isted, t'aded and sett4ed (,e'seas and &ain45 den(&inated in US d(44a's> F('eign In,est('s (whethe' 'egiste'ed as a FII (' n(t) *an a4s( in,est in Indian se*)'ities ()tside the FII '()te> S)*h in,est&ents 'e<)i'e *aseA=5A*ase app'(,a4 .'(& the F('eign In,est&ent 6'(&(ti(n 7(a'd in the Minist'5 (. Ind)st'5 and Rese',e 7an2 (. India (R7I), (' (n45 =5 the R7I depending (n the si?e (. the in,est&ent and the ind)st'5 in whi*h this in,est&ent is t( =e &ade> FII in,est&ents in Indian *apita4 &a'2et is &('e than US B ,000 &i44i(n> Indian St(*2 &a'2et with a &a'2et *apita4i?ati(n (. (,e' US B 6!,000 &i44i(n has =een a &aC(' att'a*ti(n .(' in,est('s a44 (,e' the w('4d, than2s t( the new e*(n(&5 =((& and eD*e44ent .)n*ti(ning (. St(*2 ED*hanges in the 9()nt'5>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

"

MMS A

FOREIGN INSTITUTIONAL INVESTORS

T*#+, - "$./&0&$., 1$# )#(.0 $1 #*)&,0#(0&$. (, FII2 FII Regist'ati(n is a *)&=e's(&e p'(*ess, whi*h in,(4,es 'egist'ati(n with Se*)'ities and ED*hange 7(a'd (. India (SE7I) and app'(,a4 .'(& R7I> The te'&s and *(nditi(ns .(' g'ant (. 'egist'ati(n is as =e4(wE

The app4i*ant is 'e<)i'ed t( ha,e a t'a*2 'e*('d .(' a pe'i(d (. at4east ! 5ea's with p'(.essi(na4 *(&peten*e, .inan*ia4 s()ndness, eDpe'ien*e, gene'a4 'ep)tati(n (. .ai'ness and integ'it5>

The app4i*ant sh()4d =e 'eg)4ated =5 an app'(p'iate F('eign Reg)4at('5 A)th('it5 s)*h as a se*)'ities 'eg)4at(', 9ent'a4 7an2 (' G(,e'n&ent Minist'5, Agen*5 (' -epa't&ent> Regist'ati(n with a)th('ities, whi*h a'e 'esp(nsi=4e .(' in*('p('ati(n, is n(t ade<)ate t( <)a4i.5 as FII>

The app4i*ant is 'e<)i'ed t( ha,e the pe'&issi(n )nde' the p'(,isi(ns (. F('eign ED*hange Reg)4ati(n A*t, :0" (FERA) .'(& R7I>

The app4i*ant has t( satis.5 the F.it and p'(pe'G g)ide4ines iss)ed =5 SE7I> The app4i*ant/s a*ti,ities and its 'egist'ati(n with thei' 'eg)4at('5 a)th('it5 sh()4d ena=4e it t( =e *ateg('i?ed in the e4igi=4e *ateg('ies as &enti(ned a=(,e>

The app4i*ant has t( app(int a 4(*a4 *)st(dian and ente' int( an ag'ee&ent with a *)st(dian> 7esides it a4s( has t( app(int a designated =an2 t( '()te its t'ansa*ti(ns>

In additi(n t( the a=(,e, SE7I w()4d a4s( *(nside' whethe' the g'ant (. 'egist'ati(n is in the inte'est (. the de,e4(p&ent (. the se*)'ities &a'2et>

W3*#* '(. &.4*,0+*.0, 5* +(/*6

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A

FOREIGN INSTITUTIONAL INVESTORS

F('eign *('p('ates and .('eign indi,id)a4s a'e e4igi=4e t( &a2e in,est&ents (n45 th'()gh the e<)it5 '()te> The e<)it5 in,est&ent '()te pe'&its )pt( "0H in,est&ents in de=t inst')&ent> At4east 00H (. the in,est&ents has t( =e pa'2ed in e<)it5 'e4ated inst')&ents whi*h in*4)de se*)'ities in p'i&a'5 and se*(nda'5 &a'2ets (4isted (' )n4isted), )nits (. s*he&e .4(ated =5 Unit T')st (. India and (the' d(&esti* &)t)a4 .)nds (4isted (' )n4isted), wa''ants and de'i,ati,e inst')&ents> FIIs and the S)=AA**()nts a'e pe'&itted t( tende' thei' se*)'ities di'e*t45 in 'esp(nse t( (pen (..e' &ade in te'&s (. the SE7I (S)=stantia4 A*<)isiti(ns (. Sha'es and Ta2e(,e's) Reg)4ati(ns, ::0> FII and the S)=A A**()nts a'e a4s( pe'&itted t( (..e' thei' sha'es in *ase (. =)5=a*2 (. se*)'ities and a4s( t( 4end se*)'ities th'()gh an app'(,ed inte'&edia'5> I.4*,0+*.0 7&+&0,2 A FII (' a S)=AA**()nt *an h(4d )pt( 0H (. paid )p e<)it5 *apita4 (. an5 *(&pan5> The t(ta4 in,est&ents &ade =5 a44 the .('eign *('p('ates and .('eign indi,id)a4s sha44 n(t eD*eed !H (. t(ta4 iss)ed *apita4 (. that *(&pan5 within the agg'egate 4i&it .(' FII p('t.(4i( in,est&ents> The t(ta4 in,est&ents =5 FII and S)=AA**()nts in an5 Indian 9(&pan5 *ann(t eD*eed #$H (. its t(ta4 paid )p *apita4> 3(we,e', in *e'tain *(&panies, whi*h ha,e passed a Spe*ia4 Res(4)ti(n in this 'ega'd, the t(ta4 FII in,est&ent *an =e &ade )pt( $:H (. the paid )p *apita4> This 4i&it (. #$H @ $:H is eD*4)si,e45 a,ai4a=4e .(' in,est&ents =5 FII (n45> It &a5 .)'the' =e n(ted that this 4i&it (. #$H d(es n(t in*4)de in,est&ents &ade =5 FII ()tside the 6('t.(4i( in,est&ents '()te i>e>, th'()gh the di'e*t in,est&ent app'(,a4 p'(*ess> In,est&ents &ade (..sh('e th'()gh p)'*hases (. G-R, A-R and *(n,e'ti=4es a'e a4s( eD*4)ded> T(8(0&$. (./ R*%(0#&(0&$.2 The taDati(n n('&s a,ai4a=4e t( a FII is sh(wn in the ta=4e =e4(w>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A Nat)'e (. In*(&e L(ngAte'& *apita4 gains

FOREIGN INSTITUTIONAL INVESTORS TaD Rate 0H "0H Sh('tAte'& *apita4 gains Ni4 -i,idend In*(&e #0H Inte'est In*(&e

L(ng te'& *apita4 gainE 9apita4 gain (n sa4e (. se*)'ities he4d .(' a pe'i(d (. &('e than (ne 5ea'> Sh('t te'& *apita4 gainE 9apita4 gain (n sa4e (. se*)'ities he4d .(' a pe'i(d (. 4ess than (ne 5ea'> A S)=AA**()nt 'egiste'ed with SE7I is entit4ed t( sa&e in*(&e taD =ene.its a,ai4a=4e t( a FII> FII@S)=AA**()nts &a5 a,(id taDes in India in *ase India has signed a -()=4e TaDati(n A,(idan*e (-TA) Ag'ee&ent with thei' nati(n> F(' instan*e Ma)'iti)s has a -TA Ag'ee&ent with India> The FII@S)=AA**()nts '()ted th'()gh Ma)'iti)s need n(t pa5 taDes in India> The A**()nts '()ted th'()gh Ma)'iti)s is n(t 'e<)i'ed t( pa5 taDes .(' thei' p('t.(4i( in,est&ents e,en in Ma)'iti)s> This is =e*a)se the'e a'e n( taDes app4i*a=4e (n *apita4 gains (=(th sh('tAte'& 8 4(ngAte'&) in Ma)'iti)s> 3en*e a .)nd '()ted th'()gh Ma)'iti)s is t(ta445 taDAeDe&pt>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A

FOREIGN INSTITUTIONAL INVESTORS

INDIA 9 AN ATTRA"TIVE DESTINATION FOR FII:S

1ith N('th A&e'i*an e*(n(&ies st)*2 in a *(nditi(n (. t(( &)*h *apita4 in p)'s)it (. t(( .ew att'a*ti,e (pp('t)nities, in,est('s wi44 d( we44 t( *(nside' 'egi(ns (. the w('4d whe'e e*(n(&i* g'(wth and eDpansi(n ha,e g'eate' p(tentia4 than in N('th A&e'i*a> O=,i()s *andidates in*4)de India and 9hinaAthe tw( 4a'gest *()nt'ies, =5 p(p)4ati(n, in the w('4d> These tw( *()nt'ies wi44 a4&(st *e'tain45 enC(5 .a' &('e 'apid e*(n(&i* de,e4(p&ent than the 'est (. the w('4d .(' 5ea's t( *(&e, i. (n45 =e*a)se the5 ha,e s( .a' t( g( t( *at*h )p t( the de,e4(ped w('4d> 6(4i*ies and st'ategies a'e .a44ing int( p4a*e in =(th *()nt'ies t( ass)'e that happens> 9hina has =een *at*hing &)*h (. the in,est&ent *(&&)nit5Is attenti(n 4ate45, as it g(es th'()gh a *hange (. 4eade'ship> In additi(n, the 'et)'n (. 3(ng J(ng t( the .(4d was wide45 pe'*ei,ed as the 4in2 9hina needed t( the e*(n(&i*a445 .'ee w('4d and its wa5s>

Ne,e'the4ess, we .ee4 India has at 4east as &)*h t( (..e' inte'nati(na4 in,est('s> O)' 'eas(ns a'e se,e'a4> 1hi4e &)*h (. India 'e&ains i&p(,e'ished e,en =5 Indian )'=an standa'ds, the *()nt'5 has a n)&=e' (. .a*t('s g(ing .(' it in its <)est .(' &(de&, e*(n(&i* s)**ess>

6e'haps the &(st n(ti*ea=4e (. &an5 .a*t('s w('2ing in IndiaIs .a,(' is the si&p4e .a*t that Eng4ish (ne (. the (..i*ia4 4ang)ages (. the *()nt'5> That &a5 see& t( s(&e 4itt4e &('e than a t'i,ia4it5> 7)t the i&p('tan*e (. Eng4ish )sage in inte'nati(na4 t'ade *ann(t =e )nde'esti&ated> And t'ade with N('th A&e'i*a and E)'(pe *an (n45 hasten the &(de'ni?ati(n (. an5 4ess de,e4(ped *()nt'5> Indeed, (ne (. the =)'ge(ning ind)st'ies in India A =)siness p'(*ess ()ts()'*ing A depends hea,i45 (n .a*i4it5 in Eng4ish (n the pa't Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) 0

MMS A

FOREIGN INSTITUTIONAL INVESTORS

(. Indian se',i*e s)pp4ie's> 1e e,en ha,e Indian nati(na4s s*h((4ed in N('th A&e'i*an dia4e*ts, the =ette' t( (pe'ate *a44 *ente's .'(& that .a'awa5 *()nt'5> Indian *(&panies need t( C(in .('*es t( =ette' p'(&(te and &a'2et thei' se',i*es a='(ad> India is the (n45 de,e4(ping *()nt'5 in the w('4d with a h)ge, high45 ed)*ated, Eng4ishA spea2ing 4a=(' .('*e a,ai4a=4e at a .'a*ti(n (. the *(st (. 4a=(' in &(st weste'n *()nt'ies> F)'the'&('e, India has p'(&(ted the *hanne4ing (. its ed)*ated p(p)4ati(n t( the 2n(w4edgeA=ased .ie4d (. in.('&ati(n te*hn(4(g5 se',i*es> 1ith de&(nst'ated *apa=i4it5 in this .ie4d, India n(w has a=()t #H (. the w('4d/s &a'2et in IT se',i*es> O,e' the neDt #0 5ea's, India sh()4d e&e'ge as a w('4d 4eade' and d'i,ing .('*e in this .ie4d> Indian p(4iti*ians and =)siness&en sh()4d eDpand )p(n this g'eat st'ength> The5 sh()4d *(ntin)e t( w('2 in a p'(a*ti,e &anne' t( &a2e India a w('4d 4eade' in IT se',i*es> Inte'nati(na4 in,est('s *an ta2e *(n.iden*e in IndiaIs &(de& and we44A')n st(*2 &a'2ets> In .a*t M)&=ai =(asts (. (ne (. the (4dest st(*2 &a'2ets in the w('4d> Unti4 'e*ent45, Indian st(*2 &a'2ets insti44ed 4itt4e *(n.iden*e a&(ng .('eign in,est('s, as sett4e&ent *()4d ta2e wee2s> 7)t at g(,e'n&ent insisten*e, these instit)ti(ns n(w (pe'ate e..i*ient45 and si&i4a'45 t( thei' N('th A&e'i*an and E)'(pean *()nte'pa'ts> O,e' the 5ea's, in,est&entAind)st'5 'eg)4at('s ha,e &ade g'eat p'(g'ess in the de,e4(p&ent (. s&((th45 (pe'ating, t')stw('th5 *apita4 &a'2ets> 1e h(pe the5 wi44 *(ntin)e this g((d w('2> India needs *(ntin)ing and signi.i*ant i&p'(,e&ent in the de,e4(p&ent (. in.'ast')*t)'e> 6'(g'ess is =eing &ade, =)t &)*h &('e needs t( =e d(ne> 1e h(pe g(,e'n&ents at =(th state and .ede'a4 4e,e4s 'e*(gni?e this need and wi44 a**e4e'ate a*ti,it5 in this .ie4d> 1ith this =a*2g'()nd, we t)'n t( e*(n(&i* and in,est&ent spe*i.i*s> India <)ite si&p45 has s(&e (. the &(stAatt'a*ti,e st(*2 &a'2et ,a4)ati(ns in the w('4d> 1ith US st(*2s a,e'aging p'i*e@ea'nings &)4tip4es in the &idA#0s, the 7(&=a5 St(*2 ED*hangeIs SenseD IndeD =(asts 6@Es a,e'aging C)st se,enteen ti&es (n a .('wa'd =asis> Ma'2et *apita4i?ati(n as a p'(p('ti(n (. G-6 is sti44 4ess t( w('4d standa'ds> Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) ;

