Overview of FDI in India: Current

Scenario
Improved global sentiment and strong industrial output numbers in India
are increasingly attracting foreign investors in the country. Other factors
being attributed to the revival in foreign direct investment (FDI) in recent
times include increasing consumer confidence.

India has been ranked at the third place in global foreign direct
investments in 2009 and will continue to remain among the top
five attractive destinations for international investors during
2010-11, according to United Nations Conference on Trade and
Development (UNCTAD) in a new report on world investment
prospects titled, ‘World Investment Prospects Survey 2009-2011'
released in July 2009.

The 2009 survey of the Japan Bank for International Cooperation

released in November 2009, conducted among Japanese investors
continues to rank India as the second most promising country for
overseas business operations, after China.

A report released in February 2010 by Leeds University Business

School, commissioned by UK Trade & Investment (UKTI), ranks
India among the top three countries where British companies can
do better business during 2012-14.

According to Ernst and Young’s 2010 European Attractiveness

Survey, India is ranked as the fourth most attractive foreign
direct investment destination in 2010. However, it is ranked the
second most attractive destination following China in the next
three years.

Moreover, according to the Asian Investment Intentions survey released

by the Asia Pacific Foundation in Canada, more and more Canadian firms
are now eyeing India as an investment destination. From 8 per cent in
2005, the percentage of Canadian companies showing interest in India
has gone up to 13.4 per cent in 2010.

India attracted FDI equity inflows of US$ 1.2 billion during March
2010. The cumulative amount of FDI equity inflows from August
1991 to March 2010 stood at US$ 132.4 billion, according to the
latest data released by the Department of Industrial Policy and
Promotion (DIPP).

FDI equity inflows during financial year 2009-10 were US$ 26

billion.
The services sector comprising financial and non-financial
services attracted 21 per cent of the total FDI equity inflow into
India, with FDI worth US$ 4.4 billion during April-March 2009-10,
while construction activities including roadways and highways
attracted second largest amount of FDI worth US$ 2.9 billion
during the same period. Housing and real estate was the third
highest sector attracting FDI worth US$ 2.8 billion followed by
telecommunications, which garnered US$ 2.6 billion during
financial year 2009-10. The automobile industry received FDI
worth US$ 1.2 billion while power attracted FDI worth US$ 1.4
billion and computer software and hardware sector garnered FDI
to the tune of US$ 919 million during April-March 2009-10.

During the financial year 2009-10, Mauritius has led investors into India
with US$ 10.4 billion worth of FDI comprising 43 per cent of the total FDI
equity inflows into the country. Mauritius is followed by Singapore with
US$ 2.4 billion and the US with US$ 2 billion, according to latest data
released by DIPP.

In February 2010, the government approved twelve FDI proposals worth

US$ 226.8 million. These include FDI worth US$ 114.8 million for Delhi-
based Max India Ltd and US$ 78.1 million for Hyderabad-based Soma
Highways Projects.

Further, in May 2010, the government cleared 24 foreign investment

proposals, worth US$ 304.7 million. These include:

• Asianet's proposal worth US$ 91.7 million to undertake the business

of broadcasting non-news and current affairs television channels.
• Global media magnate Rupert Murdoch-controlled Star India
holdings’ investment of US$ 70 million to acquire shares of direct-to-
home (DTH) provider Tata Sky.
• AIP Power will set up power plants either directly or indirectly by
promotion of joint ventures at an investment of US$ 24.4 million.

Spanish automotive metal component maker Gestamp Automocion has

invested US$ 100.3 million, in its greenfield plant at Chakan near Pune.

Sembcorp Utilities, a company based in Singapore, has picked up 49 per

cent stake in the 1,320-MW coal-fired plant of Thermal Powertech
Corporation India Ltd, a special purpose vehicle and subsidiary of Gayatri
Projects Ltd, for US$ 232.4 million.

Cinepolis, a Mexico-based multiplex operator, is looking at expanding its

footprint in India. The company which started operations in India last year
plans to invest US$ 350 million in the next five years to operate 500
screens in 40 cities.
The YCH Group, the Singapore-based logistics and supply chain
management company, plans to invest US$ 219.4 million in the next five
years to set up 10-12 YCH DistriParks across India to provide logistics and
distribution support to manufacturing companies.

