An institution that is a legal entity established or incorporated outside India proposing to make investments in India only in securities.

-SEBI Types Of FII: Normal FII: Investment in equity & non equity instrument in the ratio 70:30 100% Debt FII: Invest in Government Securities or Debentures/Bonds issued by an Indian Company

The underwriters of IPO contact various Institutional investors to get a purchase commitment at a certain price for the share at the time of listing which plays a crucial role in deciding the offer price for the issue. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers.

Benefits of FII flows Increased capital availability Increased liquidity in Stock market Supplements domestic savings and investments Increased forex reserves

FII in INDIA

 Foreign institutional investors (FIIs) have pumped in Rs 20,117 crore (US$ 4.3 billion) into the Indian equity markets in the month of May 2009 the highest in 19 months. Significantly, at US$ 1.04 trillion, India's market capitalization (m-cap) has emerged as the ninth largest in the world SOURCE:- IBEF

To sustain the GDP growth of more than 8 percent, India requires an investment of USD 1.5 trillion in the next five years

Issues & Problems Problems of Inflation and Creation of Asset Bubbles, Impact on Small Investors Impact on Exports Promotes short term investment than long term Impact on Banking Institutions Impact on Stock Market Largest Credit Consumption cycle in India funded by FII flows Real economy Impact-Currency, Interest rates, Bad Credit, Stock MarketsNegative Wealth effects Disorderly adjustments of imbalances-Financial Instability

What can be done ? Permit dollar settlements for FIIs mitigate risks of currency fluctuations improve the volume and liquidity of the derivatives market Increase cap on G-Sec Bond Markets Benefits of Global flows v/s the cost of instability. Lock in Period

 Revise Normal FII Investment ratio Participatory Notes- Actual Investor should come into picture Option of converting Equity into Debt Strong macro economic policy/reform framework Strong regulatory framework, Corporate Governance Strengthening the financial & banking system Developing & deepening the currency & money markets Allow INR to appreciate

FII v/s FDI Entry and Exit Production and employment Hot money Primary & Secondary market Short term v/s Long term Investors Registration

Who can be registered as an FII? One who propose to invest their proprietary funds or on behalf of "broad based" funds or of foreign corporates and individuals and belong to any of the under given categories can be registered for FII.

How to apply An application for registration has to be made in Form A, the format of which is provided in the SEBI(FII) Regulations, 1995 and submitted with under mentioned documents in duplicate addressed to SEBI as well as to Reserve Bank of India (RBI) and sent to the following address within 10 to 12 days of receipt of application.

Address for application The Division Chief

FII Division Securities and Exchange Board of India, 224, Mittal Court, 'B' Wing, 1st Floor, Nariman Point, Mumbai - 400 021. INDIA.

The Eligibility criteria for Applicant As per Regulation 6 of SEBI (FII) Regulations,1995, Foreign Institutional Investors are required to fulfill the following conditions to qualify for grant of registration .. The applicant should have been in existence for at least one year Permission under the provisions of the Foreign Exchange Regulation Act The applicant has to appoint a local custodian

Eligible Securities Securities in the primary and secondary markets Units of schemes floated by domestic mutual funds Derivatives traded on a recognized stock exchange Government Securities

Major Foreign Institutional Investors In Indian Market Citigroup Deutsche Group HSBC Global Investments Morgan Stanley & Co. International Ltd. Merrill Lynch Capital Markets Espana

Share of FII in NSE Listed Companies

Market Capitalization

FII Regulations Limit for FII investments Allowed to transact business Equity shares can be borrowed by FIIs only for the purpose of delivery into short sale No transactions on the stock exchange can be carried forward Transaction of business in securities

Impact of FII on Indian Market They increased depth and breadth of the market. They played major role in expanding securities business. Their policy on focusing on fundamentals of the shares had caused efficient pricing of shares.

FIIs major Impact Biggest fall of Indian Market in Oct 2007

Almost 50%of the investment are from the p-notes .This has a negative impact on stock market. There is a direct relation between FIIs money flow and the movement of sensex.