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INTRODUCTION

Foreign direct investment is that investment, which is made to serve the business interests of

the investorin a company, which is in a different nation distinct from the investor's country of

origin. A parent business enterprise and its foreign affiliate are the two sides of the FDI

relationship. Together they comprise an MNC.

The parent enterprise through its foreign direct investment effort seeks to exercise substantial

control over the foreign affiliate company. 'Control' as defined by the UN, is ownership of

greater than or equal to 10% of ordinary shares or access to voting rights in an incorporated firm.

For an unincorporated firm one needs to consider an equivalent criterion. Ownership share

amounting to less than that stated above is termed as portfolio investment and is not categorized

as FDI.

FDI stands for Foreign Direct Investment, a component of a country's national financial

accounts. Foreign direct investment is investment of foreign assets into domestic structures,

equipment, and organizations. It does not include foreign investment into the stock markets.

Foreign direct investment is thought to be more useful to a country than investments in the equity

of its companies because equity investments are potentially "hot money" which can leave at the

first sign of trouble, whereas FDI is durable and generally useful whether things go well or

badly.

FDI or Foreign Direct Investment is any form of investment that earns interest in enterprises

which function outside of the domestic territory of the investor. FDIs require a business

relationship between a parent company and its foreign subsidiary. Foreign direct business

relationships give rise to multinational corporations. For an investment to be regarded as an FDI,

the parent firm needs to have at least 10% of the ordinary shares of its foreign affiliates. Theinvesting firm may also qualify for an FDI if it owns voting power in a business enterprise

operating in a foreign country.
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NEED FOR THE STUDY

When our then P.M Mr. Chandrasekhar announced about his plans to allow FDI in India, it

opened a Pandora's Box for us.it was then in 1991. Since then, our economy has been growing

manifolds. FDI enables to bring foreign investment in India as a result of which, our country can

be benefitted in many ways; namely-employment opportunities, better quality of life, better

products, better education and higher per capita income. Since 1991, our economy is growing so

rapidly that all the so called 'super powers" are keen on building strong relationship with our

country. India was a country rich in resources, but the problem was their optimum utilization.

FDI has solved this problem.as a result, all the retail biggies are attracted towards India. India is

giving tough competition to all developed countries, including china. This study is for analyzing

the situation when our economy would be one of the strongest in the world. This study will help

in findings the role of FDI in India

OBJECTIVES OF THE STUDY

1. To study about the concept of foreign direct investment (FDI)

2. To evaluate the role of FDI in Indian economy

3. To investigate the main motive of FDI

4. To analyze the advantages and disadvantages of FDI

5. To recommend the Indian government whether FDI is better or not

IMPORTANCE OF THE STUDY

This study on FDI is important because, FDI offers the following advantages to the Indian

economy:

Integration into global economy - Developing countries, which invite FDI, can gain access to a

wider global and better platform in the world economy.

Economic growth - This is one of the major sectors, which is enormously benefited from


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foreign direct investment. A remarkable inflow of FDI in various industrial units in India has

boosted the economic life of country.

Trade - Foreign Direct Investments have opened a wide spectrum of opportunities in the trading

of goods and services in India both in terms of import and export production. Products of

superior quality are manufactured by various industries in India due to greater amount of FDI

inflows in the country.

Technology diffusion and knowledge transferFDI apparently helps in the outsourcing of

knowledge from India especially in the Information Technology sector. Developing countries by

inviting FDI can introduce world-class technology and technical expertise and processes to their

existing working process. Foreign expertise can be an important factor in upgrading the existing

technical processes. For example, the civilian nuclear deal led to transfer of nuclear energy

know-how between the USA and India.

Increased competition - FDI increases the level of competition in the host country. Other

companies will also have to improve on their processes and services in order to stay in the

market. FDI enhanced the quality of products, services and regulates a particular sector.

Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in

the Indian market through Joint Ventures and collaboration concerns. The maximum amount of

the profits gained by the foreign firms through these joint ventures is spent on the Indian market.

Human Resources Development - Employees of the country which is open to FDI get acquaint

with globally valued skills.

Employment - FDI has also ensured a number of employment opportunities by aiding the setting

up of industrial units in various corners of India.