Policy Initiatives

The Government of India has released a comprehensive FDI policy

document effective from April 1, 2010. The Circular 1 of 2010
consolidates into one document all the prior policies/regulations
on FDI which are contained in FEMA, 1999, RBI Regulations under
FEMA, 1999 and Press Notes/Press Releases/Clarifications issued
by DIPP and reflects the current ‘policy framework’ on FDI. The
government has also promised to bring out an updated FDI policy
every six months as stated in a comprehensive press note
consolidating the entire regime for foreign investments in one
place for easy reference.

Furthermore, the government has allowed the Foreign

Investment Promotion Board (FIPB), under the Ministry of
Commerce and Industry, to clear FDI proposals of up to US$ 258.3
million. Earlier all project proposals that involved investment of
above US$ 129.2 million were put up before the Cabinet
Committee of Economic Affairs (CCEA) for approval. The
relaxation would expedite FDI inflow, according to the Union
Home Minister, Mr P Chidambaram.

Overview of FII in India: Current

Scenario
Foreign institutional investors (FIIs) poured inflows heavily to bet on the
India growth story.

As per data released by the Securities and Exchange board of

India (SEBI), FIIs invested US$ 2.1 billion in equities in April 2010,
and US$ 684.18 million in debt in April 2010.

During January to April 2010, FIIs invested US$ 6.6 billion in equity and
US$ 5.94 billion in debt, of which US$ 4.4 billion in equity and US$ 2.1
billion in debt was invested in March 2010.

According to SEBI, FIIs transferred a record US$ 17.5 billion in domestic

equities during the calendar year 2009. FIIs infused a net US$ 1.1 billion in
debt instruments during the said period.
Data sourced from SEBI shows that the number of registered FIIs stood at
1711 and number of registered sub-accounts rose to 5,382 as of April 30,
2010.

According to a report by CNI Research, companies that could be short-

listed as short-term investment targets based on interest from FIIs and as
yet modest stock movement, have expanded 33 per cent for the quarter
ended March 2010. As per the report FII stake rose in 299 companies in
the quarter ended March 2010, as compared to 322 companies in the
quarter ended December 2009. However, the number of companies which
can be considered as investment picks has increased to 142 in March from
107 in December, said the report.

Moreover, India accounted for more than one-fifth of the US$

22.1 billion private equity investments received by the emerging
markets across the globe in 2009, according to a report by
Emerging Markets Private Equity Association (EMPEA) released in
March 2010. In 2009, emerging markets accounted for about 26
per cent of global private equity (PE) investment. The report
added that global PE investment in emerging markets totalled
US$ 22.1 billion across 674 deals in 2009. Asia captured 63 per
cent of total emerging market PE investments by value in 2009,
with India capturing US$ 4 billion, according to the report.

The amount of private equity (PE) and venture capital (VC)

funding in India touched US$ 1.9 billion in the first three months
of 2010, according to a report by global consulting firm, Deloitte.
This funding came from 88 transactions, with an average deal size of US$
22.1 million. The amount accounts for nearly 50 per cent of the entire
funding in the previous year of 2009, i.e., US$ 4.4 billion from 299 deals
with average deal size of US$ 14.6 million.

Investment Scenario

Private equity firms invested about US$ 2 billion across 56 deals

during the quarter ended March 2010, according to a study by
Venture Intelligence, a research service focused on private equity
and merger and acquisitions (M&A) transaction activity in India.

The amount invested during the latest quarter (January-March 2010) was
the highest in the last six quarters. The figure was significantly higher
than that during the same period last year (January-March 2009) which
witnessed US$ 620 million being invested across 58 deals and also the
immediate previous quarter (October-December 2009) where investments
worth US$ 1.7 billion were made across 102 deals.

The largest investment during January-March 2010 was the US$ 425
million investment into power generation firm Asian Genco by General
Atlantic, Morgan Stanley, Norwest, Goldman Sachs and Everstone. Other
top investments reported during the first quarter of 2010 included
Quadrangle Capital Partners US$ 300 million investment into telecom
tower infrastructure company TowerVision India; StanChart PE, KKR and
New Silk Routes US$ 217 million investment into Coffee Day Resorts and
TPG Growths US$ 115 million investment into Clean Tech firm Greenko
Group.

