India has recently attracted global attention as its GDP grew faster than any other large emerging market, at 7.5 per cent in 2015 and further reforms are expected to foster even more growth opportunities. The Indian economy, defying weakness in Asia and elsewhere in developed markets, has been on a trajectory of relatively high growth. With its large population, its diversified economy and its information technology companies, India offers an attractive investment proposition with tremendous opportunities. What are the principles guiding the Foreign Portfolio Investor (FPI) status?

1. MARKETCOMPASS
FORINDIA
SHAREINTHEGROWTHSTORY
ASECURITIESSERVICESPUBLICATION
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for a changing
world

2. ¡ 2 ¡
RepublicofIndia
India has recently attracted global attention as its GDP grew faster than any other large
emerging market, at 7.5 per cent in 2015 and further reforms are expected to foster even more
growth opportunities.
Agrowingandwell-diversifiedeconomy
India is the world’s second most populous country and the largest democracy by population. It
is likely to become the most populous country by 2022 with an estimated 1.7 billion inhabitants
and the Indian labour force should increase from current 470 million to 640 million by 2030. With
its many cultures and religions, India is highly diverse. This is also reflected in its federal political
system, whereby power is shared between the central government and 28 states.
The Indian economy is mainly driven by domestic demand. India is a net commodity importer and
has benefited from falling fuel and commodity prices since 2014. These favourable conditions are
reflected in the stabilisation of the Indian Rupee (INR) which performed well against US dollar in
2015 than most emerging-market currencies.
Population
Population
GDP
USD366bn$
Gross Domestic Product
Gross Domestic Product
GDP per capita
GDP per capita
USD391
GDP
USD2,308bn$ USD1,8081.28bn
0.93bn
Ataglance 1995
2015
(Source: International Monetary Fund)
India’s economy is well diversified although half of the work force is in agriculture (traditional
farming or modern agriculture). It relies on a wide range of industries and a multitude of services
which are the major source of its economic growth. With the strength of a large educated
English-speaking population and skilled workforce, India has become a major exporter of
information technology (IT) services, business outsourcing and software services. Bangalore,
the Indian tech capital, is already the world’s 4th largest tech centre with a majority of Indian
start-ups and 35% of the IT workforce. India’s IT champions such as Infosys (market capitalisation
of USD 42 billion with 185,000 employees) or Wipro (USD 35 billion with 158,000 employees) are
headquartered in Bangalore. Others, such as Tata Consultancy services (TCS, USD 80 billion with
335,000 employees) are located in Mumbai.

3. ¡ 3 ¡
Although India appears as a bright spot amongst emerging markets, it still faces major challenges
such as poverty and weak infrastructure, mainly in the power generation and transport sectors.
In order to foster economic development, the government is reforming the land acquisition law,
replacing tax codes currently managed at the state level by a Goods and Services Tax (GST) and
reforming the banking sector.
Sovereignriskrating:BBB-withastableoutlook(Standard&Poor’s)
Thefinancialmarkets
Indiancapitalmarketregulator
The Securities and Exchange Board of India (SEBI) is the regulatory and registering authority for
the various intermediaries and institutional investors connected with the securities market, e.g.
brokers, mutual funds, foreign portfolio investors and foreign custodians alike.
The Reserve Bank of India (RBI) is India’s central banking institution and performs various functions
such as:
¡¡ The monetary authority
¡¡ The regulator and supervisor of the financial system
¡¡ The manager of foreign exchange
¡¡ The issuer of currency
¡¡ The regulation of operations on foreign currency accounts or special non-resident
rupee account by foreign portfolio investors (FPIs).
Though the stock exchanges in India are under the overall regulation of SEBI, they are self-
regulatory organisations with their own rules, regulations and by-laws administered by their
boards of directors. They are also responsible for ensuring orderly, transparent and fair trading
practices, controlling the admission and expulsion of members, maintaining investor protection
and addressing investor grievances.
Stockexchanges
The two major national stock exchanges in India, the National Stock Exchange (NSE) and the
Bombay Stock Exchange (BSE), play a pivotal role in the development of India’s financial industry
along with the MCX Stock Exchange (MCX-SX), the National Commodity and Derivatives Exchange
(NCDEX) and 17 other regional exchanges.
NSE and BSE have similar market capitalisations and the major Indian companies are listed on
both exchanges. BSE, founded in 1875, is well-known outside of India thanks to its Sensex index
which provides a snapshot of Indian markets, while the NSE, created in 1994, handles 80% of
daily transactions in India.