SCOPE OF THE STUDY

This study is based on the study of the concept of foreign direct investment (FDI). Here the

researcher is intended to evaluate the role of FDI in Indian economy as well as will try to

investigate the main motive of FDI in India by others and in international markets by Indian


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companies. This study will also include the analysis of advantages and disadvantages of FDI and

finally the researcher will recommend the Indian government whether FDI is better or not. Here

ATS Pvt. Ltd helped in completing the study on FDI.

RESEARCH METHODOLOGY OF THE STUDY

The study is based on secondary data and primary data up to some extent.

The collected data is tabulated and considering the data has made suitable considering the data

collected through secondary data annual reports has made interpretation, manuals, purchase

registers, storage records of the organization. The main sources of information is from economic

reports and statistical reports on Indian economy provided by Aditya Trading SolutionsLtd

of the years 2011-2012, rest of the information collected from the brochures of the company

and the companys website.

.

SOURCES OF INFORMATION

The data required for the study has been collected from both primary and secondary sources.

The primary sources are Annual Reports, Brochures, and it also includes the company profile

and the personal interview with the proprietor of the company.

The secondary sources available were books of various authors and websites of relevant topic.

LIMITATIONS OF THE STUDY:

The study has the following limitations:

1. The study is limited only for a period

2. There may be approximations in calculating shares prices and the figures from the annualreports.

3. The study is purely based on data provided by the company.


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INTRODUCTION

It is well known that the growth of multinational enterprise (MNE) activity in the form of foreign

direct investment (FDI) has grown at a faster rate than most other international transactions,

particularly trade flows between countries. In many ways, MNEs are the control centers for a

large portion of international transactions other than FDI. For example, almost half of trade flows

are intrafirm; i.e., trade within a MNE.1

These real-world trends have led to substantial recent interest by the international economics

literature to empirically investigate the fundamental factors that drive FDI behavior. This paper

provides a critical review of this literature with a discussion of future research areas. The

literature is large enough that a comprehensive review is not possible. Instead this paper

highlights what the author considers the more important and novel papers in the empirical

literature on the determinants of FDI. The topic of the effects of MNE activity on host and home

countries will not be addressed, but could easily be the focus of its own literature survey.

On final note, this surveys focus will be more recent papers, and the interested reader should

refer to Caves (1996) for a broader discussion of earlier papers in the literature. To organize

ideas, we first examine the literature that motivates and tests its analysis off determinants from a

partial equilibrium view of the MNE. After briefly discussing the internal firm-specific factors

that motivate a firm to become an MNE in the first place, we then examine the external factors

that are likely determinants of the location and magnitude of FDI byMNEs. These external

factors range from exchange rates and taxes, to factors that are likely more endogenous with FDI

activity, such as trade protection and trade flows.

These latterdeterminants of FDI, such as trade flows, opens up the larger issue of the quite

varying motivations for FDI which are ignored to a large degree by the partial equilibrium

literatures on the effects of exchange. the effects of exchange rates and taxes. Such questions are

key in the literature reviewed in the second half of the paper the recent work to develop the

theory and estimation of general equilibrium models of MNE behavior.

FIRM CHARACTERISTICS THAT AFFECT THE MNE DECISION.


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The most fundamental question about FDI activity is why a firm would choose to service foreign

market through affiliate production, rather than other options such as exporting or licensing

arrangements. The standard answer revolves around the presence of intangible assets specific to

the firm, such as technologies, managerial skills, etc. Such assets are public goods within a firm

to the extent that using such assets in one plant does not diminish use of the asset in other plants.

This explains why firms with such assets are more likely to have multiple plants, ceteris paribus,

but not necessarily why they would be multinational. To explain why such assets lead to an

MNE decision, we often note the potential for market failure connected with these assets. A

standard hypothesis is that it is difficult to fully appropriate rents from such assets through an

arrangement with an external party. For example, a licensee will not offer full value in

negotiations over a contract if the intangible asset is not fully revealed, but the licensor will not

want to reveal the asset fully until a contract is finalized. In such situations, the optimal decision

may be for the firm to internalize the market transaction, which would mean establishing its own

production affiliate in the market.

