25-08-2017, 09:32 PM
FDI AND FII
FDI AND FII.ppt (Size: 5.91 MB / Downloads: 43)
Introduction
The geopolitical changes that have taken place around the world in the last few years and the gradual changes in India’s economic policies have led to a transformation in the bilateral relationship between India and the US which is best reflected in the vastly increased co-operation of the two countries in political, strategic and economic spheres.
Indo-US co-operation in battling terrorism around the world is well established, as is India’s commitment to promote globalization and democracy, to alleviate poverty both at home and abroad and to work closely with the US to contain regionally focused armed tension and promote global peace. Strategic co-operation between the two countries is probably at an all time high with the much debated Indo-US nuclear deal.
Reasons that make India an attractive investment destination
India is the world’s largest democracy with a stable political environment.
India has an abundant English speaking, educated, skilled human resource base which offers its services at far cheaper rates than that may be found in any other developing or developed country.
India is world’s leader in global outsourcing with more than 80% of the market.
India has at this time a young population with roughly 80% of its population below 45 years of age.
India’s Industrial Policy
The Indian government has removed bureaucratic controls on industry, under its liberalization policy. However, licensing and restrictions still exist in the following sectors:
Two sectors reserved for public sector viz., Atomic Energy and Railways
Five Industries in which licensing is compulsory –
Distillation and brewing of alcoholic drinks
Cigars and cigarettes of tobacco
Electronic Aerospace and Defence equipment
Industrial explosives
Hazardous chemicals
Foreign Investment in India
Foreign Direct Investment (“FDI”)
India welcomes foreign direct investment in almost all sectors. Foreigners can directly invest in India either by themselves or as a joint venture. Moreover, the investment ceilings in certain sectors are gradually being removed.
Opportunities exist for investing in India in sectors as diverse as tourism and infrastructure, petrochemicals and mining technology and engineering, real estate, biotechnology, bio-informatics and nanotechnology. India is also being seen as the global destination for R&D, engineering design and prototype development and a manufacturing hub for high technology products.
Acquisition of Shares
Acquisitions may be made of an existing Indian company which may be either a private or a public company.
Acquisition of shares of a public listed company is subject to the guidelines of the Securities Exchange Board of India (SEBI)
Foreign investors looking at acquiring equity in an existing Indian company through stock acquisitions can do so under the automatic route.
Investment by Foreign Institutional Investors (“FII”)
An FII must be registered with SEBI and must comply with certain investment limits. They may purchase shares and/or convertible debentures of an Indian company under the Portfolio Investment Scheme.
The shares/convertible debentures of an Indian company must be purchased through registered brokers on recognized stock exchanges in India.
FII’s are also permitted to purchase shares/convertible debentures of an Indian company through private placement/arrangement.
Foreign pension funds, mutual funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers or their power of attorney holders may invest In India as FIIs.
Exchange Control Regulations of India
Exchange control is regulated under the Foreign Exchange Management Act, 1999 (“FEMA”)
Foreign exchange transactions have been divided into two broad categories – current account transactions and capital account transactions.
The Indian rupee is fully convertible for current account transactions, subject to a negative list of transactions that are prohibited/ require prior approval.
The exchange control laws and regulations for residents apply to foreign invested companies as well.
Manufacturing
What is needed? Globalization in Indian manufacturing capabilities by creation of dynamic manufacturing hubs in India.
India is also being seen as the global destination for R&D, engineering design and prototype development and a manufacturing hub for high technology products.
expansion in core sectors in India such as –
Steel
Chemicals and petrochemicals
Consumer durables
IT hardware and telecom
Transportation
Outbound Tourism
With the rise in living standards, India has become an impressive source for outbound tourist traffic.
Thomas Cook, Cox & Kings India Limited, Star Luxury Cruises, Queen Mary II Cruise Liners etc have launched full fledged operation in India
The introduction of package tours to all five continents by various travel agencies/companies has become very popular over the past few years.
Chit Fund
A Chit Fund is a kind of savings scheme practiced in India. In a chit scheme, a specific number of individuals come together to pool a specific amount of money at periodic intervals. Usually the number of individuals and the number of periods will be the same. At the end of each period, there will be an auction of the money. Members of the chit will participate in this auction for the pooled money during that interval. The money will be given to the highest bidder. The bid amount will be divided by number of members, and thus determining per head contribution during that period. Usually the discount will continue to decrease over periods. The person getting money in the last period will receive the full scheme amount.
The Financing Decision
Some investors are more flexible than others because they are not locked into a few available sources of funds. Investors would like many financing alternatives in order to minimise their cost of funds at any point in time. Unfortunately, not many firms are in this enviable position through the duration of a business cycle.
At the time the financing decision is made, the investor is never sure if it is the right one. Should the financing be long-term or short term, debt or equity, and so on? At each point a decision is made until a final financing method is reached. In most cases the investor will balance short-term versus long-term considerations against a composition of the firm’s assets and the firm’s willingness to accept risk. The ratio of long-term financing to short-term financing at any point will be greatly influenced by the term structure of interest rates (The term structure of interest rates refers to the way in which the yield on a security varies according to the term of the borrowing, that is the length of the time until the debt will be repaid as shown by the yield curve. Normally, the longer the term of an asset to maturity the higher the rate of interest paid on the asset.)