MMS A

FOREIGN INSTITUTIONAL INVESTORS

A gene'a445 negati,e in,est&ent *4i&ate th'()gh()t the w('4d p4)s s2epti*is& a=()t 'is2 in e&e'ging &a'2ets in gene'a4 has d()=t4ess *(nt'i=)ted t( these 4(w ,a4)ati(ns> 7)t that *(nditi(n w(nIt p'e,ai4> A4'ead5, IndiaIs a*ti,e p'(&(ti(n (. C(int ,ent)'es =etween indigen()s and inte'nati(na4 ente'p'ises has p'(d)*ed a h)ge in.4)D (. .('eign di'e*t in,est&ent int( India> 7)t inte'nati(na4 *apita4 *(ntin)es t( pi4e )p as =a=5 =((&e's ente' thei' 5ea's (. &aDi&)& ea'nings and sa,ings> In E)'(pe and N('th A&e'i*a, instit)ti(na4 in,est('s see *ash p()'ing in dai45 e,en as thei' p('t.(4i( &anage's sh(w 4itt4e enth)sias& .(' e<)it5 in,esting> This *(nditi(n *anIt 4ast> As N('th A&e'i*ans g'ad)a445 in*'eased thei' in,est&ents in %apan in the :60s, s( t(( wi44 the5 n(w 4((2 in*'easing45 (..sh('e .(' (pp('t)nit5 appa'ent45 a=sent at h(&e> India has a44 the 'ight ing'edientsAa 4a'ge, high45 ed)*ated and s2i44ed 4a=(' .('*e, de&(*'a*5, ')4e (. 4aw, e..i*ient st(*2 &a'2ets and ent'ep'ene)'s> 7)t India needs the p(4iti*a4 wi44 t( .(*)s .)'the' (n e*(n(&i* de,e4(p&ent 'athe' than (n its 'e4igi()s di..e'en*es> 1ith w('4d e*(n(&ies in appa'ent stagnati(n, India n(w has an eD*e44ent (pp('t)nit5 t( att'a*t h)ge in,est&ent *apita4 and at the sa&e ti&e t( de4i,e' eDp4(si,e in,est&ent 'et)'ns t( in,est('s> Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) :

MMS A

FOREIGN INSTITUTIONAL INVESTORS

FII INVESTMENTS 9 WHAT MA!ES THEM SIGNIFI"ANT

F('eign Instit)ti(na4 In,est('s (FI4/s) d)'ing the 4ast (ne de*ade ha,e =e*(&e an integ'a4 pa't (. Indian e<)it5 &a'2ets> The5 ha,e =een an in*'edi=4e s()'*e (. &(ne5 e,e' sin*e> The *4()t (. the FI4/s is s)*h that thei' a''i,a4 is anti*ipated with ='eath4ess anDiet5 =5 the &a'2et p4a5e's> This 'ep)tati(n (. the FI4/s is a we44Aea'ned stat)s> The a)th('it5 (. these instit)ti(ns is e,ident .'(& the ,e'5 .a*t that =5 the &e'e news (. thei' a''i,a4 it is s)..i*ient .(' the &a'2et t( s)pp4e&ent itse4. with a d()=4e digit g'(wth> 7(th .'(& the 'eg)4at('5 and pa'ti*ipat('5 standp(ints, the *hanges =eing ='()ght int( the Indian e<)it5 &a'2et w()4d ='ing a s&i4e e,en (n the .a*e (. a g'a,e *'iti<)e> Initiati,es 4i2e the de&ate'ia4i?ati(n (. sha'es, int'(d)*ti(n (. '(44ing sett4e&ent, (n4ine t'ading and int'(d)*ti(n (. de'i,ati,es a'e .ew (. the pathA='ea2ing steps, whi*h ha,e p'esented the Indian &a'2ets (n pa' with its g4(=a4 *()nte' pa'ts> These steps ha,e assisted the &a'2et in tw( wa5s> Fi'st, it st'ea&4ined the *apita4 &a'2et (pe'ati(ns in a signi.i*ant &anne' insti44ing the &)*hAdesi'ed *(n.iden*e in the &inds (. the 'etai4 seg&ent (. the =a?aa'> Se*(nd45, a ,e'5 st'(ng &essage was t'ans&itted t( the in,est(' a*'(ss the *(ntinents, in,iting the& t( *)4ti,ate the ,i'gin 4and and sha'e the .'i)ts> And that was the =eginning (. a 4(ngA4asting *a&a'ade'ie (. the FI4/s with the Indian &a'2ets> As pe' the de.initi(n (. R7I, an FII is an instit)ti(n esta=4ished (' in*('p('ated ()tside India, whi*h p'(p(ses t( &a2e in,est&ents in Indian se*)'ities> S)*h instit)ti(ns ha,e =een pe'&itted t( in,est in Indian se*)'ities &a'2ets sta'ting .'(& Septe&=e' ::# when the then a)th('ities iss)ed s)ita=4e g)ide4ines> The FII/s a'e s)=Ce*t t( st'ingent &(nit('ing> The5 a'e 'e<)i'ed t( 'egiste' with R7I and the SE7I =e.('e the5 *(&&en*e thei' (pe'ati(ns>

T')e, the FI4s ha,e e&e'ged as a &as*)4ine )nit in 'e*ent ti&es> 7)t waitK 4et )s gi,e *'edit t( ()' (wn d(&esti* instit)ti(n .(' thei' *(nt'i=)ti(ns, espe*ia445 t( the UTI and 4a'ge 6SU =an2s .(' thei' ine..i*ien*5 and (,e' *a)ti()s attit)de 'espe*ti,e45> The 'es)4tK Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) 0

MMS A

FOREIGN INSTITUTIONAL INVESTORS

the 4a'gest d(&esti* instit)ti(n, the Unit T')st (. India (UTI) g'ad)a445 4(st its s)pe'i('it5 (n the &a'2ets and s( was the *ase with the 6SU =an2s (' instit)ti(ns 4i2e LI9> N(nA UTI d(&esti* &)t)a4 .)nds with dispe'sed e<)it5 *('p)s *4(se t( Rs>#0,000 *' a'e 5et t( esta=4ish thei' p'esen*e in the &a'2ets> 7esides thei' .as*inati(n t(wa'ds de=t, the5 ha,e a*hie,ed n( g'eat *(n*4)si(n apa't .'(& ')nning thei' sh(ws> 1ith a d(wnwa'd C()'ne5 (. the =en*h&a'2 'ates and the &e&('5 (. a d(t*(& =)==4e sti44 .'esh 4i2e a s()' g'ape, this app'(a*h (. the &)t)a4 .)nds is pe'haps C)sti.ied> These de,e4(p&ents ha,e he4ped the FI4/s t( esta=4ish thei' i&age, a4=eit indi'e*t45> FII/s s)pp('t the &a'2ets =5 )n4(*2ing thei' *hests and 'eC),enating the se*(nda'5 &a'2ets> 6e'.('&an*e (. the se*(nda'5 &a'2et ='ings *hee' t( the new iss)es &a'2et th)s a44(wing *(&panies t( 'aise .'esh *apita4> As e,ident, a hea4th5 FII a*ti,it5 he4ps .)nd new p'(Ce*ts and eDpansi(ns, *'eating new C(=s and t'igge'ing a44 p(siti,e things that *(&e as a s)'p'ise gi.t> F'(& the 9ent'a4 7an2Is p(int (. ,iew, FII/s, in,est&ents i&pa't *(n.iden*e t( the e*(n(&5 =5 p'(,iding *)shi(n in the .('& (. .('eD 'ese',es

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A

FOREIGN INSTITUTIONAL INVESTORS

GROWTH OF FII:S
The'e has =een *(nstant 'ise in the net .('eign in.4(ws t( India> In 'e*ent 5ea's, net FII in.4(ws int( India in*'eased steadi45 th'()gh the de*ade (. the ::0s t( 'ea*h an ann)a4 pea2 (. USB 0>#! =i44i(n in #00$A0! > 9)&)4ati,e45, FII in,est&ents as (n O*t(=e' " , #00! ha,e =een USB ":>#0 =i44i(ns> E,e'5 5ea' sin*e FIIs we'e a44(wed t( pa'ti*ipate in the Indian &a'2et, FII net in.4(ws int( India ha,e =een p(siti,e, eD*ept .(' ::;A :::> This 'e.4e*ts the st'(ng e*(n(&i* .)nda&enta4s (. the *()nt'5, as we44 as the *(n.iden*e (. the .('eign in,est('s in the g'(wth with sta=i4it5 (. the Indian &a'2et> The 5ea' #00" &a'2ed a wate'shed in FII in,est&ent in India> FIIs sta'ted the 5ea' #00" in a =ig wa5 =5 in,esting Rs> :;! *'('e in %an)a'5 itse4.> Meanwhi4e, *('p('ate India *(ntin)ed t( 'ep('t g((d (pe'ati(na4 'es)4ts> This, a4(ng with g((d &a*'(e*(n(&i* .)nda&enta4s, g'(wing ind)st'ia4 and se',i*e se*t('s 4ed FIIs t( pe'*ei,e g'eat p(tentia4 .(' in,est&ent in the Indian e*(n(&5> In Ap'i4 #00", p'i*es (. *(&&(dities 4i2e stee4 and a4)&ini)& went )p, p'(pe44ing FII in,est&ent in Ma5 #00" t( Rs> ",060 *'('e> A'()nd the sa&e ti&e, M('gan Stan4e5 9apita4 Inte'nati(na4 (MS9I) in its MS9I E&e'ging Ma'2ets IndeD ga,e a weight (. $>" pe' *ent t( India a&(ng the e&e'ging &a'2ets (. the w('4d> 9a4ende' 5ea' #00$ ended with net FII in.4(ws (. USB:># =i44i(n, an a44Ati&e high sin*e the 4i=e'a4isat i(n> The =)(5ant in.4(ws *(ntin)ed in #00$A0!> This weight was .)'the' in*'eased t( !>: pe' *ent in Ap'i4, #00$> In #00$A0!, a.te' 'e,e'sing di'e*ti(n ='ie.45 d)'ing the pe'i(d 0>#! Ma5 A%)ne, FII in.4(ws =e*a&e '(=)st again, 4eading t( net in.4(ws (. USB

=i44i(n d)'ing the 5ea '> The =)(5an*5 *(ntin)ed in #00!A06, with net in.4(ws agg'egating t( USB ">#6 =i44i(n in the .i'st se,en &(nths )p t( endAO*t(=e', #00!>The net FII in.4(ws int( India ha,e =een 4ess ,(4ati4e *(&pa'ed t( (the' e&e'ging &a'2ets> This sta=i4it5 *()4d =e att'i=)ted t( se,e'a4 .a*t('sE Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) #