Early conceptualization of this notion includes Oliver Williamsons work on transactions costs,

and the development of the ownership location-internalization (OLI) paradigm (e.g., see

Rugman, 1980, and Dunning, 2001).Recent work has applied more formal theory of the firm,

such as hold-up issues and agency theory, to1 For example, Census (2001) finds that 47% of the

U.S.s trade with other countries was intrafirm in 1999.provide more formal frameworks for

understanding market failures that lead to a firm becoming an MNE (e.g., see chapter 5 of

Navaretti and Venables, 2004, for an overview).Testing these hypotheses is difficult because the

firm-specific factors leading to the FDIdecision are inherently unobservable. As a result, R&D

intensity (the ratio of research and development expenditures to assets or sales) and advertising

intensity have been primarily used as proxies for the presence of intangible assets and then used

as explanatory variables in firmlevelstudies of whether firms are multinational or not. In fact, it

has become standard to include such variables in any firm-level analysis of the FDI decision. Myown experience and reading of the literature suggests that R&D intensity is almost invariably

positively correlated with multinationality regardless of the data sample, while the evidence for

advertising intensity is much more mixed.


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An alternative test is provided by Morck and Yeung (1992) which found that publicly-traded

U.S. firms announcing foreign acquisitions experienced positive abnormal returns to their stock

only if they had a significant level of R&D and advertising intensity. In the final analysis,

however, it is not possible to suggest that these empirical analyses irrefutably confirm the

internalization hypothesis. Such measures as R&D and advertising intensity may be proxying for

other forces that lead to FDI, rather than those connected with the internalization In the rest of

this literature review the focus is much more on the exogenous and policy factors that affect the

magnitude of FDI that we observe, not whether FDI will occur or not in the first place. Industry

and country-level studies of partial equilibrium specifications either ignore such micro-level

factors or assume they are controlled for though an average industry- or country-level fixed

effect. The general equilibrium work on the other hand models it directly, but then ties it back to

country-level features (primarily country endowments) to again generate a country-level average

effect. For example, FDI is more likely to originate in countries abundant in capital and skilled-

labor which are necessary for generating the firm-specific assets that create e need to internalize

through FDI.

Partial Equilibrium Analysis of External Factors Affecting FDI Decisions and Location. A large

body of literature examining determinants of FDI begins with a partial equilibrium firm-level

framework based in industrial organization and finance to motivate empirical analysis. These

studies then typically examine how exogenous macroeconomic factors affect the firms FDI

decision, with the primary focus on exchange rate movements, taxes, and to a more limited

extent, tariffs. Earlier studies often then use industry-level (or even country level)data to explore

these hypotheses, while more recent work has had firm- and plant-level data available to more

appropriately match the firm-level theory.

Exchange Rate Effects The effect of exchange rates on FDI has been examined both with respect

to changes in the bilateral level of the exchange rate between countries and in the volatility of

exchange rates. The export market and the extent to which this affects the relationship-specificity

between the multinational firm and the Chinese factories. Until Froot and Stein (1991), the

common wisdom was that (expected) changes in the level of the exchange rate would not alter

the decision by a firm to invest in a foreign country. In rough terms, while an appreciation of a

firms home countrys currency would lower the cost of assets abroad, the (expected) nominal


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return goes down as well in the home currency, leaving the rate of return identical. Root and

Stein (1991) presents an imperfect capital markets story for why a currency appreciation may

actually increase foreign investment by a firm.

Imperfect capital markets mean that the internal cost of capital is lower than borrowing from

external sources. Thus, an appreciation of the currency leads to increased firm wealth and

provides the firm with greater low-cost funds to invest relative to the counterpart firms in the

foreign country that experience the devaluation of their currency. Froot and Stein (1991)

provides empirical evidence of increased inward FDI with currency depreciation through simple

regressions using a small number of annual US aggregate FDI observations, which Stevens

(1998) finds is quite fragile to specification. Klein and Rosengren (1994), however, confirms that

exchange rate depreciation increases US FDI using various samples of US FDI disaggregated by

country source and type of FDI.Blonigen (1997) provides another way in which changes in the

exchange rate level may affect inward FDI for a host country. If FDI by a firm is motivated by

acquisition of assets that are transferable within a firm across many markets without a currency

transaction (e.g., firm specific assets, such as technology, managerial skills, etc.), then an

exchange rate appreciation of the foreign currency will lower the price of the asset in that foreign

currency, but will not necessarily lower the nominal returns.

