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This is project on FII flows into India and its impact on Indian economy.
Re: project on FII flows to India -
January 20th, 2010
India, which is the second fastest growing economy after China, has lately been a major recipient of foreign institutional investor (FII) funds driven by the strong fundamentals and growth opportunities. According to analysts, the late revival of monsoon, upward revision of economic growth from 5.8 per cent to 6.1 per cent, better-than-expected performance of companies in the quarter ended-June 30, the new direct taxes code, leading to savings in the tax payer’s money, and the trade policy with an ambitious target of US$ 200 billion exports for 2010-11 have all revived the confidence of FIIs investing in India. Both consumption and investment-led industries linked to domestic demand, such as auto, banking, capital goods, infrastructure and retail, are likely to continue attracting FII funds.
FIIs have made net investments of US$ 10 billion in the first six months (April to September) of 2009-10. Major portion of these investments have come through the primary market, more than through buying via secondary markets.
Earlier, FIIs’ net investments in Indian equities crossed the US$ 8 billion-mark in calendar 2009, the first time in this year, with foreigners buying stocks worth US$ 274 million on August 28, 2009. With FIIs holding 16 per cent of India's biggest 500 companies and increasing growth of the economy, the FII sentiment is expected to remain positive towards India. At the end of July 2009, net inflows from FIIs stood at US$ 7.3 billion.
With FIIs increasingly investing in the country's construction sector, the market capitalisation of FII investment in construction has gone up by a substantial 422 per cent in the past six months. Further, till September 8, FIIs registered a net investment of US$ 8.38 billion in the domestic stock market. The total FII market cap in 13 leading sectors was US$ 92.5 billion.
Private equity (PE) and venture capital (VC) investments increased nearly 10 times from US$ 30 million in 2006 to US$ 300 million by 2008, says a report by Ernst and Young. It further said that PE / VC players had invested US$ 527 million in the construction sector—24 per cent of the total transaction value in India for the period January 2005 and July 21, 2009.
Along with construction, the market cap of FII investment in infrastructure and heavy engineering has also risen, largely due to higher government spending and leveraged investment by companies in these sectors. In heavy engineering, FII market cap has gone up 202 per cent and in steel, it was up 274 per cent in the past six months.
In the previous April-June quarter, initial signs of recovery in world economies, a stable government in New Delhi and the positive impact of its stimulus packages substantially improved the sentiments of FIIs. Real estate, banking and finance, engineering and oil and gas—garnered almost three-fourths of the money invested by FIIs. These four sectors accounted for over 71 per cent of the total FII investment at US$ 4.55 billion during the quarter.
India’s foreign investment policies allow foreign direct investment up to 26 per cent and foreign institutional investments of (an additional) 23 per cent in stock exchanges. Under the regulation, FIIs have been allowed to acquire shares of unlisted stock exchanges through transactions outside a recognised stock exchange provided it is not an initial allotment of shares.
The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have jointly unveiled norms enabling exchange-traded interest rate futures (IRF). Foreign portfolio investors have been allowed to trade in IRFs, but limits have been put in place to keep their influence under check.
FIIs and the non-resident Indians (NRIs) are allowed to invest in Indian Depository Receipts (IDRs), according to the operational guidelines issued by the RBI on July 22, 2009.
Re: project on FII flows to India -
January 20th, 2010
American fund houses such as Direxion Shares and Direxion Funds, managed by Rafferty Asset Management, have launched five more India-specific exchange-traded funds (ETFs) to tap the growth potential of Asia’s third-largest economy. ETFs are open-ended funds that are designed to track specific indices and trade just like any other stock. ETFs have become big investors in India, basically because the US retail investor has accepted India as part of his global equity portfolio, according to the Singapore-based Helios Capital Management.
The Aureos India Fund, an initiative of Aureos Capital—a Mauritius-based private equity fund management company—and ePlanet Ventures, a global venture capital firm headquartered in Silicon Valley, together have invested US$ 16 million in Continental Warehousing Corporation (Nhava Sheva) Ltd (CWCNSL).
International Finance Corporation, a member of the World Bank Group, has proposed to be an investor in South Asia Clean Energy Fund (SACEF) by investing US$ 20 million. The fund is an Alberta, Canada limited partnership and will target companies located in India amongst others.
J P Morgan Securities and Morgan Stanley & Co have jointly invested US$ 103 million in the ADS (American Depositary Shares) offering of Sterlite Industries.
Shareholding pattern (April-June quarter) of public sector unit (PSU) companies reveal that FIIs have been big buyers in PSU banks. FII holdings in Central Bank, Vijaya Bank, Union Bank, IDBI Bank, Indian Overseas Bank, SBI and term lenders IFCI and IDFC have gone up significantly during the first quarter of FY 2009-10.
A clutch of foreign and domestic institutional investors and mutual funds have acquired stakes in engineering firm Texmaco—a K K Birla group company—through a recently completed US$ 37.3 million qualified institutional placement (QIP).
Canadian investment firm, Urbana Corporation, is likely to buy a 5 per cent stake in the National Stock Exchange, India’s largest bourse.
Overseas fund, Norwest Venture Partners, has signed an agreement to acquire 2.11 per cent state in NSE for US$ 52.6 million, valuing the exchange at over US$ 2.53 billion.
The US-based private equity fund major, Fire Capital, has earmarked US$ 500 million equity investment to be spent over a period of five years on various realty projects, particularly on integrated townships, across the country.
Investors, such as ATE Enterprises, Denmark-based Best Seller, Sequoia Capital, the Netherlands-based Cordaid etc., from the US and European countries are keen to invest around US$ 420.84 million to promote and equip small and medium enterprises engaged in green business, according to New Ventures India (NVI).
The Road Ahead
Venture capitalists are expected to increase their investments in India over the next three years, according to Deloitte's 2009 Global Venture Capital survey released recently. About 43 per cent of the 725 respondents to the survey said they expect to increase their investments in India over the next three years.
India is well placed to attract FII flows over the long term. According to Sandip Sabharwal, CEO, Prabhudas Lilladher Markets, “As economic growth accelerates and tax compliance improves over the next few years, fiscal deficit will come under control. FII flows into India will continue to be strong.” India may also get its fair share of inflows by way of increased allocations made to BRIC (Brazil, Russia, India and China) countries as “the group will continue to hold the interest of long-term investors”, says Andrew Holland, CEO-Equities, Ambit Capital. Corroborating this, the dedicated BRICs Equity Funds, as tracked by EPFR Global, are improving investment inflows.
Exchange rate used:
1 USD = 48.14 INR (as on August 2009)
1 USD = 48.41 INR (as on September 2009)