MMS A

FOREIGN INSTITUTIONAL INVESTORS

L St'(ng e*(n(&i* .)nda&enta4s and att'a*ti,e ,a4)ati(n (. *(&panies > L I&p'(,ed 'eg)4at('5 standa'ds, high <)a4it5 (. dis*4(s)'e and *('p('ate g(,e'nan*e 'e<)i'e&ent, &e*hanis&s> L 6'(d)*t di,e'si.i*ati(n and int'(d)*ti(n (. de'i,ati,es> L St'engthening (. the ')pee d(44a' eD*hange 'ate and 4(w inte'est 'ates in the US> FIIs a**()nt .(' a'()nd # pe' *ent (. the sp(t (' *ash &a'2et ,(4)&es, and in the a=sen*e (. signi.i*ant d(&esti* s()'*e (. 4(ng te'& in,est&ent in the &a'2et th'()gh &)t)a4 .)nds and pensi(n and p'(,ident .)nds, the FIIs ha,e =een the sing4e d(&inant in.4)en*e in the d(&esti* &a'2et> Apa't .'(& the *ash &a'2et, the FIIs ha,e =een pe'&itted =5 the SE7I and the R7I t( t'ade a4s( in the de'i,ati,es &a'2ets> F(' the p)'p(se (. 'is2 &anage &ent, the FIIs a'e t'eated as t'ading &e&=e's in de'i,ati,es and a'e s)=Ce*ted t( the sa&e 'is2 &anage&ent &eas)'es as an5 (the' t'ading &e&=e'> F(' indeD (pti(ns and indeD .)t)'es, pe' eD*hange , the'e is a p(siti(n 4i&it .(' FIIs at the &aDi&)& (. ! pe' *ent (. the (pen inte'est (. the 'espe*ti,e de'i,ati,e *(nt'a*ts (n a pa'ti*)4a' )nde'45ing indeD (' Rs> #!0 *'('e (AnneD II)> In additi(n, the5 a'e a44(wed t( in,est &('e, i. it is .(' hedging =a*2ed =5 se*)'ities> &a'2etAwide p(siti(n 4i&it is 4ess than (' e<)a4 t( Rs> #!0 *'('e) (' Rs !0 *'('e (.(' st(*2s in whi*h the &a'2etAwide p(siti(n 4i&it is g'eate' than Rs> #!0 *'('e> The &(st p(p)4a' de'i,ati,e p'(d)*t in India is sing4e st(*2 .)t)'es whi*h a**()nt .(' a4&(st 60 pe' *ent (. the de'i,ati,e *(nt'a*ts, .(44(wed =5 indeD .)t)'es a**()nting .(' nea'45 "0 pe' *ent, and st(*2 (pti(ns and indeD (pti(ns a**()nting .(' the 'est> The 'etai4 in,est('s and p'(p'ieta'5 t'ading a**()nt .(' ,e'5 high p'(p('ti(n (. t'ading in Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) " In *ase (. st(*2s, the FII p(siti(n 4i&it is the &aDi&)& (. #0 pe' *ent (. the &a'2etAwide 4i&it (i. the a**()nting standa'ds, sh('tening (. sett4e&ent *5*4es, e..i*ien*5 (. *4ea'ing and sett4e&ent s5ste&s and 'is2 &anage&ent

MMS A

FOREIGN INSTITUTIONAL INVESTORS

de'i,ati,es &a'2et> The FIIs, (n an a,e'age, a**()nt .(' !> pe' *ent (. the &(nth45 t)'n(,e' in the de'i,ati,es &a'2et> 3(we,e', the FIIs a**()nt .(' a'()nd #! pe' *ent (. the *)&)4ati,e (pen p(siti(ns in sing4e st(*2 .)t)'es> FIIs see& t( ha,e =een .(44(wing a hedging st'ateg5 with si&)4tane()s in,est&ents in *ash and de'i,ati,es &a'2et> The di,e'sit5 (. FIIs has =een in*'easing with the n)&=e' (. 'egiste'ed FIIs in India steadi45 'ising (,e' the 5ea's (Ta=4e #)> In #00$A0!, with $! new FIIs 'egiste'ing with Se*)'ities and ED*hange 7(a'd (. India (SE7I), as (n Ma'*h " , #00!, the'e we'e 6;! FIIs 'egiste'ed in India> The na&es (. s(&e p'(&inent FIIs 'egiste'ed d)'ing #00$A0! a'eE 9a4i.('nia 6)=4i* E&p4(5ees/ Reti'e&ent S5ste& (9a46ERS), United Nati(ns .(' and (n =eha4. (. the United Nati(ns %(int Sta.. 6ensi(n F)nd, 6)=4i* S*h((4 Reti'e&ent S5ste& (. Miss()'i, 9(&&(nwea4th (. Massa*h)setts 6ensi(n Rese',es In,est&ent T')st, T'eas)'e' (. the State N('th 9a'(4ina E<)it5 In,est&ent F)nd 6((4ed T')st, the G'(wth F)nd (. A&e'i*a, and AIM F)nds Manage&ent In*> In te'&s (. *()nt'5 (. ('igin, the USA t(pped the 4ist with a sha'e (. $0 pe' *ent (. the n)&=e' (. FIIs 'egiste'ed in India, .(44(wed =5 UJ/s *()nt'ies 0 pe' *ent> Othe' (. signi.i*an*e in te'&s (. ('igin (. FIIs in,esting in India a'e

L)De&=)'g, 3(ng J(ng, and Singap('e> In te'&s (. net *)&)4ati,e in,est&ents =5 FIIs, USA=ased FIIs d(&inate with #: pe' *ent (. the net *)&)4ati,e FII in,est&ents in India, .(44(wed =5 UJ at 0 pe' *ent> In 'e*ent &(nths, E)'(pean and %apanese FIIs ha,e sta'ted t( e,in*e an in*'easing inte'est in India, and (. the FIIs that 'egiste'ed with SE7I in O*t(=e' #00$, a signi.i*ant n)&=e' =e4(nged t( E)'(pe and %apan> These de,e4(p&ents ha,e he4ped i&p'(,e the di,e'sit5 (. the set (. FIIs (pe'ating in India>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A

FOREIGN INSTITUTIONAL INVESTORS

HOW HEALTHY IS FII PARTI"IPATION6

Using a &(nth45 dataAset .(' the pe'i(d Ma5 ::" t( -e*e&=e' :::, 9ha2'a=a'ti

(#00 ) .()nd that the FII net in.4(ws we'e n(t (n45 *(''e4ated with the 'et)'n in Indian e<)it5 &a'2et =)t was &('e 4i2e45 the e..e*t than the *a)se (. the Indian e<)it5 &a'2et 'et)'n> FIIs did n(t appea' t( =e at an in.('&ati(na4 disad,antage *(&pa'ed t( d(&esti* in,est('s in the Indian &a'2ets> F)'the'&('e, the Asian *'isis &a'2ed a 'egi&e shi.t> In the p(stAAsian *'isis pe'i(d, the 'et)'n in the Indian e<)it5 &a'2et t)'ned ()t t( =e the s(4e d'i,e' (. the FII in.4(w, whi4e .(' the p'eAAsian *'isis pe'i(d, (the' *(,a'iates 'e.4e*ting 'et)'n in (the' *(&peting &a'2ets we'e a4s( *(''e4ated with FII net in.4(w> M)2he'Cee, 7(se and 9((nd(( (#00#) eDp4('ed the 'e4ati(nship (. dai45 FII .4(ws t( the Indian e<)it5 &a'2et .(' the pe'i(d %an)a'5, ::: t( Ma5, #00# with tw( t5pes (. ,a'ia=4es> The .i'st t5pe in*4)ded ,a'ia=4es 'e.4e*ting dai45 &a'2et 'et)'n and its ,(4ati4it5 ('ep'esenting 'is2) in d(&esti* and inte'nati(na4 e<)it5 &a'2ets, =ased (n the 7SE SenseD, S86 !00 and the MS9I 1I, as we44 as &eas)'es (. *(A&(,e&ent (. 'et)'ns in these &a'2ets (the 'e4e,ant =etas)> The se*(nd t5pe (. ,a'ia=4es, (n the (the' hand, we'e essentia445 &a*'(e*(n(&i* 4i2e dai45 'et)'ns (n the R)peeA-(44a' eD*hange 'ate, sh('tAte'& inte'est 'ate and indeD (. ind)st'ia4 p'(d)*ti(n (II6)K ,a'ia=4es that a'e 4i2e45 t( a..e*t .('eign in,est('sI eDpe*tati(n a=()t 'et)'ns in the Indian e<)it5 &a'2et> The5 disting)ished a&(ng th'ee 2inds (. dai45 FII .4(ws, na&e45, FII .4(ws int( the *()nt'5 (' FII p)'*hases, FII .4(ws ()t (. the *()nt'5 (' FII sa4es, and the net FII in.4(ws int( the *()nt'5 (' FII net, and 'e4ated these t( the a=(,e &enti(ned ,a'ia=4es a4(ng with thei' past hist('5 (,e' di..e'ent ti&e .'a&es, 4i2e a wee2 (' .('tnight> A**('ding t( M)2he'Cee, 7(se and 9((nd(( (#00#), *(nt'a'5 t( the gene'a4 pe'*epti(n (. FII a*ti,ities ha,ing a st'(ng de&(nst'ati(n e..e*t and d'i,ing the d(&esti* st(*2 &a'2et in India, e,iden*e .'(& *a)sa4it5 tests s)ggests that FII .4(ws t( and .'(& the Indian &a'2et tend t( =e *a)sed =5 'et)'n in the d(&esti* e<)it5 &a'2et and n(t the Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) !

MMS A

FOREIGN INSTITUTIONAL INVESTORS

(the' wa5 '()nd> FThe 'eg'essi(n ana45sis, in ,a'i()s stages, 'e,ea4s that 'et)'ns in the Indian e<)it5 &a'2et is indeed an i&p('tant (and pe'haps the sing4e &(st i&p('tant) .a*t(' that in.4)en*es FII .4(ws int( the *()nt'5> 1hi4e, the dependen*e (. net FII .4(ws (n dai45 'et)'n in the d(&esti* e<)it5 &a'2et (at a 4ag, t( =e &('e spe*i.i*) is s)ggesti,e (. .('eign in,est('sI 'et)'nA*hasing =eha,i()', the 'e*ent hist('5 (. &a'2et 'et)'n and its ,(4ati4it5 in inte'nati(na4 and d(&esti* st(*2 &a'2ets ha,e s(&e signi.i*ant e..e*t as we44> 3(we,e', whi4e FII sa4e (and FII net in.4(w) is signi.i*ant45 a..e*ted =5 the pe'.('&an*e (. the Indian e<)it5 &a'2et, FII p)'*hase is n(t 'esp(nsi,e t( this &a'2et pe'.('&an*e> L((2ing at the '(4e (. the =etaIs (. the Indian &a'2et with 'espe*t t( the S86 !00 and MS9I indi*es, it is *(n*4)ded that .('eign instit)ti(na4 in,est('s d( n(t see& t( )se the Indian e<)it5 &a'2et .(' the p)'p(se (. di,e'si.i*ati(n (. thei' in,est&ents> It is a4s( seen that 'et)'n .'(& eD*hange 'ate ,a'iati(n and .)nda&enta4s (. the Indian e*(n(&5 &a5 ha,e s(&e in.4)en*e (n FII de*isi(ns, =)t s)*h in.4)en*e d(es n(t see& t( =e st'(ng, and .ina445, dai45 FII .4(ws a'e high45 a)t(*(''e4ated and this a)t(*(''e4ati(n *an n(t =e a**()nted .(' =5 a44 (' s(&e (. the *(,a'iates *(nside'ed in the st)d5>G G('d(n and G)pta (#00") .()nd =(th g4(=a4 and d(&esti* .a*t('s i&p('tant in dete'&ining p('t.(4i( .4(ws> G4(=a4 .a*t(' is the L(nd(n Inte'A=an2 O..e'ed Rate (LI7OR), whi*h in,e'se45 'e4ated t( FII in.4(ws> A&(ng d(&esti* .a*t('s, 4agged st(*2 &a'2et 'et)'ns, 'ating d(wng'ades and ')pee dep'e*iati(n a..e*ted FII .4(ws ad,e'se45> The5 'ep('t F1hi4e we d( n(t ha,e data (n *(&pan5 spe*i.i* ,a'ia=4es, and *an n(t di'e*t45 test the =(tt(&A)p h5p(thesis, we inte'p'et the sign i.i*an*e (. d(&esti* &a*'(e*(n(&i* ,a'ia=4es in the 'eg'essi(ns as e,iden*e that FII st'ateg5 is n(t p)'e45 =(tt(&A)p> .)nda&enta4s d( a..e*t FII .4(ws>G 6(4i*5 i&p4i*ati(ns that e&e'ge .'(& the st)dies a'e that a &(,e t(wa'ds a &('e 4i=e'a4ised 'egi&e, in e&e'ging &a'2et e*(n(&ies 4i2e India, sh()4d =e a**(&panied =5 Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) 6 In (the' w('ds, India/s &a*'(e*(n(&i*

