FIIs & Indian Markets

Presented By Ashish Surothia (HSBC 109) Gaurav Tongia (HSBC 118) Saurabh Kumar (HSBC 132)
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Agenda
FII-Concept Regulations FII Volume in Indian Capital Market Impact on Indian Capital Market

Positive Outcomes
Flip side of the coin
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What are FIIs

FII - Investor or investment funds registered in a country outside of one in which it is investing. Includes Insurance companies, Pension funds, Mutual funds and Hedge funds. As on Sep, 08: Registered FIIs 1484 Indian stock market opened in Sep 1992 for FII. First investment by FII in Jan 1993. Invest mostly through Participatory Notes (PNotes) aka Offshore Derivatives.

FII-Regulatory Framework
Regulated by SEBI and FIIs have to follow FEMA norms Relaxation in norms by SEBI:
The ceiling for overall investments of FIIs was increased 24% of the paid up capital of Indian company Allowed foreign individuals and hedge funds to directly register as FII Investment in government securities was increased to US $ 5 Billion Simplified registration norms.
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FIIs (Volume) in Indian Capital Markets

Net Investment by FIIS
62583.56 44000.03 48650.04

1992-93 1993-94 1994-95 1995-96 1996-97

23754.05

80000

Net Investment (in Rs Cr)

60000
9765.13 9682.52

41416.45

1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05

-35586.33

6720.90

7386.20

5444.60

4776.60

5908.45

8272.90

40000 20000 0 -20000 -40000 -60000

4.27

-729.11

2668.90

2005-06 2006-07 2007-08 2008-09P 5

Year(See Legend)

Impact of FIIs on Indian Market

FIIs Fuel Rally Institutional investors' portfolios stocks are more or less Nifty or Sensex stocks Co-movement of Index vis--vis FII Elimination of Badla System

Contd6

Impact of FIIs on Indian Market

If Ratio of Combined Purchase of FIIs and Mutual Funds to Combined Sales of FIIs and Mutual Funds > 1
FIIs have pumped in money Results in Sensex/Niftys upward movements.

If Ratio of Combined Purchase of FIIs and Mutual Funds to Combined Sales of FIIs and Mutual Funds < 1
FIIs have pulled out money Results in Sensex/Niftys downward movements.

Contd7

FII Positive Outcomes

Screen Based Trading & Depository

Corporate Governance
Increased Liquidity in top 200 scripts out of 6000+ scripts Rolling Settlement Buy Back of shares Inflow-Appreciation of INR
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Flip side of Coin

High Volatility in the prices

Contd9

Flip side of Coin

Shift of control of Indian firms to foreign hands Increased dependency on global markets USA, Europe and Other Asian Economies

Outflow-Depreciation of INR
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Thank You !!!

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