Impact of FIIs on Indian Stock Market for a period of 2006 2009

Impact of FIIs on Indian Stock commercializeplace for a termination of 2006 2009Indian parsimony has been witnessing a phenomenal emersion since the ratiocination decade. The country is s manger holding its ground in the thick of the trustworthy globose fiscal crisis. In fact, global embellishing firm, Moodys, says that de callined by renewed gain in India and China, the world economy is ancestor to re radiation diagram from the champion of the worst economic downturns in decades.The growth in substantive make Domestic Product at factor woo stood at 6.7 % in 2008-09. While the sector-wise growth of GDP in agriculture, forestry and foregatherk was at 1.6 % in 2008-09, industry witnessed growth to 3.9 % of the GDP in 2008-09.The rush Minister, Dr Manmohan Singh, on August 15, 2009, in his address to the nation on its 63rd license Day, give tongue to that the G everywherenment get out take every possible misuse to desexualize annual economic growth to 9 %.Furt her, the homo rely has communicate an 8 % growth for India in 2010, which will make it the fastest-growe economy for the front time, overtaking Chinas expected 7.7 % growth.A matter of introduceing indicators, much(prenominal) as attach in hiring, freight movement at study ports and encouraging data from a number of key manufacturing segments, much(prenominal) as steel and cement, indicate that the downturn has bottomed egress and elevatedlight the Indian economys resilience. Repenny indicators from leading indices, such as Nomuras Composite Leading indication (CLI), UBS Lead Economic Indicator (LEI) and ABN Amro Purchasing Managers indication (PMI), too s fleet out this optimism in the Indian economy.Industrial output as metrical by the index of industrial production (IIP) clocked an annual growth pose of 6.8 % in July 2009, jibe to the Central Statistical Organisation.Significantly, among the major economies in the Asia-Pacific region, Indias unavowed domes tic help consumption as sh atomic number 18 of GDP, at 57 % in 2008, was the highest, accord to an analysis by the McKinsey worldwide found.Meanwhile, outside(prenominal) institutional perpetrateors (FIIs) off net buyers in the Indian marketplace in 2009. FIIs in fertilizes into the Indian beauteousness markets acquire stirred US$ 10 billion in the April to family period of 2009-10. international direct presentments (FDI) into India went up from US$ 25.1 billion in 2007 to US$ 46.5 Indian economy has been witnessing a phenomenal growth since the last decade. The country is still holding its ground in the midst of the contemporary global fiscal crisis. In fact, global investment firm, Moodys, says that driven by renewed growth in India and China, the world economy is beginning to recover from the one of the worst economic downturns in decades.The growth in real Gross Domestic Product (GDP) at factor cost stood at 6.7 % in 2008-09. While the sector-wise growth of GDP in agriculture, forestry and fishing was at 1.6 % in 2008-09, industry witnessed growth to 3.9 % of the GDP in 2008-09.The Prime Minister, , on August 15, 2009, in his address to the nation on its 63rd Indep polish offence Day, said that the Government will take every possible step to restore annual economic growth to 9 %. Further, the World Bank has projected an 8 % growth for India in 2010, which will make it the fastest-growing economy for the first time overtaking Chinas expected 7.7 % growth.A number of leading indicators, such as increase in hiring, freight movement at major ports and encouraging data from a number of key manufacturing segments, such as steel and cement, indicate that the downturn has bottomed out and highlight the Indian economys resilience. Recent indicators from leading indices, such as Nomuras Composite Leading Index (CLI), UBS Lead Economic Indicator (LEI) and ABN Amro Purchasing Managers Index (PMI), too obtain out this optimism in the Indian economy.Indu strial output as measured by the index of industrial production (IIP) clocked an annual growth tramp of 6.8 % in July 2009, according to the Central Statistical Organization.Significantly, among the major economies in the Asia-Pacific region, Indias cloistered domestic consumption as sh are of GDP, at 57 % in 2008, was the highest, according to an analysis by the McKinsey Global Institute.Meanwhile, exotic institutional investors (FIIs) turned net buyers in the Indian market in 2009. FIIs inf low-pitcheds into the Indian virtue markets yield affected US$ 10 billion in the April to family line period of 2009-10. impertinent direct investments (FDI) into India went up from US$ 25.1 billion in 2007 to US$ 46.5 billion in 2008, achieving a 85.1 % growth in FDI flows, the highest across countries, according to a recent study by the United Nations collection on Trade Development (UNCTAD).According to the Asian Development Banks (ADB) Asia detonating device Markets Monitor repor t, the Indian righteousness market has cutd as the third biggest after(prenominal) China and Hong Kong in the emerging Asian region, with a market with child(p)(p)ization of nearly US$ 600 billion. The Economic scenarioIndian investors have emerged as the most sanguine group in Asia, according to the Quarterly Investor Dashboard cerebration survey by global financial services group, ING. As per the survey, slightly 84 % of the Indian respondents expect the business line market to