MMS A

FOREIGN INSTITUTIONAL INVESTORS

.)'the' i&p'(,e&ents in the 'eg)4at('5 s5ste& (. the .inan*ia4 se*t('> T( .)445 'eap the =ene.its (. *apita4 &a'2et integ'ati(n, in India, the p'i&e .(*)s sh()4d =e (n i&p'(,ing in,est(' *(n.iden*e in the e<)it5 &a'2et s( as t( st'engthen the d(&esti* in,est(' =ase (. the &a'2et, whi*h in t)'n *()4d a*t as a =)i4t Ain *)shi(n against p(ssi=4e desta=i4i?ing e..e*ts (. s)dden 'e,e'sa4 (. .('eign in.4(ws> 7(se and 9((nd(( (#00$) 'ep('t that FFindings (. se,e'a4 st)dies (n FII .4(ws t( e&e'ging e<)it5 &a'2ets (,e' the w('4d ha,e sh(wn the i&p('tan*e (. .inan*ia4 &a'2et in.'ast')*t)'e s)*h as the &a'2et si?e, &a'2et 4i<)idit5, t'ading *(sts, in.('&ati(n disse&inati(n, and 4ega4 &e*hanis&s 'e4ating t( p'(pe't5 'ights, et*> in att'a*ting .('eign p('t.(4i( in,est&ents int( the e&e'ging &a'2ets>G I.0*#*,0 #(0*, FII/s in,est&ent in de=t &a'2et depends (n the d(&esti* inte'est 'ate ,isAMA,is w('4d inte'est 'ates, adC)sted .(' the eD*hange 'ate &(,e&ent> Man5 de,e4(ping *()nt'ies, in*4)ding *()nt'ies> India, ha,e high n(&ina4 inte'est 'ates *(&pa'ed t( de,e4(ped F(' eDa&p4e, in India, the 'ate (. inte'est (n 0A5ea' 9ent'a4 G(,e'n&ent

=(nds was 0> ! pe' *ent (n O*t(=e' ", #00!, when the *(''esp(nding 'ate (n 0A5ea' gi4ts in the US and %apan we'e $>": pe' *ent and >!0 pe' *ent, 'espe*ti,e45> The 'e4e,ant di..e'entia4, h(we,e', is n(t the di..e'en*e =etween the n(&ina4 'ates (. inte'est, =)t the eD*hange 'ate adC)sted di..e'entia4 (' )n*(,e'ed inte'est 'ate pa'it5 *(nditi(n> E<)it5 de'i,ati,es a'=it'age *(nstit)tes a wa5 .(' an5(ne t( (=tain <)asiAGOIA =(nd 'is24ess p(siti(ns> As Ja4d(' ( :":) p)ts it F1hi4e the'e is n( 4i&it, apa't .'(& eDpe*tati(ns, t( =a*2wa'dati(n, i>e> t( the eDtent t( whi*h the .)t )'es p'i*e &a5 .a44 sh('t (. the *)''ent p'i*e, the'e is a 4i&it t( *(ntang(, in that the .)t)'e p'i*e *ann(t eD*eed the *)''ent p'i*e =5 &('e than the *(st (. a'=it'age, i>e> =5 &('e than the Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) 0

MMS A

FOREIGN INSTITUTIONAL INVESTORS

s)& (. inte'est p4)s *a''5ing *(sts>G 1ith the Nd(&esti*/ *(st (. a'=it'age dete'&ined =5 d(&esti* 'ates (. inte'est, FIIs ha,e an (pp('t)nit5 th'()gh a'=it'age (pe'ati(n t( (=tain a 'is24ess 'ate (. 'et)'n (n in,est&ent e<)a4 t( the d(&esti* 'ate (. inte'est, whi*h is highe' than the Nw('4d/ 'ate (. inte'est> It appea's that s(&e Nindi'e*t/ de=t in,est&ents in India =5 FIIs ha,e =een i&p4e&ented )sing *ashAandA*a''5 a'=it'age> F(' eDa&p4e, i. an FII =)5s In.(s5s sha'es (n the sp(t and si&)4tane()s45 se44s the& at a .)t)'e date, the (pe'ati(n gi,es a 4(*2edAin 'et)'n e<)a4 t( the sp(t A.)t)'es =asis (n the In.(s5s .)t)'es> The 'et)'n is independent (. what happens t( In.(s5s p'i*e in the .)t)'e d)'ing the h(4ding pe'i(d> The 'et)'n (n this *ashAandA*a''5 a'=it'age is &)*h 4i2e the 'et)'n (n a de=t inst')&ent> In #00$, FIIs a**()nted .(' a t(ta4 (. ">" pe' *ent (. e<)it5 de'i,ati,es t)'n(,e'> A'=it'age a*ti,ities w()4d =e a s)=set (. this t(ta4> This s)ggests that a'=it'age =5 FIIs is a 'e4ati,e45 s&a44 .a*et (. the Indian e<)it5 de'i,ati,es &a'2et> B(7(.'* $1 %(;+*.0, India/s =a4an*e (. pa5&ents has st'engthened a4&(st *(ntin)()s45 sin*e the *'isis (. ::0A: , &ain45 =e*a)se (. a 4i&ited *)''ent a**()nt de.i*it &('e than *(&pensated =5 a =)(5ant *apita4 a**()nt> The eDte'na4 se*t(' 'esp(nded we44 t( the 4i=e'a4isati(n (. t'ade and *)''ent a**()nt, 'e&(,a4 (. <)antitati,e 'est'i*ti(ns and a stead5 'ed)*ti(n in *)st(&s d)t5 'ates .'(& a pea2 'ate (. (,e' "00 pe' *ent in ::0A: t( #0 pe' *ent in #00$A0!> The *)''ent a**()nt de.i*it as a p'(p('ti(n (. G-6, a.te' a high (. "> pe' *ent in ::0A: , 'e&ained *(ntained =e4(w >; pe' *ent (. G-6 )nti4 #000A0 , and a*t)a445 t)'ned int( a s)'p4)s .'(& #00 A0#> The st'ength (. the *apita4 a**()nt, (n the (the' hand, 'e.4e*ted the s)**ess (. a *a)ti()s app'(a*h t( 4i=e'a4isati(n with an (pening )p (. the e*(n(&5 t( F-I and FIIs, and 'est'i*ting de=t .4(ws> FII .4(ws ha,e &ade an i&p('tant *(nt'i=)ti(n t( the =a4an*e (. pa5&ents> FII in.4(ws *(nt'i=)ted USB $0>"" =i44i(n =etween ::#A:" and Septe&=e', #00! t( the Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) ;

MMS A

FOREIGN INSTITUTIONAL INVESTORS

=a4an*e (. pa5&ents> This *(''esp(nds t( #;>" pe' *ent (. the .('eign eD*hange 'ese',es (. USB $"> =i44i(n at endASepte&=e' #00!> In *)&)4ati,e te'&s, =etween ::# and -e*e&=e' #00$, FII in,est&ent has =een >06 ti&es F-I in.4(ws (. USB "$>! =i44i(n> In #00$A0!, g'(ss p('t.(4i( .4(ws a&()nted t( as &)*h as >$; pe' *ent (. G-6 and was >;! ti&es g'(ss F-I in.4(ws (. USB !>!$ =i44i(n> M(st *(&&entat('s ag'ee that whi4e p('t.(4i( .4(ws a'e s(&eti&es *(nside'ed ,(4ati4e, in India/s eDpe'ien*e, the'e is n( signi.i*ant e,iden*e (. s)*h ,(4ati4it5> 3(we,e', the'e has =een in*'easing *(&p4eDit5 in &(neta'5 &anage&ent with the t'ip4e (=Ce*ti,es (. &aintaining ('de'45 *(nditi(ns in the eD*hange &a'2et, p'i*e sta=i4it5 and inte'est 'ates> This is 'e4ated t( the idea (. the Fi&p(ssi=4e t'init5G, whe'e 4i=e'a4i?ati(n (. *apita4 .4(ws is di..i*)4t t( 'e*(n*i4 e with ('de'45 *(nditi(ns in the eD*hange &a'2et and a)t(n(&5 (. d(&esti* &(neta'5 p(4i*5> A.te' net FII in.4(ws (net) a,e'aging a'()nd USB >: =i44i(n ann)a445 d)'ing ::"A:$ t( ::6A:0, the'e was a sha'p de*4ine in s)*h .4(ws in ::0A:;, and the .4(ws t)'ned negati,e in ::;A::> The de*4ine in FII .4(ws *(in*ided with se,e'a4 ad,e'se eD(gen()s de,e4(p&ents in the .('& (. the East Asian *'isis in &idA ::0, i&p(siti(n (. e*(n(&i* san*ti(ns s)=se<)ent t( n)*4ea' det(nati(ns at 6(2h'an (Ma5 1a' (%)ne A:; and :::)> ::;), and the Ja'gi4 These ::;)> It 6a't45 as a 'esp(nse t( this s4(wd(wn in FII in.4(ws, d)'ing ::0

::;A::, <)ite a .ew signi.i*ant p(4i*5 de*isi(ns we'e ann()n*ed>

in*4)dedE enhan*e&ent (. agg'egate FII in,est&ent 4i&it (Ap'i4 ::0), and pe'&issi(n t( FIIs t( in,est in de=t se*)'ities (Ap'i4 ::;) and e<)it5 de'i,ati,es (%)ne w()4d n(t =e in*(''e*t t( state that 4i=e'a4isati(n (. FII p(4i*5, sta'ting .'(& ::#, has in gene'a4 *(in*ided with wea2nesses in the =a4an*e (. pa5&ents> It is (n45 in the ea'45 pa't (. the new *ent)'5, when the'e we'e ,ig('()s signs (. d)'a=4e st'ength in the =a4an*e (. pa5&ents, that the .('*e (. a'g)&ents + independent (. =a4an*e (. pa5&ents 'eas(ns + in .a,()' (. en*()'aging FII .4(ws sta'ted t( get tested>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A

FOREIGN INSTITUTIONAL INVESTORS

Si&)4tane()s45, h(we,e', 'athe' than =eing a *(n,enient t((4 .(' .inan*ing the =a4an*e (. pa5&ents de.i*it, FII .4(ws sta'ted t( *(&p4i*ate the p)'s)it (. the t'ip4e (=Ce*ti,es (. &aintaining ('de'45 *(nditi(ns in the eD*hange &a'2et, p'i*e sta=i4it5 and inte'est 'ates> A.te' the G)Ca'at ea'th<)a2e (%an)a'5 #000), te''('ist atta*2 (n the Indian 6a'4ia&ent (-e*e&=e' #00 ), the iss)e (. t'a,e4 ad,is('ies =5 1este'n nati(ns d)e t( tense sit)ati(n in the *()nt'5/s neigh=('h((d (Ma5 A%)ne #00#), and a se,e'e d'()ght (%)45 AA)g)st #00#), with (,e'a44 g'(wth (. (,e' ; pe' *ent, *apita4 &a'2ets =e*a&e hea,i45 =)44ish in #00"A0$> 7)(5ed =5 the p(siti,e senti&ents, FII in.4(ws sh(t )p t( an )np'e*edented USB:>:! =i44i(n in #00"A0$> 1hi4e the G(,e'n&ent (. India iss)ed Ma'2et Sta=i4isati(n 7(nds t( the R7I t( &(p )p eD*ess 4i<)idit5 .4(wing in th'()gh the =a4an*e (. pa5&ents, <)esti(ns 'ega'ding the need t( Nen*()'age/ FII .4(ws sta'ted t( =e as2ed> P(#0&'&%(0$#; .$0*, In 'e*ent ti&es, the an(n5&it5 a..('ded =5 the 6N '()te has 4ed t( th'ee *(n*e'ns a=()t the desi'a=i4it5 (. 6Ns> Fi'st, with 6Ns iss)ed t( ,a'i()s t5pes (. entities a='(ad, the identit5 (. the a*t)a4 in,est(' need n(t ne*essa'i45 =e 2n(wn t( the 'eg)4at('5 =(dies> The in,est(' *()4d =e indi,id)a4 (' *('p('ate in,est('s wh( a'e n(t s)=Ce*t t( Indian 4aws> This has gi,en 'ise t( *(n*e'ns that s(&e (. the &(ne5 *(&ing int( the &a'2et ,ia 6Ns *()4d =e the )na**()nted wea4th (. s(&e 'i*h Indians *a&().4aged )nde' the g)ise (. FII in,est&ent> The &(ne5 &ight e,en =e tainted and 4in2ed with s)*h i44ega4 a*ti,ities as s&)gg4ing and d')gA')nning> Se*(nd, *(n*e'ns ha,e a4s( =een 'aised a=()t the p(tentia4 .(' enhan*ed ,(4ati4it5 in the Indian &a'2ets with s)=stantia4 iss)an*es@'ede&pti(ns (. these de'i,ati,e inst')&ents a='(ad> The h(4de's (. 6Ns &a5 =e indi,id)a4 entities, and as (pp(sed t( *(44e*ti,e@p((4ed in,est&ent 4i2e &)t)a4 .)nds, &a5 indi,id)a445 dete'&ine ent'5 and eDit> Thi'd, hedge .)nds &a5 =e )sing the de,i*es (. 6Ns and s)=Aa**()nts (. the FIIs t( p4a5 in the Indian &a'2et>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