Moreover, FIIs invested a record US$ 5 billion in Indian corporate

paper in the first four months of 2010. Maximum investments
have been in top-rated bond offerings at an average tenure of 18-
24 months and in commercial paper. The investment limit for FIIs
in corporate bonds has been raised to US$ 15 billion in 2009.
According to data released by SEBI, FIIs have cumulatively
invested US$ 11.24 billion in Indian debt since November 1992.
This includes investment in both government and corporate bonds. During
2009-10, FIIs pumped in a record US$ 6.04 billion in corporate and
government papers. This is a 12-fold rise over their investment of US$ 480
million in 2008-09.

Numbers crunched by education-focussed private equity fund Kaizen

Management Advisors show that venture capitalists and private equity
players have pumped in excess of US$ 140 million so far this year, 50 per
cent more than what they invested in the whole of 2009. The total VC/PE
investment into the sector is expected to be close to US$ 300 million in
2010, according to Sandeep Aneja, managing director of Kaizen
Management Advisors.

Kidswear maker and retailer Lilliput sold an undisclosed stake to private

equity firm TPG Growth for around US$ 25.9 million in April 2010. Earlier,
the company had sold a 31 per cent stake for around US$ 60.8 million to
private equity player Bain capital.

Reliance Equity Advisors (India) Ltd (REAIL), the private equity arm of
Reliance Capital Ltd, invested US$ 22.6 million in Pathways World School
in April 2010.

Singapore-based Temasek Holdings signed an agreement in April 2010

with GMR Energy Ltd (GEL) to raise capital for energy expansion plans.
Temasek Holdings would invest US$ 200 million through its wholly-owned
subsidiary Claymore Investments (Mauritius) Pte.

Government Initiatives

The Securities and Exchange Board of India (SEBI), in January

2010, allowed equity investors to lend and borrow shares for 12
months compared with the current limit of one month. The new
norms will also allow a lender or a borrower to close his position
before the agreed-upon expiry date.

According to a circular dated April 9, 2010, based on the assessment of

the allocation and the utilisation of the limits to FIIs for investments in
Government and corporate debt, the unutilised limits will be allocated in
the following manner:

• No single entity (FII) shall be allocated more than US$ 45.2 million of
the government debt investment limit for allocation through bidding
process. The minimum amount which can be bid for shall be US$
11.3 million and the minimum tick size shall be US$ 11.3 million.
• No single entity shall be allocated more than US$ 452.2 million for
the corporate debt investment limit.

In terms of SEBI circular dated January 31, 2008, the government and
corporate debt limits shall be allocated on a first come first serve basis
subject to the following conditions:

• An investment limit of US$ 45.2 million in Government debt shall be

allocated among the FIIs/sub-accounts on a first-come first-served
basis, subject to a ceiling of US$ 11.1 million per registered entity.
• The remaining amount in corporate debt after bidding process shall
be allocated among the FIIs/sub accounts on a first-come first-
served basis, subject to a ceiling of US$ 45 million per registered
entity.

No single entity (FII) shall be allocated more than US$ 45.2 million of the
government debt investment limit for allocation through bidding process.
The minimum amount which can be bid for shall be US$ 11.3 million and
the minimum tick size shall be US$ 11.3 million.

No single entity shall be allocated more than US$ 452.2 million for the
corporate debt investment limit.

In terms of SEBI circular dated January 31, 2008, the government and
corporate debt limits shall be allocated on a first come first serve basis
subject to the following conditions:

An investment limit of US$ 45.2 million in Government debt shall be

allocated among the FIIs/sub-accounts on a first-come first-served basis,
subject to a ceiling of US$ 11.1 million per registered entity.

The remaining amount in corporate debt after bidding process shall be

allocated among the FIIs/sub accounts on a first-come first-served basis,
subject to a ceiling of US$ 45 million per registered entity.

The Government of India reviewed the External Commercial Borrowing

(ECB) policy and increased the cumulative debt investment limit by US$ 9
billion (from US$ 6 billion to US$ 15 billion) for FII investments in
corporate debt in March 2010.