In other words, a depreciation of a countrys currency may very well allow a fire sale of such

transferable assets to foreign firms operating in global.3 McCulloch (1989, p. 188) provides a

simple sketch of this argument The most profound effect has been seen in developing countries,

where yearly foreign direct investment flows have increased from an average of less than $10

billion in the 1970s to a yearly average of less than $20 billion in the 1980s, to explode in the

1990s from $26.7billion in 1990 to $179 billion in 1998 and $208 billion in 1999 and now

comprise a large portion of global FDI.. Driven by mergers and acquisitions and

internationalization of production in a range of industries, FDI into developed countries last year

rose to $636 billion, from $481 billion in 1998 (Source: UNCTAD)

Proponents of foreign investment point out that the exchange of investment flows benefits both

the home country (the country from which the investment originates) and the host country (the

destination of the investment). Opponents of FDI note that multinational conglomerates are able


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to wield great power over smaller and weaker economies and can drive out much local

competition. The truth lies somewhere in the middle.

For small and medium sized companies, FDI represents an opportunity to become more actively

involved in international business activities. In the past 15 years, the classic definition of FDI as

noted above has changed considerably. This notion of a change in the classic definition,

however, must be kept in the proper context. Very clearly, over 2/3 of direct foreign investment

is still made in the form of fixtures, machinery, equipment and buildings. Moreover, larger

multinational corporations and conglomerates still make the overwhelming percentage of FDI.

But, with the advent of the Internet, the increasing role of technology, loosening of direct

investment restrictions in many markets and decreasing communication costs means that newer,

non-traditional forms of investment will play an important role in the future. Many

governments, especially in industrialized and developed nations, pay very close attention to

foreign direct investment because the investment flows into and out of their economies can and

does have a significant impact. In the United States, the Bureau of Economic Analysis, a section

of the U.S. Department of Commerce, is responsible for collecting economic data about the

economy including information about foreign direct investment flows. Monitoring this data is

very helpful in trying to determine the impact of such investments on the overall economy, but is

especially helpful in evaluating industry segments. State and local governments watch closely

because they want to track their foreign investment attraction programs for successful outcomes.

As mentioned above, the overwhelming majority of foreign direct investment is made in the

form of fixtures, machinery, equipment and buildings. This investment is achieved or

accomplished mostly via mergers & acquisitions. In the case of traditional manufacturing, this

has been the primary mechanism for investment and it has been heretofore very efficient. Within

the past decade, however, there has been a dramatic increase in the number of technology

startups and this, together with the rise in prominence of Internet usage, has fostered increasing

changes in foreign investment patterns. Many of these high tech startups are very small

companies that have grown out of research & development projects often affiliated with major

universities and with some government sponsorship. Unlike traditional manufacturers, many of

these companies do not require huge manufacturing plants and immense warehouses to store

inventory. Another factor to consider is the number of companies whose primary product is an
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intellectual property right such as a software program or a software-based technology or process.

Companies such as these can be housed almost anywhere and therefore making a capital

investment in them does not require huge outlays for fixtures, machinery and plants.

In many cases, large companies still play a dominant role in investment activities in small, high

tech oriented companies. However, unlike in the past, these larger companies are not necessarily

acquiring smaller companies outright. There are several reasons for this, but the most important

one is most likely the risk associated with such high tech ventures. In the case of mature

industries, the products are well defined. The manufacturer usually wants to get closer to its

foreign market or wants to circumvent some trade barrier by making a direct foreign investment.

The major risk here is that you do not sell enough of the product that you manufactured.

However, you have added additional capacity and in the case of multinational corporations this

capacity can be used in a variety of ways.

High tech ventures tend to have longer incubation periods. That is, the product tends to require

significant development time. In the case of software and other intellectual property type

products, the product is constantly changing even before it hits the marketplace. This makes the

investment decision more complicated. When you invest in fixtures and machinery, you know

what the real and book value of your investment will be. When you invest in a high tech venture,

there is always an element of uncertainty. Unfortunately, the recent spate of dot.com failures is

quite illustrative of this point.

Therefore, the expanded role of technology and intellectual property has changed the foreign

direct investment playing field. Companies are still motivated to make foreign investments, but

because of the vagaries of technology investments, they are now finding new vehicles to

accomplish their goals. Consider the following:

LICENSING AND TECHNOLOGY TRANSFER.