#0

MMS A

FOREIGN INSTITUTIONAL INVESTORS

T he iss)e was eDa&ined =5 the Minist'5 (. Finan*e in *(ns)4tati(n with R7I and SE7I> F(44(wing this *(ns)4tati(n, it was de*ided that with e..e*t .'(& Fe=')a'5 ", #00$, (,e'seas de'i,ati,e inst')&ents s)*h as 6Ns against )nde'45ing Indian se*)'ities *an =e iss)ed (n45 t( 'eg)4ated entities and .)'the' t'ans.e's, i. an5, (. these inst')&ents *an a4s( =e t( (the' 'eg)4ated entities (n45> FIIs@s)= a**()nts ha,e =een 'e<)i'ed t( ens)'e that n( .)'the' d(wnst'ea& iss)an*e (. s)*h de'i,ati,e inst')&ents is &ade t( )n'eg)4ated entities> The FIIs iss)ing s)*h de'i,ati,e inst')&ents a'e the'e.('e 'e<)i'ed t( eDe'*ise d)e di4igen*e and &aintain *(&p4ete detai4s (. the in,est('s, =ased st'i*t45 (n O2n(w 5()' *4ientO (JP9) p'in*ip4es> SE7I has indi*ated that the eDisting n(nAe4igi=4e 6Ns wi44 =e pe'&itted t( eDpi'e (' t( =e w()ndA d(wn (n &at)'it5, (' within a pe'i(d (. ! 5ea's, whi*he,e' is ea'4ie'> 7esides, 'ep('ting 'e<)i'e&ent (n a 'eg)4a' =asis has =een i&p(sed (n a44 the FIIs> It is pe'tinent t( n(te that in Asia, 3(ng J(ng, Singap('e, J('ea and Taiwan att'a*t signi.i*ant inte'nati(na4 in,est(' attenti(n th'()gh the &edi)& (. (..Ash('e de'i,ati,e p'(d)*ts> In these .()' *()nt'ies@'egi(ns, the'e is s)=stantia4 .('eign instit)ti(na4 in,est&ent, and the'e is n( p'(hi=it i(n (' 'est'i*t i(n (n (..Ash('e de'i,ati,eAa*ti,ities (. .('eign instit)ti(na4 in,est('s> In 'esp(nse t( &a'2et &anip)4ati(n *(n*e'ns , in -e*e&=e' :::, Taiwan Se*)'ities and F)t)'es 9(&&issi(n had a&ended its FII 'eg)4ati(ns t( 'e<)i'e pe'i(di* dis*4(s)'e =5 FIIs (. a44 (..A sh('e de'i,ati,e a*ti,ities 4in2ed t( 4(*a4 sha'es, =)t this 'e<)i'e&ent was s)=se<)ent45 'e&(,ed in %)ne #000> F'(& the sta't itse4., the ai& (. the G(,e'n&ent (. IndiaIs FII p(4i*5 was t( a,(id Oh(tO (sh('t Ate'& and (,e'45 spe*)4ati,e) and O)n*4eanO (gene'ated .'(& i44ega4 =)sinesses 4i2e d')g t'a..i*2ing et*>) &(nies *(&ing int( the *()nt'5> In ::", SE7I, in the *(nteDt (. 'egist'ati(n t( *4ients, had 'eite'ated t( the G(,e'n&ent the need t( ha,e instit)ti(na4 and ='(adA=ased *4ients@.)nds> It was a4s( &enti(ned that the .)nds *(&ing int( India sh()4d =e F*4eanG> T(wa'ds this end, the 'e<)i'e&ent (. s)=Aa**()nts =eing ='(adA=ased was .(44(wed .'(& the ,e'5 =eginning> It was .e4t that ='(adA=ased s)=A Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) #

MMS A that the s)=Aa**()nts we'e indeed

FOREIGN INSTITUTIONAL INVESTORS ='(adA=ased and we'e instit)ti(na4

a**()nts we'e 4ess 4i2e45 t( ='ing in h(t (' )n*4ean &(nies int( India> T( as*e'tain in,est('s@'ep)ted .('eign in,est('s, in the 'e,ised app4i*ati(n .('& .(' FII Regist'ati(n iss)ed in Ap'i4 ::" in *(ns)4tati(n with R7I, the .(44(wing in.('&ati(n was s()ght with 'espe*t t( *4ients (. the FIIsE Na&e (. 94ient (S)=Aa**()nt) -ate and p4a*e (. in*('p('ati(n and *(nstit)ti(n 1hethe' *4ient is 'egiste'ed with 'eg)4at('5 agen*5 and detai4s the'e(. O=Ce*ti,es and p'in*ip4e a*ti,ities (. *4ients N)&=e' and t5pes (. sha'eh(4de's V(4)&e (. assets The 5a'dsti*2 ad(pted .(' ='(adA=asedness (. a .)nd was a &ini&)& !0 in,est('s with n( in,est(' h(4ding &('e than ! pe' *ent (. the sha'es (' )nits (. the .)nd> The C)dg&ent (n whethe' a s)=Aa**()nt was ='(adA=as ed (.ten 'e<)i'ed *(nside'a=4e *(''esp(nden*e =etween SE7I and the *(n*e'ned FII>Se*)'ities and ED*hange 7(a'd (. India (F('eign Instit)ti(na4 In,est('s) Reg)4ati(ns, ::! iss)ed =5 SE7I as we44 as p'a*ti*es and p'(*ed)'es in *(ns)4tati(n with R7I and the Minist'5 (. Finan*e we'e *4ea'45 g)ided =5 the p'in*ip4e (. a44(wing (n45 ='(ad =asedA .)nds en)n*iated in the G(,e'n&ent g)ide4ines> H$0 +$.*; 6'i*es 'ea*t t( new in.('&ati(n and *apita4 swit*hes .'(& (ne a*ti,it5 t( an(the', s(&eti&es a*'(ss nati(na4 =()nda'ies and *)''en*5 ?(nes> FIIs ha,e *(&&and (,e' *(nside'a=4e .)nds, and ,(4)&es (. FII in.4(ws *an =e s)=stantia4 in 'e4ati(n t( the si?e (. the *apita4 &a'2ets in de,e4(ping *()nt'ies> The w(''ies a=()t Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) ##

MMS A

FOREIGN INSTITUTIONAL INVESTORS

,)4ne'a=i4it5 (. de,e4(ping *()nt'5 *apita4 &a'2ets t( FII in.4(ws *an =e *ateg('ised int( th'ee pa'tsE a=()t Nh(t &(ne5/ .4(wing ()t and *'eating t)'&(i4 in =(th se*)'ities and .('eign eD*hange &a'2ets, a=()t t(( &)*h *(&ing in, and 4eading t( )pwa'd p'ess)'e (n eithe' the eD*hange 'ate (. the d(&esti* *)''en*5 (' p'i*es (' =(th, and a=()t N.('eigne's/ *apt)'ing a 4a'ge pa't (. the &a'2ets in se*)'ities> Tw( spe*i.i* .ea's a=()t t)'&(i4 *a)sed =5 FIIs *ent'e a'()nd the p'(=4e&s (. Fhe'dingG + whe'e &an5 FIIs &a5 t'ade in si&i4a' wa5s + and Fp(siti,e .eed=a*2 t'adingG whe'e FIIs =)5 a.te' p(siti,e 'et)'ns and se44 a.te' negati,e 'et)'ns, th)s eDa*e'=ating &a'2et ,(4ati4it5> A.te' the Asian *'isis (. ::0, the p'(=4e& (. ,(4ati4it5 has =een a &atte' (.

&)*h dis*)ssi(n> In .a*t, Ma4a5sia i&p(sed se,e'e *apita4 *(nt'(4s (n O*t(=e' , ::; t( thwa't the pe'*ei,ed desta=i4i?ing a*ti(ns (. .('eign spe*)4at('s> FII in.4(ws a'e p(p)4a'45 des*'i=ed as Fh(t &(ne5G, =e*a)se (. the he'ding =eha,i()' and p(tentia4 .(' 4a'ge *apita4 ()t.4(ws> 3e'ding =eha,i()', with a44 the FIIs t'5ing t( eithe' (n45 =)5 (' (n45 se44 at the sa&e ti&e, pa'ti*)4a'45 at ti&es (. &a'2et st'ess, *an =e 'ati(na4> 1ith pe'.('&an*e 'e4ated .ees .(' .)nd &anage's, and pe'.('&an*e C)dged (n the =asis (. h(w (the' .)nds a'e d(ing, the'e is g'eat in*enti,e t( s)..e' the *(nse<)en*es (. =eing w'(ng when e,e'5(ne is w'(ng, 'athe' than ta2ing the 'is2 (. =eing w'(ng when s(&e (the's a'e 'ight> The in*enti,e st')*t)'e high4ights the dange' (. a *(nt'a'ian =et g(ing w'(ng and &a2es it &)*h &('e se,e'e than pe'.('&ing =ad45 a4(ng with &(st (the's in the &a'2et> It n(t (n45 4eads t( 'e4ian*e (n the sa&e in.('&ati(n as (the's =)t a4s( 'ed)*es the p4anning h('i?(n t( a 'e4ati,e45 sh('t (ne> Va4)e at Ris2 &(de4s .(44(wed =5 FIIs &a5 desta=i4i?e &a'2ets =5 4eading t( si&)4tane()s sa4e =5 ,a'i()s FIIs, as (=se',ed in R)ssia and L(ng Te'& 9apita4 Manage&ent ::; (LT9M) *'isis> EDt'ap(4ati,e eDpe*tati(ns (' t'end *hasing 'athe' than .(*)sing (n .)nda&enta4s *an 4ead t( desta=i4i?ati(n> M(,e&ents in the weightage atta*hed t( a *()nt'5 =5 indi*es s)*h as M('gan Stan4e5 9()nt'5 IndeD (MS9I) (' Inte'nati(na4 Finan*e 9('p('ati(n (1) (IF9) a4s( 4eads t( en &asse shi.t in FII p('t.(4i(s> Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) #"

MMS A

FOREIGN INSTITUTIONAL INVESTORS

The eDtent t( whi*h FIIs a..e*t the *(st (. *apita4 is 'e.4e*ted in a *(&&(n sense C)dg&ent a=()t whethe' st(*2 p'i*es w()4d =e 4(we' i. a44 FIIs eDited the *()nt'5> In an a)th('itati,e e&pi'i*a4 w('2 (n the s)=Ce*t, 7e2ae't and 3a',e5 (#000) in,estigate the ,a4idit5 (. the &an5 pe'*epti(ns (. the '(4e (. .('eign spe*)4at('s in e&e'ging e<)it5 &a'2etsQ&an5 (. whi*h a'e negati,e> The5 4((2 at the ,a'i()s wa5s .('eigne's *an a**ess e&e'ging &a'2et e<)it5(A-Rs, 9()nt'5 F)nds, (' di'e*t pa'ti*ipati(n in the 4(*a4 &a'2et) and t'5 t( assess the i&pa*t (n eDpe*ted 'et)'ns, ,(4ati4it5, =eta, and *(''e4ati(n> The5 *(n*4)de FOne (. the &aC(' *(n*4)si(ns (. ()' w('2 is that the *apita4 &a'2et integ'ati(n p'(*ess 'ed)*es the *(st (. *apita4 =)t pe'haps =5 4ess than we eDpe*ted> In .a*t, the'e a'e 'eas(ns t( =e4ie,e that the e..e*t we &eas)'e is )pwa'd45 =iased> 1e ha,e ta2en 4i=e'a4i?ati(ns as an eD(gen()s e,ent, whe'eas p(4i*5&a2e's w()4d p'(=a=45 *h((se t( 4i=e'a4i?e when it is &(st ad,antage()s t( d( s(> A4th()gh p(4i*5 end(geneit5 w()4d s)ggest ()' esti&ates a'e =iased )pwa'd (see 3en'5 (#000) .(' a si&i4a' p(int), the e..e*t we &eas)'e is 4ess than (ne pe'*ent>G The5 .ind s(&e s)ggesti,e e,iden*e that 4i=e'a4i?ati(n (. e<)it5 &a'2ets t( .('eigne's 4eads t( de*4ine (a4=eit s&a44e' than p'edi*ted in the('5 ) in the *(st (. *apita4> The5 a4s( .ind e,iden*e that in,est&ent as a p'(p('ti(n (. G-6 in*'eases signi.i*ant45 with 4i=e'a4isati(n> On the <)esti(n (. ,(4ati4it5, 7e2ae't and 3a',e5 (#000) .ind Na s&a44 =)t