4. India’s market is largely open to foreign investors. Sensex ownership among global funds stands
at a record 28 per cent. In addition, two domestic trends are supporting the stock market’s
development. First, local investors, traditionally investing in gold and properties, are changing
their savings patterns turning their attention to financial products. Secondly, in 2015, India IPOs
reached a five-year peak, close to $2 billion, helping Indian companies raise money.
Marketcapitalisationofthetwomajorstockexchanges
No.oflistedcompanies
(Source: World Federation of Exchanges, 2015)
2005 2015
2015
NSE
USB397bn NSE
USD1,533bn
BSE
USD426bn BSE
USD1,600bn
1,756
NSE
5,726
BSE
Posttradeinfrastructure
The NSE and the BSE each have their own clearing house while the Clearing Corporation of India Ltd.
(CCIL) acts as central counterparty for trades undertaken on the Reserve Bank of India’s dealing system.
There are three depositories:
¡¡ National Securities Depository Limited (NSDL) and Central Depository Services
Limited (CDSL) for equities, mutual funds, bonds, debentures and commercial paper
¡¡ The Reserve Bank of India’s Public Debt Office for government securities.
Securities are dematerialised and held at the depositories on segregated securities and cash
accounts. Sovereign debt is held in bearer form with Central Bank of India (RBI).
Equities settlement takes place on T+2. Corporates bonds settlement cycles range from T to T+2,
depending on the market place and the bond’s type. Government securities are settled on T+1 or
T+2 when one of the counterparty is a foreign portfolio investor.
¡ 4 ¡

5. ¡ 5 ¡
Asimplerinvestmentregimeforforeigninvestors
In order to help foreign investments in Indian securities markets,
SEBI created in June 2014 a new investor class called foreign
portfolio investor (FPI) by merging the previous investor classes i.e.
FIIs (foreign institutional investors), sub accounts and QFIs (qualified
foreign investors).
In this section, we provide you with a general overview of the main
principles guiding the FPI status. However, you may need to dive
into further details to make informed decisions and efficiently
process your investments.
BNP Paribas Securities Services India details these market insights in
the “Exploring India” guide. It provides a comprehensive overview of
the regulatory framework, operations, risk-based Know Your Customer
(KYC) procedures, corporate actions and remittance guidelines.
WhocanbeaFPI
An FPI is:
¡¡ An individual not resident in India
¡¡ A resident of a country where securities
market regulator has signed IOSCO
agreement or a bank of a country whose
central bank is member of BIS (Bank of
International Settlement)
¡¡ Legally permitted to invest in securities
outside its home country
¡¡ Authorised to invest on its own behalf or on behalf of its clients
¡¡ Has sufficient experience, a good track record, is professionally competent, financially sound
and a reputation of fairness and integrity.
In addition, FPIs are registered in three categories depending on their risk profile:
¡¡ Category I groups governments, central banks, sovereign wealth funds and international
organisations
¡¡ Category II is professional investors such as broad-based funds (mutual funds, investment
trusts, pension funds,…), asset managers, insurance companies and banks
¡¡ Category III FPIs (charitable societies or trusts, foundations and family offices.) are treated as
retail investors.
Recentpolicyupdates
As part of the ongoing reforms to attract foreign portfolio investors, the following recent policy
enhancements were announced.
¡¡ An entity can hold a licence for both Foreign Venture Capital Investor (FVCI) and FPI provided
funds are clearly segregated and other conditions are met too.
¡¡ The Government of India has proposed to licence foreign investments in Alternate Investment
Funds (AIFs) as well.
¡¡ The Minimum Alternate Tax will not be applicable to FII/FPIs on investments prior to 1 April 2015.
Getintouchwithourexperts
Our DDP (Designated depository participant)
and client onboarding teams manage, clarify
and keep track of FPI accounts including
transitions of accounts (FIIs to FPIs),
conversions or renewals.