Licensing and tech transfer have been essential in promoting collaboration between the academic

and business communities. Ever since legal hurdles were removed that allowed universities to

hold title to research and development done in their labs, licensing agreements have helped

turned raw technology into finished products that are viable in competitive marketplaces. With


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some help from a variety of government agencies in the form of grants for R&D as well as other

financial assistance for such things as incubator programs, once timid college researchers are

now stepping out and becoming cutting edge entrepreneurs. These strategic alliances have had a

serious impact in several high tech industries, including but not limited to: medical and

agricultural biotechnology, computer software engineering, telecommunications, advanced

materials processing, ceramics, thin materials processing, photonics, digital multimedia

production and publishing, optics and imaging and robotics and automation. Industry clusters are

now growing up around the university labs where their derivative technologies were first

discovered and nurtured. Licensing agreements allow companies to take full advantage of new

and exciting technologies while limiting their overall risk to royalty payments until a particular

technology is fully developed and thus ready to put new products into the manufacturing

pipeline.

RECIPROCAL DISTRIBUTION AGREEMENTS.

Actually, this type of strategic alliance is more trade-based, but in a very real sense it does in fact

represent a type of direct investment. Basically, two companies, usually within the same or

affiliated industries, agree to act as a national distributor for each others products. The classical

example is to be found in the furniture industry. A U.S.-based manufacturer of tables signs a

reciprocal distribution agreement with a Spanish-based manufacturer of chairs. Both companies

gain direct access to the others distribution network without having to pay distributor support

payments and other related expenses found within the distribution channel and neither company

can hurt the others market for its products. Without such an agreement in place, the Spanish

manufacturer might very well have to invest in a national sales office to coordinate its distributor

network, manage warehousing, inventory and shipping as well as to handle administrative tasks

such as accounting, public relations and advertising.

JOINT VENTURE AND OTHER HYBRID STRATEGIC ALLIANCES.

The more traditional joint venture is bi-lateral, that is it involves two parties who are within the

same industry who are partnering for some strategic advantage. Typical reasons might include a

need for access to proprietary technology that might tip the competitive edge in another

competitors favor, desire to gain access to intellectual capital in the form of ultra-expensive


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human resources, access to heretofore closed channels of distribution in key regions of the

world. One very good reason why many joint ventures only involve two parties is the difficulty

in integrating different corporate cultures. With two domestic companies from the same country,

it would still be very difficult. However, with two companies from different cultures, it is almost

impossible at times. This is probably why pure joint ventures have a fairly high failure rate only

five years after inception. Joint ventures involving three or more parties are usually called

syndicates and are most often formed for specific projects such as large construction or public

works projects that might involve a wide variety of expertise and resources for successful

completion. In some cases, syndicates are actually easier to manage because the project itself

sets certain limits on each party and close cooperation is not always a prerequisite for ultimate

success of the endeavor.

PORTFOLIO INVESTMENT.

Yes, we know that youre paying attention and no were not trying to trip you up here.

Remember our definition of foreign direct investment as it pertains to controlling interest. For

most of the latter part of the 20 th century when FDI became an issue, a companys portfolio

investments were not considered a direct investment if the amount of stock and/or capital was

not enough to garner a significant voting interest amongst shareholders or owners. However,

two or three companies with "soft" investments in another company could find some mutual

interests and use their shareholder power effectively for management control. This is another

form of strategic alliance, sometimes called "shadow alliances". So, while most company

portfolio investments do not strictly qualify as a direct foreign investment, there are instances

within a certain context that they are in fact a real direct investment.

FOREIGN DIRECT INVESTMENT IN INDIA

These three letters stand for foreign direct investment. The simplest explanation of FDI would be

a direct investment by a corporation in a commercial venture in another country. A key to

separating this action from involvement in other ventures in a foreign country is that the business

enterprise operates completely outside the economy of the corporations home country. The

investing corporation must control 10 percent or more of the voting power of the new venture.


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According to history the United States was the leader in the FDI activity dating back as far as the

end of World War II. Businesses from other nations have taken up the flag of FDI, including

many who were not in a financial position to do so just a few years ago.