&(st45 insigni.i*ant in*'ease in the ,(4ati4it5 (. st(*2 'et)'ns .(44(wing *apita4 &a'2et 4i=e'a4i?ati(ns>/ The5 *(n*4)deE FM('e(,e', the e..e*t =e*(&es negati,e when p(tentia445 'et)'n> *(n*)''ent &(,e&ents in the *(nt'(4 ,a'ia=4es a'e ta2en int( a**()nt> .('eign in,est('s a'e att'a*ted t( e&e'ging &a'2ets .(' the Inte'esting45, the'e is (n45 a s&a44 in*'ease in *(''e4ati(n with the w('4d &a'2et Man5 di,e'si.i*ati(n =ene.its> A4th()gh *(''e4ati(ns in*'ease a.te' &a'2ets (pen )p, the &agnit)de (. the in*'ease is )n4i2e45 t( dete' in,est('s see2ing di,e'si.i*ati(n>G

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

#$

MMS A

FOREIGN INSTITUTIONAL INVESTORS

7e2ae't and 3a',e5 (#00#) .ind &)*h (. the dis*)ssi(n (. in*'eased ,(4ati4it5 (. *apita4 .4(ws p(st 4i=e'a4i?ati(n (see Stig4it? (#000)), in &an5 wa5s, Fas (ddG> FThe e&e'ging *()nt'ies sta't with 4itt4e (' n( *apita4 .4(ws and &(,e t( an en,i'(n&ent (p(st 4i=e'a4i?ati(n) with signi.i*ant *apita4 .4(ws whi*h a'e, as eDpe*ted, s)=Ce*t t( p('t.(4i( 'e=a4an*ing> 9(nse<)ent45, it is n( &5ste'5 that the ,(4ati4it5 (. *apita4 .4(ws in*'easesG> A**('ding t( the& FIn .a*t, the seg&entati(n &(de4 p'edi*ts that ,(4ati4it5 sh()4d spi2e a'()nd the ti&e (. &a'2et 4i=e'a4i?ati(n, =)t sh()4d then s)=side (n*e the 4a'ge *apita4 in.4(w has (**)''ed> O. *()'se, the'e is a4wa5s the w(''5 that p('t.(4i( .4(ws a'e n(t as Fsti*25G as .('eign di'e*t in,est&ents and &a5 disappea' at a whi&, *a)sing a *'isis in the p'(*essR>G 3(we,e', the5 .ind that, in te'&s (. *(e..i*ient (. ,a'iati(n, *apita4 .4(ws a'e &('e ,(4ati4e in de,e4(ped &a'2ets than in e&e'ging &a'2ets> T'aditi(na445, de,e4(ping *()nt'ies p4ag)ed =5 p'(=4e&s (. .inan*ing the de.i*its in the =a4an*e (. pa5&ents ha,e =een wa'5 (. FIIs =e*a)se (. the p(tentia4 .(' 4a'ge *apita4 ()t.4(ws gene'ated =5 thei' he'ding =eha,i()'> 3(we,e', (. 4ate, s(&e de,e4(ping *()nt'ies 4i2e 9hina and India ha,e a4s( had a p'(=4e& (. si?ea=4e s)'p4)ses (n the =a4an*e (. pa5&ents 4eading t( )pwa'd p'ess)'e (n the eD*hange 'ate (' (n d(&esti* p'i*es th'()gh eD*essi,e 4i<)idit5 *'eati(n> The .ea' (. .('eigne's *apt)'ing the se*)'ities &a'2ets has gen)ine *(ntent (n45 i. s)*h .('eigne's a*t as in *ah((ts t( desta=i4ise the e*(n(&5> Othe'wise, .ea' (. .('eigne's pe' se a'g)es in .a,()' (. =anning n(t (n45 FIIs =)t F-Is and i&p('ts (. &e'*handise as we44>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

#!

MMS A

FOREIGN INSTITUTIONAL INVESTORS

FII:S < MOVING THE MAR!ET

6('t.(4i( in,est&ent .4(ws .'(& ind)st'ia4 *()nt'ies ha,e =e*(&e in*'easing45 i&p('tant .(' de,e4(ping *()nt'ies in 'e*ent 5ea's> E,e' sin*e the (pening )p (. the Indian e<)it5 &a'2ets t( .('eigne's, FII in,est&ents ha,e steadi45 g'(wn .'(& a=()t Rs> #!:!>"0 *' in -e*e&=e' ::" t( a *)&)4ati,e in,est&ent (. (,e' Rs> !;,066> 0 *' ti44 -e*e&=e' "0, #00#, *(nstit)ting -e*e&=e' #0, #00#> The ana45sis (n dai45 net in.4(ws (. FII/s and &(,e&ent (. 7SE senseD .'(& %an)a'5 #00 ti44 A)g)st #00# sh(ws a p(siti,e *(''e4ati(n t( the eDtent (. 6">"0H> In this st)d5, the independent ,a'ia=4e (' SAaDis was ta2en as FII net dai45 in.4(ws and dai45 *4(sing ,a4)e (. 7SE senseD as the P (' dependent ,a'ia=4e> This has esta=4ished a *4ea' *)t *(''e4ati(n =etween FII in,est&ents and the &(,e&ent (. senseD, with the 4atte' 'ising in p'(p('ti(n t( the p)'*hases (. FII/s and a4s( de*4ining in t)ne with FII sa4es> A4th()gh the'e a'e a=()t !00 'egiste'ed FII/s, the n)&=e' (. a*ti,e (pe'at('s is a=()t !0, wh( ha,e in,ested in a=()t 00 *(&panies with =)42 (. the in,est&ents =eing *(n*ent'ated in a=()t "0 s*'ips> It is, the'e.('e, n(t di..i*)4t .(' FII/s, a*ting in ha'&(n5 t( di'e*t the &a'2et with thei' *)&)4ati,e net in,est&ent (. a=()t Rs> !;00:>!0 *' a**()nting .(' :>0"H (. the t(ta4 &a'2et *apita4i?ati(n> > This t'end (. *(''e4ati(n (. Indian e<)it5 &a'2ets t( that (. FII/s in,est&ents th()gh en*()'aging, has t( =e t'eated *a)ti()s45> A4th()gh the in,est&ents ha,e p'(,ided with the &)*hAneeded 4i<)idit5 and depth in the &a'2ets, the '(4e p4a5ed =5 the .45A=5Anight (pe'at('s in *'eating pani* in s(&e (. the Asian e*(n(&ies is a 'is2 .a*ed =5 Indian &a'2ets> 6('t.(4i( .4(ws a'e n(t('i()s45 ,(4ati4e *(&pa'ed t( (the' .('&s (. *apita4 .4(ws, as FII/s )s)a445 p)44 =a*2 p('t.(4i( in,est&ents at the s4ightest hint (. t'()=4e in the h(st *()nt'5 (.ten 4eading t( disast'()s *(nse<)en*es t( its e*(n(&5> FII/s ha,e =een =4a&ed .(' eDa*e'=ating s&a44 e*(n(&i* p'(=4e&s in a *()nt'5 =5 &a2ing 4a'ge and *(n*e'ted withd'awa4s at the .i'st sign (. e*(n(&i* wea2ness> 3(we,e', R7I and Se=i has =een p')dent en()gh in en.('*ing st'i*t g)ide4ines .(' FII/s ente'ing India and Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) #6 ;>#6H (. the .('eign eD*hange assets (. Rs> ",# ,00; *' as (n

MMS A *(nt'(44ing the 'epat'iati(n (. the in,est&ent>

FOREIGN INSTITUTIONAL INVESTORS

E,e' sin*e the5 ente'ed India in ::", the &a'2et has &(,ed n(whe'e =etween ::" and n(w> -espite an (,e' =)'dened e*(n(&5 and in.'ast')*t)'e =(tt4ene*2s, *(&panies 4i2e RIL, 3LL, 3-F9, In.(s5s, Ran=aD5 and -'> Redd5Is, ha,e gi,en *(nsistent45 eD*e44ent pe'.('&an*e (,e' the 5ea's and this has en*()'aged FII/s t( in,est in the st(*2s (. these *(&panies whi*h h(4ds a &aC(' weightage in senseD> F(' g4(=a4 .)nd &anage's, t(p d(wn is the p'e.e''ed app'(a*h as thei' p('t.(4i(s *(nsist (. se*)'ities a*'(ss &an5 &a'2ets, whi*h &a2e it t(( *)&=e's(&e t( .(44(w a =(tt(&)p st'ateg5 in ea*h &a'2et> The'e ha,e =een .()' epis(des (. ,)4ne'a=i4it5 in India, whi*h a'e negati,e sh(*2s a..e*ting the e*(n(&5, and in.4)en*ing the =eha,i(' (. in,est('s> These a'eE the EastAAsian *'isis in ::0, the 6(2h'an N)*4ea' eDp4(si(n (Ma5 ::;) and the attendant san*ti(ns, the st(*2 &a'2et s*a& (. ea'45 #00 , and the 74a*2 M(nda5 (. Ma5 0, #00$> FII in,est&ent =eha,i(' d)'ing these .()' spe*i.i* e,ents indi*ates that these e,ents did a..e*t the =eha,i()' (. the .('eign p('t.(4i( in,est('s> 7)t, these e,ents did a..e*t d(&esti* in,est('s/ =eha,i()' as we44> The *'iti*a4 <)esti(n t( as2 isE whethe' the'e was an5 pe'*epti=4e di..e'en*e, pa'ti*)4a'45 with a =ias t(wa'ds desta=i4i?ati(n, in the =eha,i()' (. the FIIs ,is AMA,is that (. d(&esti* in,est('sT FII B*3(4&$=# &. 03* (10*#+(03 $1 P$>3#(. N='7*(# E8%7$,&$. MONTH BSE INDE? FOR THE FII INVESTMENTS MONTH Ma5 ::; %)ne ::; %)45 ::; A)g)st ::; Septe&=e' ::; O*t(=e' ::; ": >:! "" 0>$: "#0 >0" #:;;>$0 "0;:>;; #;66>!! (R, &. '#$#*,) A!!0>$! A;:6>"0 0$>6; A":0>;# >0: A!!#>$6 #0

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

MMS A

FOREIGN INSTITUTIONAL INVESTORS

FII B*3(4&$=# (#$=./ B7('> M$./(;@ M(; 1A@ 2004 MONTH BSE INDE? FOR THE FII INVESTMENTS MONTH Ma5 #00$ %)ne #00$ %)45 #00$ !#0$>6! $;#">;0 $:0#>;; (R, &. '#$#*,) A" ! >#: ! >00 #:#>;"

These eDpe'ien*es sh(w that FII ()t.4(w (. as &)*h as a =i44i(n d(44a's in a &(nth + whi*h *(''esp(nds t( an a,e'age (. B$0 &i44i(n (' Rs> 00 *'('e pe' da5 + has ne,e' =een (=se',ed> These ,a4)es + Rs> 00 *'('e pe' da5 + a'e s&a44 when *(&pa'ed with e<)it5 t)'n(,e' in India> In *a4enda' #00$, g'(ss t)'n(,e' (n the e<)it5 &a'2et (. Rs>;; 4a2h *'('e *(ntained Rs>! 4a2h *'('e (. g'(ss t)'n(,e' =5 FIIs> This s)ggests that as 5et, FIIs a'e a s&a44 pa't (. the Indian e<)it5 &a'2et> T'ansa*ti(ns =5 FIIs (. Rs>! 4a2h *'('e in a 5ea' &ight ha,e =een 4a'ge in ::", =)t the s)**ess (. a 'adi*a4 new &a'2et design in the Indian e<)it5 &a'2et ha,e 4ed t( en('&()s g'(wth (. 4i<)idit5 and &a'2et e..i*ien*5 (n the e<)it5 &a'2et> Th'()gh this, India/s a=i4it5 t( a=s('= s)=stantia4 t'ansa*ti(ns (n the e<)it5 &a'2et appea's t( =e in p4a*e>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

#;