up come along in the third quarter of 2009.With remote assets growing by more than snow per cent annually in recent years, Indian multinational enterprises (MNEs) have become significant investors in global business markets and India is rapidly staking a claim to being a true global business power, according to a survey by the Indian School of Business and the vale Columbia Center on Sustainable International enthronisation.In its optimistic report on Macroeconomic and Monetary Development of the economy in 2009, the Re behave Bank of India (RBI) said overall business sentiment was slated for a sharp improvement from that in the April-June 2009 quarter.Further, India and China will soon emerge as the p get upred destinations for remote investors, revealed Economy.com, the research arm of global military rating agency Moodys. The countrys unlike exchange reserves rose by US$ 1.28 billion to touch US$ 277.64 billion for the week ended phratry 4, 2009, according to figures released in the RBIs Weekly Statistical Supplement. Net inflows finished versatile non-resident Indians (NRIs) deposits surged from US$ 179 billion in 2007-08 to US$ 3,999 million in 2008-09, according to the RBI. The most recent World Bank update on migration and remittances reveals that the remittances of US$ 52 billion by overseas Indians in 2008 makes it Indias largest source of foreign exchange. India, along with China and Mexico, retained its dress as one of the top recipients of migrant re mittances among developing countries in 2008. FDI inflows into India in April-May 2009-10 have surged by 13 % at US$ 4.2 billion as over against the previous two months driven by recovery in the global financial markets. Cumulative FDI in India from April 2000 to March 2009 stood at about US$ 90 billion. FIIs inflows into the Indian equity markets have touched US$ 10 billion in the April to kinsfolk period of 2009-10. Venture Capital firms invested US$ 117 million over 27 deals in India during the six months ending June 2009, according to a study by Venture Intelligence in partnership with the Global-India Venture Capital Association. The nonpublic equity (PE) investment into the country reached US$ 1.03 billion during April-June 2009-registering an increase of 17 % sequentially-according to data compiled by SMC Capitals, an equity research and analysis firm. The year-on-year (y-o-y) aggregate blaspheme deposits stood at 21.2 per cent as on January 2, 2009. Bank credit touch ed 24 % (y-o-y) on January 2, 2009, as against 21.4 % on January 4, 2008. Since October 2008, the RBI has cut the coin reserve ratio (CRR) and the repo rate by 400 basis points each. Also, the plow repo rate has been lowered by 200 basis points. Till April 7, 2009, the CRR had tho been lowered by 50 basis points, while the repo and reverse repo range have been lowered by 150 basis points each. Exports from special economic zones (SEZs) rose 33 per cent during the year to end-March 2009. Exports from such tax revenue-free manufacturing hubs totalled US$ 18.16 billion last year up from US$ 13.60 billion a year before. India Incs parliamentary procedure book has more than doubled to an all-time high of US$ 15.32 billion in the second quarter of the current financial year, compared to the first quarter. On a year-on-year basis, the increase is 21 per cent. Advance tax collections for the second quarter of the current financial year (2009-10) have shown big-boned growth of 35 to 40 per cent across industries. The domestic mutual neckcloth industry registered a moderate growth of 5 per cent in its assets under management (AUM) in August 2009 at US$ 15,702, due to good performance by debt bullion. India exported a total of 230,000 cars, vans, divert utility vehicles (SUVs) and trucks between January and July 2009, a growth of 18 per cent owing to its liberal investment policies and high quality manufacturing that stems from its growing prowess in research and development. Indias gems and jewellery exports regained momentum and aggregated to US$ 1.9 billion in July 2009 as compared to US$ 1.7 billion in June 2009. The total Merger and accomplishment (MA) deals registered during the first seven months of this year stand at 158 with a range of US$ 5.91 billion, while PE deals stand at 114, totalling a entertain of US$ 4.89 billion, according to consulting firm, Grant Thornton Investments in the Indian var. market by and through participatory no nes (PNs) crossed US$ 20.65 billion-mark in May 2009. Sustainable thrust investment in India went up to US$ 3.7 billion in 2008, up 12 per cent since 2007, according a report titled Global Trends in Sustainable Energy Investment 2009. The rural India growth fabricationThe Indian growth story is spreading to the rural and semi-urban areas as well. The bordering phase of growth is expected to come from rural markets with rural India explanation for closely half of the domestic retail market, valued over US$ 300 billion. Rural India is set to witness an economic boom, with per capita income having grown by 50 per cent over the last 10 years, mainly on account of rising commodity prices and improven productiveness. Development of basic al-Qaida, propagation of employment guarantee schemes, better information services and access to documentation are also bringing prosperity to rural households.Per Capita IncomePer capita income of Indian individuals stood at US$ 773.54 in 2008-0 9, according to Central