The practice has grown significantly in the last couple of decades, to the point that FDI has

generated quite a bit of opposition from groups such as labor unions. These organizations have

expressed concern that investing at such a level in another country eliminates jobs. Legislation

was introduced in the early 1970s that would have put an end to the tax incentives of FDI. But

members of the Nixon administration, Congress and business interests rallied to make sure that

this attack on their expansion plans was not successful. One key to understanding FDI is to get a

mental picture of the global scale of corporations able to make such investment. A carefully

planned FDI can provide a huge new market for the company, perhaps introducing products andservices to an area where they have never been available. Not only that, but such an investment

may also be more profitable if construction costs and labor costs are less in the host country.

The definition of FDI originally meant that the investing corporation gained a significant number

of shares (10 percent or more) of the new venture. In recent years, however, companies have

been able to make a foreign direct investment that is actually long-term management control as

opposed to direct investment in buildings and equipment.

FDI growth hasbeen a key factor in the international nature of business that many are familiar

with in the 21st century. This growth has been facilitated by changes in regulations both in the

originating country and in the country where the new installation is to be built. Corporations

from some of the countries that lead the worlds economy have found fertile soil for FDI in

nations where commercial development was limited, if it existed at all. The dollars invested in

such developing-country projects increased 40 times over in less than 30 years. The financial

strength of the investing corporations has sometimes meant failure for smaller competitors in the

target country. One of the reasons is that foreign direct investment in buildings and equipment

still accounts for a vast majority of FDI activity. Corporations from the originating country gain

a significant financial foothold in the host country. Even with this factor, host countries may

welcome FDI because of the positive impact it has on the smaller economy.


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Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as

factories, mines and land. Increasing foreign investment can be used as one measure of growing

economic globalization. Figure below shows net inflows of foreign direct investment as a

percentage of gross domestic product (GDP). The largest flows of foreign investment occur

between the industrialized countries (North America, Western Europe and Japan).But flows to

non-industrialized countries are increasing sharply. Foreign direct investment (FDI) refers to

long term participation by country A into country B.

It usually involves participation in management, joint-venture, transfer of

technology and expertise. There are two types of FDI: inward foreign direct investment and

outward foreign direct investment, resulting in a net FDI inflow (positive or negative) .Foreign

direct investment reflects the objective of obtaining a lasting interest by a resident entity in one

economy (direct investor) in an entity resident in an economy other than that of the investor

(direct investment enterprise).The lasting interest implies the existence of a long-term

relationship between the direct investor and the enterprise and a significant degree of influence

on the management of the enterprise. Direct investment involves both the initial transaction

between the two entities and all subsequent capital transactions between them and among

affiliated enterprises, both incorporated and unincorporated.

Foreign Direct Investmentwhen a firm invests directly in production or other facilities, overwhich it has effective control, in a foreign country.

Manufacturing FDI requires the establishment of production facilities. Service FDI requires building service facilities or an investment foothold via capital

contributions or building office facilities.

Foreign subsidiariesoverseas units or entities. Host countrythe country in which a foreign subsidiary operates. Flow of FDIthe amount of FDI undertaken over a given time. Stock of FDItotal accumulated value of foreign-owned assets. Outflows/Inflows of FDIthe flow of FDI out of or into a country. Foreign Portfolio Investmentthe investment by individuals, firms, or public bodies in foreign

financial instruments.

Stocks, bonds, other forms of debt.
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Differs from FDI, which is the investment in physical assets.

Portfolio theory the behavior of individuals or firms administering large amounts of

financial assets.

Product Life-Cycle Theory

Ray Vernon asserted that product moves to lower income countries as products move throughtheir product life cycle.

The FDI impact is similar: FDI flows to developed countries for innovation, and from developedcountries as products evolve from being innovative to being mass-produced.

The Eclectic Paradigm

Distinguishes between: Structural market failure external condition that gives rise to monopoly advantages as a

result of entry barriers

Transactional market failure failure of intermediate product markets totransact goods and services at a lower cost than internationalization

The Dynamic Capability Perspective

A firms ability to diffuse, deploy, utilize and rebuild firm-specific resources for a competitiveadvantage.

Ownership specific resources or knowledge are necessary but not sufficient for internationalinvestment or production success.

It is necessary to effectively use and build dynamic capabilities for quantity and/or quality baseddeployment that is transferable to the multinational environment.