MMS A

FOREIGN INSTITUTIONAL INVESTORS

BENEFITS AND "OSTS OF FII:S

B*.*1&0,2
Red)*ed *(st (. e<)it5 *apita4 FII in.4(ws a)g&ent the s()'*es (. .)nds in the Indian *apita4 &a'2ets> In a *(&&(n sense wa5, the i&pa*t (. FIIs )p(n the *(st (. e<)it5 *apita4 &a5 =e ,is)a4ised =5 as2ing what st(*2 p'i*es w()4d =e i. the'e we'e n( FIIs (pe'ating in India> FII in,est&ent 'ed)*es the 'e<)i'ed 'ate (. 'et)'n .(' e<)it5, enhan*es st(*2 p'i*es, and .(ste's in,est&ent =5 Indian .i'&s in the *()nt'5 > I&pa'ting sta=i4it5 t( IndiaIs 7a4an*e (. 6a5&ents F(' p'(&(ting g'(wth in a de,e4(ping *()nt'5 s)*h as India, the'e is need t( a)g&ent d(&esti* in,est&ent, (,e' and =e5(nd d(&esti* sa,ing, th'()gh *apita4 .4(ws> The eD*ess (. d(&esti* in,est&ent (,e' d(&esti* sa,ings 'es)4t in a *)''ent a**()nt de.i*it and this de.i*it is .inan*ed =5 *apita4 .4(ws in the =a4an*e (. pa5&ents> 6'i(' t( :: , de=t .4(ws and (..i*ia4 de,e4(p&ent assistan*e d(&inated these *apita4 .4(ws> This &e*hanis& (. .)nding the *)''ent a**()nt de.i*it is wide45 =e4ie,ed t( ha,e p4a5ed a '(4e in the e&e'gen*e (. =a4an*e (. pa5&ents di..i*)4ties in :; and :: > 6('t.(4i( .4(ws in the e<)it5 &a'2ets, and F-I, as (pp(sed t( de=tA*'eating .4(ws, a'e i&p('tant as sa.e' and &('e s)staina=4e &e*hanis&s .(' .)nding the *)''ent a**()nt de.i*it> Jn(w4edge .4(ws The a*ti,ities (. inte'nati(na4 instit)ti(na4 in,est('s he4p st'engthen Indian .inan*e> FIIs ad,(*ate &(de'n ideas in &a'2et design, p'(&(te inn(,ati(n, de,e4(p&ent (. s(phisti*ated p'(d)*ts s)*h as .inan*ia4 de'i,ati,es, enhan*e *(&petiti(n in .inan*ia4 Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) #:

MMS A

FOREIGN INSTITUTIONAL INVESTORS

inte'&ediati(n, and 4ead t( spi44(,e's (. h)&an *apita4 =5 eDp(sing Indian pa'ti*ipants t( &(de'n .inan*ia4 te*hni<)es, and inte'nati(na4 =est p'a*ti*es and s5ste&s> St'engthening *('p('ate g(,e'nan*e -(&esti* instit)ti(na4 and indi,id)a4 in,est('s , )sed as the5 a'e t( the (ng(ing p'a*ti*es (. Indian *('p('ates, (.ten a**ept s)*h p'a*ti*es , e,en when these d( n(t &eas)'e )p t( the inte'nati(na4 =en*h&a'2s (. =est p'a*ti*es> ,ast &a4p'a*ti*e =5 *('p('ate &anage's FIIs , with thei' FII eDpe'ien*e with &(de'n *('p('ate g(,e'nan*e p'a*ti*es, a'e 4ess t(4e'ant (.

and (wne's (d(&inant sha'eh(4de')>

pa'ti*ipati(n in d(&esti* *apita4 &a'2ets (.ten 4ead t( ,ig('()s ad,(*a*5 (. s()nd *('p('ate g(,e'nan*e p'a*ti*es, i&p'(,ed e..i*ien*5 and =ette' sha'eh(4de' ,a4)e> I&p'(,e&ents t( &a'2et e..i*ien*5 A signi.i*ant p'esen*e (. FIIs in India *an i&p'(,e &a'2et e..i*ien*5 th'()gh tw( *hanne4s> Fi'st, when ad,e'se &a*'(e*(n(&i* news, s)*h as a =ad &(ns((n, )nsett4es &an5 d(&esti* in,est('s, it &a5 =e easie' .(' a g4(=a445 di,e'si.ied p('t.(4i( &anage' t( =e &('e dispassi(nate a=()t IndiaIs p'(spe*ts, and engage in sta=i4ising t'ades> Se*(nd, at the 4e,e4 (. indi,id)a4 st(*2s and ind)st'ies, FIIs &a5 a*t as a *hanne4 th'()gh whi*h 2n(w4edge and ideas a=()t ,a4)ati(n (. a .i'& (' an ind)st'5 *an &('e 'apid45 p'(pagate int( India> F(' eDa&p4e, .('eign in,est('s we'e 'apid45 a=4e t( assess the p(tentia4 (. .i'&s 4i2e In.(s5s, whi*h a'e p'i&a'i45 eDp('t A('iented, app45ing ,a4)ati(n p'in*ip4es that p'e,ai4ed ()tside India .(' s(.twa'e se',i*es *(&panies>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

"0

MMS A

FOREIGN INSTITUTIONAL INVESTORS

"$,0,2
3e'ding and p(siti,e .eed=a*2 t'ading The'e a'e *(n*e'ns that .('eign in,est('s a'e *h'(ni*a445 i44Ain.('&ed a=()t India, and this 4a*2 (. s()nd in.('&ati(n &a5 gene'ate he'ding (a 4a'ge n)&=e' (. FIIs =)5ing (' se44ing t(gethe') and p(siti,e .eed=a*2 t'ading (=)5ing a.te' p(siti,e 'et)'ns, se44ing a.te' negati,e 'et)'ns)> These 2inds (. =eha,i()' *an eDa*e'=ate ,(4ati4it5, and p)sh p'i*es awa5 .'(& .ai' ,a4)es> FIIs/ =eha,i()' in India, h(we,e', s( .a' d(es n(t eDhi=it these patte'ns> Gene'a445, *(nt'a'5 t( Nhe'ding/, FIIs a'e seen t( =e in,(4,ed in ,e'5 4a'ge =)5ing and se44ing at the sa&e ti&e> G('d(n e,iden*e against p(siti,eA.eed=a*2 t'ading with and ,i*e ,e'sa> 7(6 ,)4ne'a=i4it5 The'e a'e *(n*e'ns that in an eDt'e&e e,ent, the'e *an =e a &assi,e .4ight (. .('eign *apita4 ()t (. India, t'igge'ing di..i*)4ties in the =a4an*e (. pa5&ents .'(nt> IndiaIs eDpe'ien*e with FIIs s( .a', h(we,e', s)ggests that a*'(ss epis(des 4i2e the 6(2h'an =4asts, (' the #00 st(*2 &a'2et s*anda4, n( *apita4 .4ight has ta2en p4a*e> A =i44i(n (' &('e (. US d(44a's (. p('t.(4i( *apita4 has ne,e' 4e.t India within the pe'i(d (. (ne &(nth> 1hen C)Dtap(sed with IndiaIs en('&()s *)''ent a**()nt and *apita4 a**()nt .4(ws, this s)ggests that the'e is 4itt4e e,iden*e (. ,)4ne'a=i4it5 s( .a'> 6(ssi=i4it5 (. ta2ing (,e' *(&panies 1hi4e FIIs a'e n('&a445 seen as p)'e p('t.(4i( in,est('s, with()t inte'est in *(nt'(4, p('t.(4i( in,est('s *an (**asi(na445 =eha,e 4i2e F-I in,est('s, and see2 *(nt'(4 (. *(&panies that the5 ha,e a s)=stantia4 sha'eh(4ding in> S)*h ()t*(&es, h(we,e', &a5 Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) " and G)pta (#00") .ind FIIs =)5ing a.te' negati,e 'et)'ns

MMS A

FOREIGN INSTITUTIONAL INVESTORS

n(t =e in*(nsistent with IndiaIs <)est .(' g'eate' F-I> F)'the'&('e, SE7IIs ta2e(,e' *(de is in p4a*e, and has .)n*ti(ned .ai'45 we44, ens)'ing that a44 in,est('s =ene.it e<)a445 in the e,ent (. a ta2e(,e'> 9(&p4eDities (. &(neta'5 &anage&ent A p(4i*5&a2e' t'5ing t( design the idea4 .inan*ia4 s5ste& has th'ee (=Ce*ti,es> The p(4i*5 &a2e' wants *(ntin)ing nati(na4 s(,e'eignt5 in the p)'s)it (. inte'est 'ate, in.4ati(n and eD*hange 'ate (=Ce*ti,esK .inan*ia4 &a'2ets that a'e 'eg)4ated, s)pe',ised and *)shi(nedK and the =ene.its (. g4(=a4 *apita4 &a'2ets> Un.('t)nate45, these th'ee g(a4s a'e in*(&pati=4e> The5 .('& the Fi&p(ssi=4e t'init5>G .(' .('eign instit)ti(ns and in,est('s> IndiaIs (penness t( p('t.(4i( .4(ws and F-I has e..e*ti,e45 &ade the *()nt'5/s *apita4 a**()nt *(n,e'ti=4e The p'(=4e&s (. &(neta'5 &anage&ent in gene'a4, and &aintaining a tight eD*hange 'ate 'egi&e, 'eas(na=4e inte'est 'ates and &(de'ate in.4ati(n at the sa&e ti&e in pa'ti*)4a', ha,e *(&e t( the .('e in 'e*ent ti&es> The p'(=4e& sh(wed )p in te'&s (. ,e'5 4a'ge .('eign eD*hange 'ese',e in.4(ws 'e<)i'ing *(nside'a=4e ste'4isati(n (pe'ati(ns =5 the R7I t( &aintain sta=4e &a*'(e*(n(&i* *(nditi(ns> The G(,e'n&ent had t( int'(d)*e a Ma'2et Sta=i4isati(n S*he&e (MSS) .'(& Ap'i4 , #00$> 1ith the .('eign eD*hange in,ested in high45 4i<)id and sa.e .('eign assets with 4(w 'ates (. 'et)'n, and pa5&ent (. a highe' 'ate (. inte'est (n the t'eas)'5 =i44s iss)ed )nde' MSS, ste'i4isati(n in,(4,es a *(st> 1ith a 'apid 'ise in .('eign eD*hange 'ese',es, and the need .(' ha,ing an MSSA=ased ste'i4isati(n in,(4,ing *(sts, <)esti(ns ha,e =een 'aised a=()t the desi'a=i4it5 (. en*()'aging &('e .('eign eD*hange in.4(ws in gene'a4 and FII in.4(ws in pa'ti*)4a'> 1hi4e the'e is indeed the iss)e (. ti&ing the p(4i*5 (. en*()'age&ent app'(p'iate45, t( a,(id the pit.a44s (. th'(wing the =a=5 with the =ath wate', the'e *an n(t =e a t)'na'()nd .'(& the a,(wed p(4i*5 (. g'ad)a4 4i=e'a4i?ati(n, in*4)ding the *ap ita4 a**()nt> A44 &(de'n &a'2et e*(n(&ies ha,e Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) "#

MMS A

FOREIGN INSTITUTIONAL INVESTORS

e,(4,ed p(4i*ies t( 'e*(n*i4e p')dent &(neta'5 &anage&ent with the =ene.its (. a 4i=e'a4 *apita4 a**()nt> The'e is n( s*(pe .(' an5 di..iden*e in India a4s( &(,ing in the sa&e di'e*ti(n>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

""

MMS A

FOREIGN INSTITUTIONAL INVESTORS

ISSUES AND "HALLENGES FA"ING FII:S IN INDIA

9(n*ent'ati(n and Li<)idit5

The =iggest *(n*e'n p4ag)ing Indian &a'2ets is that (. *(n*ent'ati(n and 4i<)idit5> The'e a'e (n45 a hand.)4 (. st(*2s that ha,e the 2ind (. 4i<)idit5 .(' .('eign in,est('s t( ta2e signi.i*ant p(siti(ns> Indian &a'2ets a'e *(n*ent'ated in ,e'5 .ew st(*2s in te'&s (. ,(4)&es t)'n(,e'> The sha'e (. t(p 0 &(st a*ti,e indeD st(*2s in t)'n(,e' is a=()t !0H in Indian &a'2ets, whi4e it is in the 'ange (. t( #0H .(' *()nt'ies in*4)ding 9hina, Thai4and, Taiwan and J('ea> A4s(, p'(&(te'sI h(4dings a'e high whi*h ha&pe's 4i<)idit5> 75 the end (. Ma'*h #00#, a,e'age p'(&(te' h(4dings in a44 4isted *(&panies we'e a'()nd $ H> Ma'2et 9apita4i?ati(n t( G-6 Rati(