Statistical Organization data. The per capita income in India stood at US$ 687.03 in 2007-08 and has risen by over terce from US$ 536.79 in 2005-06 to US$ 773.54 in 2008-09.Advantage India According to the World Fact Book, India is among the worlds youngest nations with a median age of 25 years as compared to 43 in japan and 36 in USA. Of the BRIC-Brazil, Russia, India and China-countries, India is projected to full stop the youngest with its working-age population estimated to rise to 70 % of the total demographic by 2030, the largest in the world. India will see 70 million new entrants to its workforce over the next 5 years. India has the second largest area of arable land in the world, making it one of the worlds largest food manufacturing businesss-over 200 million tonnes of foodgrains are produced annually. India is the worlds largest producer of milk (100 million tonnes per annum), sugarcane (315 million tonnes per annum) and tea (930 million kg per annum) and the second largest producer of rice, fruit and vegetables. With the largest number of listed companies 10,000 across 23 stock exchanges, India has the third largest investor base in the world. Indias healthy banking system with a lucre of 70,000 branches is among the largest in the world. According to a study by the McKinsey Global Institute (MGI), Indias consumer market will be the worlds fifth largest (from one-twelfth) in the world by 2025 and Indias middle class will swell by over decennium multiplication from its current size of 50 million to 583 million stack by 2025. India, which recorded production of 22.14 million tonne of steel during April-August 2009, is apt(predicate) to emerge as the worlds third largest steel producer in the current year. India continues to be the most preferred destination-among 50 top countries-for companies looking to seaward their information technology (IT) and back-office functions, according to global management consultancy , AT Kearney. The Indian stock markets have risen to be amongst the best performers globally across the emerging and developed markets in 2009 year-to-date, according to an analytical study by MSCI Barra indices. India has reclaimed its position as the most attractive destination for global retailers despite the downturn, according to the Global Retail Development Index (GRDI) brought out by US-based global management consulting firm, A T Kearney. Growth capabilityity According to the Young report titled India 2012 Telecom growth continues, Indias telecommunication services industry revenues are projected to reach US$ 54 billion in 2012, up from US$ 31 billion in 2008. The Indian telecom industry registered the highest number of subscriber additions at 15.84 million in March 2009, setting a global record. A McKinsey report, The rise of Indian Consumer Market, estimates that the Indian consumer market is likely to grow four times by 2025, which is currently valued at US$ 511 bil lion. India ranks among the top 12 producers of manufacturing value added (MVA)-witnessing an increase of 12.3 % in its MVA output in 2005-2007 as against 6.9 % in 2000-2005-according to the United Nations Industrial Development Organization (UNIDO). In textiles, the country is stratified 4th, while in electrical machinery apparatus it is ranked fifth. It holds 6th position in the basic metals category seventh in chemicals and chemical products tenth in leather, leather products, refined petroleum products nuclear fuel twelfth in machinery and equipment motor vehicles. In a development slated to enhance Indias macroeconomic health as well as energy security, Reliance Industries has commenced internal gas production from its D-6 block in the Krishna-Godavari (KG) basin. India has a market value of US$ 270.98 billion in low-carbon and environmental goods services (LCEGS). With a 6 % share of the US$ 4.32 trillion global market, the country is tied with Japan at the third pos ition. PE players are planning to raise funds for the infrastructure sector. Presently, around US$ 1.42 billion is being raised by India-dedicated infrastructure funds, according to data released by Preqin, a global firm that tracks PE and secondary assets. Infrastructure, including roads, power, highways, airports, ports and railways, has emerged as an asset class with long-term growth that can depart relatively stable returns. NASSCOM has estimated that the IT-BPO industry will witness an export growth of 4-7 % and domestic market growth of 15-18 % in 2009-10. Further, it has projected that around 40,000 students will be absorbed by IT companies this fiscal. With the availability of the 3G spectrum, about 275 million Indian subscribers will use 3G-enabled services, and the number of 3G-enabled handsets will reach close to 395 million by 2013-end.Exchange rate utilize1 USD = 48.21 INR (as on July)1 USD = 47.81 INR (as on September)FIIS contrasted Institutional Investors is u sed to denote an investor it is mostly of the form of an institution or entity which invests currency in the financial markets of a country. The term FII is most comm single used in India to refer to companies that are realised or incorporated outside India, and is investing in the financial markets of India. These investors mustiness(prenominal) register with the Securities Exchange Board of India to take part in the market.Foreign investment refers to investments do by residents of a country in some other countrys financial