Firms develop centers of excellence to concentrate core competencies to the host environment.

Monopolistic Advantage Theory

An MNE has and/or creates monopolistic advantages that enable it to operate subsidiaries abroadmore profitably than local competitors.

Monopolistic Advantage comes from:


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Superior knowledge production technologies, managerial skills, industrial organization,knowledge of product.

Economies of scalethrough horizontal or vertical FDIInternationalization Theory

When external markets for supplies, production, or distribution fails to provide efficiency,companies can invest FDI to create their own supply, production, or distribution streams.

Advantages Avoid search and negotiating costs Avoid costs of moral hazard (hidden detrimental action by external partners) Avoid cost of violated contracts and litigation Capture economies of interdependent activities Avoid government intervention Control supplies Control market outlets Better apply cross-subsidization, predatory pricing and transfer pricing

HISTORY

In the years after the Second World War global FDI was dominated by the United States, as

much of the world recovered from the destruction brought by the conflict. The US accounted foraround three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since

that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve

of OECD countries.

FDI has grown in importance in the global economy with FDI stocks now constituting over 20

percent of global GDP. Foreign direct investment (FDI) is a measure of foreign ownership of

productive assets, such as factories, mines and land. Increasing foreign investment can be used as

one measure of growing economic globalization. Figure below shows net inflows of foreign

direct investment as a percentage of gross domestic product (GDP). The largest flows of foreign

investment occur between the industrialized countries (North America, Western

Europe and Japan). But flows to non-industrialized countries are increasing sharply.
http://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/Western_Europehttp://en.wikipedia.org/wiki/North_America


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FOREIGN DIRECT INVESTOR

A foreign direct investor is an individual, an incorporated or unincorporated public or private

enterprise, a government, a group of related individuals, or a group of related incorporated and/or

unincorporated enterprises which has a direct investment enterprise that is, a subsidiary,

associate or branch operating in a country other than the country or countries of residence of

the foreign direct investor or investors.

TYPES OF FOREIGN DIRECT INVESTMENT: AN OVERVIEW

FDIs can be broadly classified into two types:

1 Outward FDIs

2 Inward FDIs

This classification is based on the types of restrictions imposed, and the various prerequisites

required for these investments.

Outward FDI: An outward-bound FDI is backed by the government against all types of

associated risks. This form of FDI is subject to tax incentives as well as disincentives of various

forms. Risk coverage provided to the domestic industries and subsidies granted to the local firms

stand in the way of outward FDIs, which are also known as 'direct investments abroad.'
http://www.economywatch.com/foreign-direct-investment/http://www.economywatch.com/foreign-direct-investment/


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Inward FDIs: Different economic factors encourage inward FDIs. These include interest

loans, tax breaks, grants, subsidies, and the removal of restrictions and limitations. Factors

detrimental to the growth of FDIs include necessities of differential performance and limitations

related with ownership patterns.

Other categorizations of FDI

Other categorizations of FDI exist as well. Vertical Foreign Direct Investment takes place when a

multinational corporation owns some shares of a foreign enterprise, which supplies input for it or

uses the output produced by the MNC.

Horizontal foreign direct investments happen when a multinational company carries out a similar

business operation in different nations.

Horizontal FDI the MNE enters a foreign country to produce the same products product athome.

Conglomerate FDIthe MNE produces products not manufactured at home. Vertical FDIthe MNE produces intermediate goods either forward or backward in the supply

stream.

Liability of foreignness the costs of doing business abroad resulting in a competitivedisadvantage.

METHODS OF FOREIGN DIRECT INVESTMENTS

The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an

economy through any of the following methods:

by incorporating a wholly owned subsidiary orcompany by acquiring shares in an associated enterprise through a mergeror an acquisition of an unrelated enterprise

participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:

low corporate tax and income tax rates

tax holidays
http://www.economywatch.com/foreign-direct-investment/http://en.wikipedia.org/wiki/Subsidiaryhttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Joint_venturehttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Tax_holidayhttp://en.wikipedia.org/wiki/Tax_holidayhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Joint_venturehttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Subsidiaryhttp://www.economywatch.com/foreign-direct-investment/


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other types of tax concessions preferential tariffs special economic zones investment financial subsidies soft loan or loan guarantees free land or land subsidies relocation & expatriation subsidies job training & employment subsidies infrastructure subsidies R&D support derogation from regulations (usually for very large projects)