The se*(nd &aC(' *(n*e'n is &a'2etA*ap t( G-6 'ati( in India, whi*h is <)ite 4(w at "#H> This i&p4ies that (n45 a s&a44 .'a*ti(n (. Indian =)siness is *apt)'ed in st(*2s &a'2ets and s(&e (. the &aC(' =)sinesses a'e n(t e,en a,ai4a=4e .(' in,esting> 1hi4e in de,e4(ped e*(n(&ies this 'ati( is t( the eDtent (. #0H> Asian *()nt'ies 4i2e 3(ng J(ng, 9hina, J('ea and Taiwan ha,e a 'ati( (. &('e than !0H> This is =e*a)se (. in*'eased g(,e'n&ent (wne'ship in ,a'i()s seg&ents> F(' eDa&p4e Indian Rai4wa5s, 6(st, State R(ad T'ansp('t 9('p('ati(ns, with thei' si?e and =)siness *'edentia4s *an ignite a 4(t (. in,est(' inte'est> The'e a'e &aC(' p'i,ate p4a5e's, whi*h a'e *4(se45 he4d and )n4ess a44 these *(&e int( the st(*2 &a'2et .(4d, (pp('t)nities wi44 =e 4i&ited>

9('p('ate G(,e'nan*e and -is*4(s)'e N('&s

The'e a'e *(n*e'ns (n the *('p('ate g(,e'nan*e standa'ds as we44> -espite a**()nting s*anda4s in US, g4(=a4 in,est('s ha,e &('e .aith in the US 'eg)4at('5 s5ste& and *('p('ate g(,e'nan*e standa'ds> Un4i2e d(&esti* .)nd &anage's wh( .ee4 'eas(na=45 *(n.ident =e*a)se (. thei' 'eg)4a' inte'a*ti(n with the &anage&ents, .('eign in,est('s d( Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) "$

MMS A

FOREIGN INSTITUTIONAL INVESTORS

.ee4 <)ite inse*)'e> F(' a .)nd &anage' &anaging .)nds .'(& his head<)a'te's in the US, the <)ant)& (. in,est&ent in Indian *(&panies &a5 n(t 'ea445 C)sti.5 the *(sts (. &(nit('ing the& (n a 'eg)4a' =asis> St(*2s t'ading at 6E &)4tip4e (. # (' " in spite (. thei' stead5 .inan*ia4 pe'.('&an*e, 'aises s)spi*i(n a=()t the <)a4it5 (. &anage&ent and in this 'espe*t g4(=a4 in,est('s 4((2 at e&e'ging &a'2ets 4i2e J('ea and Taiwan, &)*h &('e .a,('a=45>

Ma*'(e*(n(&i* 6a'a&ete's

Se4e*ti(n (. the 'ight *()nt'5 is the &ain (=Ce*ti,e .(' FII/s in,est&ents 'athe' than stit*hing t(gethe' se*t(' the&es> FII/s a'e pa5ing &('e attenti(n than e,e' t( *()nt'5A spe*i.i* .a*t('s 4i2e 'e.('& &(&ent)&, 4(*a4 p(4iti*a4 sit)ati(n and &a*'(e*(n(&i* 'ati(s> Ma*'(Ae*(n(&i* sta=i4it5 and .is*a4 sta=i4it5 a'e =asi* h5giene .a*t('s t( att'a*t .('eign in,est('s> The *(st (. 'es*)ing G(,e'n&entA(wned .inan*ia4 instit)ti(ns s)*h as UTI and IF9I wi44 e..e*t the .is*a4 sit)ati(n> The g4(=a4 'ating agen*5 Standa'd 8 6((' d(wng'aded IndiaIs 4(*a4 *)''en*5 'ating t( C)n2 g'ade .'(& in,est&ent g'ade is de.inite45 w(''5ing g4(=a4 in,est('s, th()gh 4(*a4 .)nd &anage's a'e &('e =(the'ed a=()t g'()nd 'ea4ities s)*h as *('p('ate p'(.ita=i4it5 and g'(wth p'(spe*ts> Resea'*h =5 3S7S se*)'ities sh(ws that hist('i*a445, the w('st st(*2s in the highestA 'et)'ning e&e'ging &a'2ets ha,e a4&(st ()tpe'.('&ed the =est st(*2s in the 4(westA 'et)'ning e&e'ging &a'2ets> F(' eDa&p4e, (,e' the past 0 5ea's, $!H (. the st(*2s in the =estApe'.('&ing &a'2ets we'e in the t(p de*i4e (. a44 st(*2s within e&e'ging &a'2ets, whe'eas "0H (. st(*2s (. the w('st &a'2ets we'e in the =(tt(& de*i4e> E&e'ging Asian &a'2ets 4i2e S()th J('ea, Taiwan, Thai4and, Ind(nesia and Singap('e a'e p'esenting a g'eat *ha44enge t( Indian &a'2ets with 'ega'ds t( att'a*ting FII in,est&ents =5 p'(,iding a =ette' 'et)'n (n in,est&ents .(' the FII/s> Indian &a'2ets ha,e )nde'pe'.('&ed these &a'2ets t( the eDtent (. 0A !H (,e' the past Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) "!

MMS A

FOREIGN INSTITUTIONAL INVESTORS

# 5ea's> Fis*a4 de.i*it, whi*h is s4ight45 &('e than 6H (. G-6, is an(the' =ig w(''5 .(' Indian e*(n(&5> Fis*a4 de.i*it at the end (. N(,e&=e' #00# was Rs> ;"">:$ =n, 'ep'esenting 6 >!0H (. =)dget esti&ate .(' the .is*a4 5ea' t( Ma'*h " , #00"> Re,isi(n (. MS9I p('t.(4i( a44(*ati(n t( India t( $>$:H .'(& 0>!H a&(ng e&e'ging &a'2ets =e*a)se (. .'ee .4(at =ased indeD &eth(d(4(g5 was a negati,e de,e4(p&ent in 4ie) (. att'a*ting FII/s in,est&ents> A4th()gh, Indian ')pee has (,e' a pe'i(d *(ntin)()s45 dep'e*iated against US d(44a', this has n(t dithe'ed FII/s in,est&ents in India> The 'eas(ning 4ies in the ,e'5 .a*t that this R)pee &(,e&ent ,isAMA,is d(44a' has he4ped Indian *(&panies t( =e*(&e g4(=a445 *(&petiti,e and with eDp('ts s)'ging these *(&panies we'e *(&&anding highe' ,a4)ati(ns &a2ing the& att'a*ti,e .(' FII/s in,est&ents

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

"6

MMS A

FOREIGN INSTITUTIONAL INVESTORS

"ON"LUSION
Asset a44(*ati(n in #00" is eDpe*ted t( =e si&i4a' t( that (.#00# =e*a)se despite p(siti,e ()t4((2 in the Indian e*(n(&5 the'e see&s t( =e negati,e g4(=a4 senti&ents a'ising d)e t( 'ising g(4d and *')de p'i*es *()p4ed with the wea2ening (. US d(44a'> 7)dget #00# has 'e&(,ed a44 se*t('ia4 4i&its (n in,est&ent =5 FII/s in Indian *(&panies t( &a2e Indian &a'2ets &('e ,i='ant> The highe' .('eign p('t.(4i( in,est&ent is a g((d &(,e, as this wi44 he4p in i&p'(,ing the pe'.('&an*e (. the *(&panies espe*ia445 in h()sing .inan*e and te4e*(& se*t('> It wi44 a4s( ne)t'a4i?e the 4(we'ing (. IndiaIs weightage in MS9I indi*es =e*a)se (. .4(ating st(*2A=ased indi*es> This 'e&(,a4 (. se*t('ia4 4i&its wi44 p'(g'ess t(wa'ds a*hie,ing the ann)a4 a,e'age in,est&ent =5 FII/s t( B 0 =n 4e,e4 .'(& the p'esent a,e'age (. B >! =n 4e,e4 d)'ing the 4ast 0 5ea's> In*'eased FII/s in.4(ws wi44 he4p in 'e&(,ing the *('p('ate (pa<)eness and a4s( =ene.it the 'etai4 in,est(' =e*a)se &(st FII/s, whi*h a'e p'i,ate e<)it5 .)nds, 4i2e t( ha,e thei' 'ep'esentati,e (n the =(a'ds (. *(&panies in whi*h the5 ha,e in,ested> F(' e>g>, 1a'=)'g 6in*)s is 2een t( n(&inate a 'ep'esentati,e (n the =(a'd (. Sat5a& *(&p)te's se',i*es whe'e it has in*'eased the sta2e t( !>" H =5 =)5ing in the &a'2et> It a4'ead5 has its n(&inees (n the =(a'ds (. G)Ca'at A&=)Ca 9e&ents, Ni*h(4as 6i'a&a4 and 7ha'ati Te4e,ent)'es whe'e it h(4ds si?ea=4e sta2es> A44 this wi44 he4p in a ='inging a t'anspa'ent *('p('ate *)4t)'e a4(ng with ade<)ate dis*4(s)'e n('&s and th)s he4p in =((sting in,est(' *(n.iden*e> As pe' the g4(=a4 .)nd &anage' s)',e5 d(ne =5 Me''i44 L5n*h, net 60H (. the &anage's thin2 that the g4(=a4 =)siness *5*4e wi44 get st'(nge' (,e' the neDt # &(nths> This wi44 *hee' )p the US &a'2ets> A4s( g4(=a4 st'ateg5 'ep('ts indi*ate that 'is2 a,e'si(n t( US e<)ities wi44 de*4ine this 5ea' and (,e'a44 .)nd .4(ws wi44 i&p'(,e> 7)t whethe' a44 these de,e4(p&ents wi44 4ead t( highe' FII/s in.4(ws int( Indian e<)ities I *ann(t =e said with an5 deg'ee (. *e'taint5> India sh()4d ta2e a &essage .'(& a44 the de,e4(p&ents,E 'anging Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$) "0

MMS A

FOREIGN INSTITUTIONAL INVESTORS

.'(& 9hinese e*(n(&i* s)**ess t( the 'ating d(wng'ades, and get 4ase' .(*)sed (n the 'e.('& p'(*ess .(' an in,est(' .'iend45 =)siness en,i'(n&ent> India has t( ta2e de*isi,e steps in p'(&(ting the (ng(ing 'e.('& p'(*ess t( =((st its *han*es (. g'eate' FII/s and F-I in.4(ws in this t()gh g4(=a4 =)siness en,i'(n&ent> Th()gh the 5ea' #00# was n(t a g'eat 5ea' in te'&s (. net FII in,est&ents, (ne h(pe that the I ,a'i()s steps ta2en =5 the g(,e'n&ent in*4)ding 'e&(,a4 (. se*t('ia4 4i&its and F-IAFII .)ngi=i4it5 I w()4d &a2e India a .a,('ed destinati(n .(' FII/s in the nea' .)t)'e> The 5ea' #00" h(4ds a &('e (pti&isti* 4((2 .'(& FII/s ,iewp(int> 7)(5an*5 in FII/s in,est&ent seen in ea'45 t'ends 1ith net in,est&ents (. Rs> #, 66 'nn =5 %an)a'5 !,#00" was despite the *(ntin)an*e (n the IC)n2I stat)s 'ating t( IndiaIs *)''en*5 =5 S86> S(&e en*()'aging signa4s *a&e .'(& 9MIEIs )pwa'd 'e,isi(n (. IndiaIs G-6 .('e*ast a4(ng with FMIs &(,es t(wa'ds .)44 ')pee *(n,e'ti=i4it5> The (the' p(siti,e .a*t('s in*4)des (pti&is& in the disin,est&ent p'(*ess, eDpe*tati(ns .'(& the .('th*(&ing =)dget, &(&ent)& in the te*hn(4(g5 se*t(' and p'e.e'en*e .(' e<)it5 (,e' de=t d)e t( de*4ining 5ie4ds, Je42a'Is 9(&&itteeIs 'e*(&&endati(n (n the *apita4 gains taD> In the 5ea' #00", Indian e*(n(&5 is eDpe*ted t( enC(5 twin =ene.its (. an app'e*iating *)''en*5 and s(.te' inte'est 'ates> In a 'ep('t =5 %6 M('gan, the ')pee is eDpe*ted t( app'e*iate t( a'()nd $0>0 .'(& $0>:6 against the d(44a' and the 0A5ea' 5ie4d wi44 dip t( !>0H =5 endAMa'*h =e*a)se (. a 'ep(A'ate *)t in endAFe=')a'5> A4s( the .('eD 'ese',es *hest (. R7I, whi*h 4ends *(n.iden*e t( the d(&esti* *)''en*5, is eDpe*ted t( =)'ge(n t( B;0=n =5 the end (. #00"> A44 these .a*t('s wi44 he4p &aintaining a p(siti,e s*ena'i( .(' in,est&ents in the nea' .)t)'e>

Swapnagandha (06), Mitesh ( !), Nidhi ("#), Nandita ($ ), %i&it (!$)

";