Foreign Portfolio Investment in India - Causes & Impact

1. FOREIGN PORTFOLIO INVESTMENTS
IN INDIA
CAUSES AND IMPACT
Reema D’Souza- PG14069
Sneha Singh- PG14083
Akanksha Gandhi- PG14091
Shweta Ghag- PG14097
Chaitra Mhatre- PG14101

2. Foreign Portfolio Investment
• FPI is securities and other financial assets passively held by foreign investors
• Origin of FPI
• After the Second World War, developing countries made efforts to achieve rapid
economic growth and to alleviate problems of poverty and unemployment
• Rapid growth of international trade.

3. • The developing countries faced shortage of capital.
• Capital flows in the form of foreign aid
• Developing countries faced difficulty in implementing the conditionality’s of
undertaking from IMF and World Bank
Foreign Portfolio Investment

4. Foreign Investment in India
Foreign Capital Investment
in India
Foreign Direct Investment Foreign Portfolio Investment
• The foreign direct investment (FDI) is the investment in the construction of
physical capital in the capital- importing country.
• FPI is securities and other financial assets passively held by foreign
investors

5. Foreign Portfolio Investment
• FPI does not provide the investor with direct ownership of financial
assets, and thus no direct management of a company.
• It is relatively liquid, depending on the volatility of the market invested
in.
• Involves short-term positions in financial assets of international
markets, and is similar to investing in domestic securities.

6. Foreign Portfolio Investment
Categories of FPI
• Category I (Low Risk) which would include Government and entities like
Foreign Central banks, Sovereign wealth Funds, Multilateral Organizations,
etc.
• Category II (Moderate Risk) which would include Regulated entities such as
banks, Pension Funds, Insurance Companies, Mutual Funds, Investment
Trusts, Asset Management Companies, University related endowments
(already registered with SEBI)
• Category III (High Risk) which would include all other FPIs not eligible to be
included in the above two categories

7. Foreign Portfolio Investment
Foreign
Portfolio
Investment
FII GDRs/ADRs Offshore Funds
• FII: Investments made by foreign institutions like pension funds, foreign mutual funds etc. in
the financial markets.
• GDRs and ADRs: They are instruments which signify the purchase of share of Indian
companies by foreign investors or American investors respectively
• Off-shore funds: The schemes of mutual funds that are launched in the foreign country

8. Composition of FPI
Depository Receipts:
• A Depository Receipt (DR) is a financial instrument representing certain
securities (e.g. shares, bonds etc.)
• Securities are deposited with the domestic custodian bank and DR’s are
issued by depository bank in targeted country.
• Depository receipts are negotiable security.

9. 1992-
93
1993-
94
1994-
95
1995-
96
1996-
97
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
GDR/ ADR 240 1520 2082 683 1366 645 270 768 831 477 600 459 613 2552 3776 8769
240
1520
2082
683
1366
645
270
768 831
477 600 459 613
2552
3776
8769
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
US$Million
Year
GDR/ ADR in India

10. Financial Institution Investment:
• A foreign institutional investor (FII) is a person or a group of people
operating or registered in a country that’s not their domicile.
• Foreign institutional investor groups often operate as hedge funds,
pension funds, insurance companies, and mutual funds.
• FII’s in India are regulated by SEBI.
• India has changed its foreign investor laws to allow FIIs to own up to
100% of Indian companies in certain industries.

11. 1992-
93
1993-
94
1994-
95
1995-
96
1996-
97
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
FII - - 1 1665 1503 2009 1926 979 -390 2135 1847 1505 377 10918 8686 9926 3225 20328
1
1665 1503 2009 1926
979
-390
2135 1847 1505
377
10918
8686
9926
3225
20328
-5000
0
5000
10000
15000
20000
25000
US$Million
Year
Financial Institutional Investment - India

12. Offshore Funds & Others:
• An offshore fund refers to a mutual fund that invests its assets abroad and
not in domicile country.
• Offshore funds offer investors access to international markets and major
exchanges.
• In India a few companies that have offshore mutual funds are Reliance,
Kotak and TATA.

13. 1990-
91
1991-
92
1992-
93
1993-
94
1994-
95
1995-
96
1996-
97
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
OFF 6 4 3 382 239 56 20 204 59 123 82 39 2 0 16 14 2 298
6 4 3
382
239
56
20
204
59
123
82
39
2 0
16 14
2
298
0
50
100
150
200
250
300
350
400
450
US$Million
Year
Offshore Funds & Others

14. -5000
0
5000
10000
15000
20000
25000
30000
35000
US$Million
Year
Composition of FPI - India
FII GDR/ ADR Offshore funds and Others FPI

15. Benefits of FPI
• Portfolio Diversification
• International Credit
• Benefit from Exchange Rate
• Access to bigger market

16. • 1992-Indian government allowed the foreign investors to invest in the financial markets
SEBI regulations-encourage FIIs to invest in India
ADR/GDRs helps to overcome limitations
Indian companies like Reliance, Kotak and TATA started having offshore mutual funds
• In 1993-94 FII investment has increased consistently from 1.6 billion dollars to approximately
127.8 billion dollars till December 2011
• In 1996-97 the share of ADR/GDR flows was 41 % and that of FII flows was 58%.
• In 1997-98 and 1998-99 there was a reversal in FII investment due to the impact of the Asian
crisis.
• In1999-2000 FII flows to the Indian economy revived but again dipped to 2.77 billion dollars in
2002-03.
TRENDS IN FPI

17. • In 2001-02 international financial markets were also taking measures to attract firms in the emerging
markets to list on their stock exchanges-resulted investment flowing into India through the ADR/GDR
route
• In 2003-04 FIIs flows were up to 10.9 billion dollars
 increase in the limit of investment by FIIs in the securities of the Indian companies
 increase in the number of sectors in which the investment could be made
• In 2007-08 the share of ADR/GDR flows was 24% and that of FII flows was 75%.
• In 2009-10 FII flows accounted for 89% of the total flows while ADR/GDR flows were 10% of the total
flows but no investment on account of offshore funds.

18. FII/FPI INVESTMENTS
-100000
-50000
0
50000
100000
150000
200000
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
FII/FPI Investments
equity debt

19. NET PORTFOLIO INVESTMENTS
-100000
-50000
0
50000
100000
150000
200000
2000-01 2008-09 2009-10 2010-11
NET PORTFOLIO INVESTMENTS(IN CRORES)

20. SECTOR WISE FPI/FII INVESTMENTS
0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000
Automobiles & Auto Components
Total Financial Services
Banks
Other Financial Services1
Capital Goods
Chemicals & Petrochemicals
Construction Materials
Food, Beverages & Tobacco
Household & Personal Products
Pharmaceuticals & Biotechnology
Telecom Services
Sector wise FPI/FII investments( IN CRORES)
Debt Equity

21. FPI Impacts on Indian Economy
•Stock Market
•Currency Rate
•Inflation

22. FPI Investments (INR Crore)
45,765
66,179
-45,811
142,658
51,649
-100000
-50000
0
50000
100000
150000
200000
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15**
Series3

23. 4%
5%
7%
19%
-1%
-4%
12%
6%
-10%
3%
0%
-15% -10% -5% 0% 5% 10% 15% 20% 25%
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Change in the Indian Currency Rate

24. 5.57%
6.53%
5.51%
9.70%
14.97%
9.47%
6.49%
11.17%
9.13%
5.86%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Historic Inflation India (CPI) – by year

25. 0
53%
28%
5%
-2%
21%
1%
-2%
12%
28%
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Change in Closing Stock Price (NSE)