assets and production processes. After the opening up of the borders for capital movement, foreign investments in India have grown enormously. It affects the productivity factors of the receiver country and has the potential to create a ripple effect on the bop of the country. In developing countries like india, foreign capital helps in increasing the productivity of labor and to build up foreign exchange reserves to tally the current account deficit. I t provides a channel through which these countries can have access to foreign capital.Foreign investments can be of two forms foreign direct investment and foreign portfolio investment. FDI involves direct production activity and has a medium to long term investment plans. In contrast the FPI has a short term investment horizon. They mostly investment in the financial markets which consist of FIIs. They invest in domestic financial markets like silver market, stock market, foreign exchange market etc.FIIs investments are inconstant in nature, and they mostly invest in the emerging markets. They usually slip away in mind the potential of a particular market to grow. FII has lead a significant improvement in India relating to the flow of foreign capital during the period of post economic reforms. The inflow of FII investments has helped the stock market to raise at a greater height according to financial analysts. Sensex touched a new height. It crossed 10000-mark in Jan 2006 which was 9323 in 2005. FII participation in the Indian stock market triggers its upward movement, but at the comparable time increase liquidity through FII investment inflow increases capriciousness. archives OF FIIIndia opened its stock market to foreign investors in September 1992, and in 1993, received portfolio investment from foreigners in the form of foreign institutional investment in equities. This has become one of the main channels of FII in India for foreigners. Initially, thither were mevery harm and conditions which restricted many FIIs to invest in India. still in the course of time, in order to attract more investors, SEBI has simplify many terms such as The ceiling for overall investments of FIIs was increase 24% of the paid up capital of Indian company. Allowed foreign individuals and cook funds to directly register as FIIs. Investment in judicature securities was increased to US $ 5 Billion. Simplified registration norms. P-NOTES ( democratic Notes) are instr uments used by foreign investors that are not registered with the Securities Exchange Board of India to invest in Indian stock markets. For example, Indian-based brokerages buy India-based securities and then issue democratic Notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors. That is why they are also called Offshore Derivative Instruments. job through Participatory Notes is easy because participatory notes are like train notes transferable by endorsement and delivery. Secondly, some of the entities route their investment through Participatory Notes to take advantage of the tax laws of certain preferred countries. Thirdly, Participatory Notes are popular because they provide a high degree of anonymity, which enables large hedge funds to carry out their operations without disclosing their identity.The first motion that we need to ask is the necessity of FIIs as an instrument for investment into India. Thi s is not a common place of markets if, for example, a non-resident of the US or of England chooses to invest in an American or an English or a German stock, he does not have to hold his investment indirectly through an FII, but can hold it directly in his own name. An FII in India is a superfluous addition created simply to suit the regulatory requirements of SEBI.FIIs serve no economic purpose but they exist in order to provide SEBI with a bureaucratic layer between a foreign investor and the regulator. It enables SEBI to pretend that it controls foreign investors when in fact SEBI has no control on the ultimate investor. It is a good example of obscuring the true character of foreign investment in India through a non-transparent and expensive set-up. The P-Note is an additional flexure in this indirect investment as it enables those who wish to invest in the Indian market to do so without disclosing their identity. FIIs impact on the Indian economyThe Indian stock markets are bot h shallow and infinitesimal and the movement of stock depends on limited number of stocks. As FIIs purchases and sells these stocks at that place is a high degree of volatility in the stock market. If any set of development encourages outflow of capital that will increase the photo of the situation. The high degree of volatility can be attributed to the following reasons The increase in investments by FIIs increases stock indices in turn increases the stock prices and encourages farther investments. In this event, if any correction takes place the stock prices declines and on that point will be full out by the FIIs in large number as earning per share declines. The FIIs manipulate the situation of boom in such a manner that they wait till the index raises up to a certain height an exit at an appropriate time. This tendency increases the volatility further. So even though the portfolio investment by FIIs increases the flow of money in the economic system, it may create problems o f inflation.FIIs Influence in Indian Stock MarketInstitutional Investor is any investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. The growing Indian market had attracted the foreign investors, which are called Foreign Institutional Investors to Indian equity market, and in this paper, we are trying a simple attempt to explain the impact and extent of foreign institutional investors in Indian stock market. What does the name FII means? It is the abbreviation of Foreign Institutional Investors. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII o wnership in Indian companies. They actually pass judgment the shares and deposits in a portfolio. The major source (almost 50%) of money the FIIs invest is from the issue of Participatory Notes (P-Notes) or what are sometimes called Offshore Derivatives. on that point are over 1484 FIIs and 38 foreign brokers registered to Securities Exchange Board of India. We are also examining whether market movement can be explained by these investors. We ofttimes hear that whenever thither is a rise in market, it is explained that it is due to foreign investors money and a decline in market is termed as insularity of money from FIIs.After 1991, due to our liberalization process, there was large flow of foreign funds from abroad. Investments by FII are Rs. 2,55,464.40 Crores as compared to Rs. 2,83,468.40 Crores by the end of 31 December 2007. That implies that they had withdrawn almost 9% of money they had deposited till December 2007. The amount was much in the months of 2008 as compared to corresponding months of 2007, and that is a reason for the volatility of the stock market. In 2008, the net buying is only Rs. 5,603 Crores compared to Rs. 36,869 Crores in 2007. A more investments by FIIs indicate that they are self-assured in Indian market. Usually, the mode of operations of FIIs was taking loans from countries where interest is low (like Japan) and invests in booming markets like India. still the sub-prime crisis and other economic conditions had caused a liquidity crunch for these institutions. So they are forced to withdraw money from Indian market so as to repay loans they had taken. These withdrawals had caused panic in market, and even domestic investors are making them sell their shares. But one aspect we should agree on is that the FIIs increased role had changed the face of Indian stock market. It had brought both quantitative and qualitative change. It had also increased the market depth and breadth. Emphasize is on fundamentals had caused efficient p ricing of shares. Since there is no condition on FIIs that they should disclose in which company they are investing, those figures are not available.Many qualitative tests like regression tests had proved that there is direct relation between market movements and fund flows of FIIs. In this, we will analyze the investments in different months and years, and tries to find the impact of FIIs in stock market.Investments of FIIs on Indian Stock MarketThe current investments of FIIs is Rs. 2,55,464.40 Crores. This is almost 9% of the total market capitalization. If we explain the things in simple terms, market pundits often attribute the rally of stock market and fall of stock market to the flow of funds by FIIs. We often hear the terms FIIs Fuel the Market Run. If we analyze the impacts, then the major impacts are They increased depth and breadth of the market. They played major role in expanding securities business. Their insurance policy on focusing on fundamentals of the shares had caused efficient pricing of shares. These impacts made the Indian stock market more attractive to FIIs and also domestic investors, which involve the other major player Mutual Funds. The impact of FIIs is so high that whenever FIIs tend to withdraw the money from market, the domestic investors become cowardly and they also withdraw from market.Just to show the impact, we analyze below the 10 biggest falls of stock market Day (Point loss in India)Gross Purchase (Rs. Crores)Gross Sales (Rs. Crores)Net Investments (Rs. Crores) 21/01/2008 (1408)3062.001060.302001.80 22/01/2008 (875)2813.301618.201195.10 18/01/2008 (687)1077.201348.40-271.20 17/12/2007 (826)670.00869.00-199.00 21/11/2007 (678)640.70791.80-151.10 18/10/2007 (717)1107.001372.50-265.50 16/08/2007 (643)989.50750.30239.20 02/08/2007 (617)534.50542.00-7.50 01/08/2007 (615)809.40956.90-147.50 18/05/2006 (856)761.80527.40234.40Major Intra Day Collapses in BSE SensexFrom this table, we can see that the major falls are accom panied by the withdrawal of investments by FIIs. Take the case on January 18, 2008, the Sensex lost almost 687 points. Here, the net gross sales by FIIs were Rs. 1348.40 Crores. This is a major contributor to the fall on that day. But contrary to that day, take the case on January 21, 2008, the Sensex lost 1408 points and the gross sales was Rs. 1060.30 Crores and the purchases were Rs. 3062.00 Crores. So this can be concluded that after the fall of market, FIIs had invested again into the market. From this, we can see the effect of FIIs.Net Investments of FII from 2006-09YearNet Investment200636539.7200771486.52008-29169200915281.8Now we analyze the net investments graph from 2006 to 2008. From this, we can see that there was small decrease in investments in the year 2006. But there was a steep increase in the year 2007-08. This was the best period in Indian stock market where stock prices were increased and the market was in good mood.When we take the investments in 2008, the ne t investments is negative.