6. Thethreestepprocess
Step1:HowtosetupasanFPI
When setting up an FPI account,
registration can be seamless
by appointing a Designated
Depository Participant (DDP) to
act as a custodian of securities.
The DDP undertakes:
¡¡ The daily report to the
depositories and SEBI of
the FPI’s transactions
¡¡ Investment monitoring of the FPI
¡¡ Records and documents maintenance and the reporting of FPI’s holdings.
The FPI must also appoint an Authorised Dealer bank (AD bank), a broker for trade
execution and a compliance officer.
Step2:HowtoinvestforaFPI
A FPI can invest in nearly all financial instruments available on the secondary
market. When investing in government securities, a FPI is allowed to buy bonds
with a minimum residual
maturity of 3 years.
FPIs must adhere to specified
investment limits when
investing in:
¡¡ Debt instruments: conditions
are related to the debt issuer,
the FPI legal status, the
instrument maturity or type
¡¡ Or equities: conditions may be
an individual, aggregate limit or related to an economic sector.
Step3:Whatabouttaxation?
The Securities Transaction Tax (STT) is payable on the value of a securities transaction
i.e. purchase and sale of securities through a recognised stock exchange in India. STT is
not applicable on off-market transactions. It depends on the securities type (equities,
fund units and futures).
Tax is payable in advance
through a self-assessment
process, based on an estimate
for the coming year (starting on
1 April). A non-corporate must
pay at least 30% of advance tax
before 15 September, 60% before
15 December and 100% on or
before 15 March. The FPI must
also appoint a tax consultant to manage all tax related matters.
¡ 6 ¡
Getintouchwithourexperts
A dedicated team files the FPI registration
meeting all KYC requirements,
maintenance of books of records or code
of conduct.
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¡¡ Flexibility to work with the tax consultant
of your choice
¡¡ Efficient co-working with your tax consultant
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Discover your options with our specialists
¡¡ The issuance of FPI registration
¡¡ Daily reports to the depositories and
SEBI of the FPI’s transactions and the
investment monitoring of an FPI
$

7. HowtorepatriatefundsoutofIndia
The Reserve Bank of India has delegated
the powers for remittance outside India to
permitted authorised dealer (AD) banks. A
FPI has to provide a form and supporting
documents to the AD bank.
Cash remittance out of India is allowed under a number of conditions, among others net of
applicable taxes.
¡ 7 ¡
Getintouchwithourexperts
¡¡ Facilitate remittance via our dedicated team
¡¡ Clarify the remittance rules and funds
repatriation process out of India
YoursupportinIndia
Investors can partner with our local custody experts who care about their challenges
and understand the intricacies of the securities services sector. We are one of the world’s
leading providers, with the expertise, track record and financial strength to continue
building solutions for tomorrow.
We have a local presence in 34 countries across five continents and a global custody
network covering over 100 markets. Our top priority has always been to stay close to our
clients and the market.
Based in Mumbai, our team of local experts has an average experience today of more than
10 years with experienced dedicated teams for FPI opening and license registration.
Findoutmore
¡¡ Our “Exploring India” guide is over 100 pages of detailed explanations of the foreign
investment framework in India, covering the direct investment, portfolio investment
and venture capital investor route. Contact our specialists in India for more information.
¡¡ Related articles on our Securities Services website
¡¡ “The Indian Summer”: with its Asian neighbours spending more time in the spotlight
of late, now it’s time to focus on India http://bit.ly/IndianSummer-TheTrade
¡¡ “Innovating through partnerships”: This article, written by The Economist
Intelligence Unit, looks in more detail at India-based Infosys http://bit.ly/FinSupplyChain
¡¡ Video (BNP Paribas Economic research) on
¡¡ “India: good student” http://bit.ly/IndiaGoodStudent
¡¡ Market Information database on our NeoLink client portal brings in-depth
information on market practices

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