ENTRY MODE

The manner in which a firm chooses to enter a foreign market through FDI. International franchising Branches Contractual alliances Equity joint ventures Wholly foreign-owned subsidiaries Investment approaches: Greenfield investment (building a new facility) Cross-border mergers Cross-border acquisitions Sharing existing facilities
http://en.wikipedia.org/wiki/Tariffshttp://en.wikipedia.org/wiki/Special_economic_zonehttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Guaranteeshttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Guaranteeshttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Special_economic_zonehttp://en.wikipedia.org/wiki/Tariffs


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WHY IS FDI IMPORTANT FOR ANY CONSIDERATION OF GOING GLOBAL?

The simple answer is that making a direct foreign investment allows companies to accomplish

several tasks:

1 .Avoiding foreign government pressure for local production.

2. Circumventing trade barriers, hidden and otherwise.

3. Making the move from domestic export sales to a locally-based national sales office.

4. Capability to increase total production capacity.

5.Opportunities for co-production, joint ventures with local partners, joint marketing

arrangements, licensing, etc;

A more complete response might address the issue of global business partnering in very general

terms. While it is nice that many business writers like the expression, think globally, act

locally, this often used clich does not really mean very much to the average business executive

in a small and medium sized company. The phrase does have significant connotations for

multinational corporations. But for executives in SMEs, it is still just another buzzword. The

simple explanation for this is the difference in perspective between executives of multinational

corporations and small and medium sized companies. Multinational corporations are almost

always concerned with worldwide manufacturing capacity and proximity to major

markets. Small and medium sized companies tend to be more concerned with selling their

products in overseas markets. The advent of the Internet has ushered in a new and very different

mindset that tends to focus more on access issues. SMEs in particular are now focusing on

access to markets, access to expertise and most of all access to technology.

THE STRATEGIC LOGIC BEHIND FDI

Resources seekinglooking for resources at a lower real cost. Market seekingsecure market share and sales growth in target foreign market.


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Efficiency seeking seeks to establish efficient structure through useful factors, cultures,policies, or markets.

Strategic asset seekingseeks to acquire assets in foreign firms that promote corporate longterm objectives.

Enhancing Efficiency from Location Advantages

Location advantages - defined as the benefits arising from a host countrys comparativeadvantages.- Better access to resources

Lower real cost from operating in a host country Labor cost differentials Transportation costs, tariff and non-tariff barriers Governmental policies


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Improving Performance from Structural Discrepancies

Structural discrepancies are the differences in industry structure attributes between homeand host countries. Examples include areas where:

Competition is less intense Products are in different stages of their life cycle Market demand is unsaturated There are differences in market sophisticationIncreasing Return from Ownership Advantages

Ownership Advantages come from the application of proprietary tangible and intangibleassets in the host country.

Reputation, brand image, distribution channels Technological expertise, organizational skills, experience Core competenceskills within the firm that competitors cannot easily imitate or match.

Ensuring Growth from Organizational Learning

MNEs exposed to multiple stimuli, developing: Diversity capabilities Broader learning opportunities Exposed to: New markets New practices New ideas New cultures


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New competitionTHE IMPACT OF FDI ON THE HOST COUNTRY

Employment

Firms attempt to capitalize on abundant and inexpensive labor. Host countries seek to have firms develop labor skills and sophistication. Host countries often feel like least desirable jobs are transplanted from home countries. Home countries often face the loss of employment as jobs move.

FDI Impact on Domestic Enterprises

Foreign invested companies are likely more productive than local competitors. The result is uneven competition in the short run, and competency building efforts in the longer

term.

It is likely that FDI developed enterprises will gradually develop local supporting industries,supplier relationships in the host country.

IMPACT OF FOREIGN DIRECT INVESTMENT ON INDIAN ECONOMY

The economy of India is the third largest in the world as measured by purchasing power parity

(PPP), with a gross domestic product (GDP) of US $3.611 trillion. When measured in USD

exchange-rate terms, it is the tenth largest in the world, with a GDP of US $800.8 billion (2006).

Is the second fastest growing major economy in the world, with a GDP growth rate of 8.9% at

the end of the first quarter of 2006-2007. However, India's huge population results in a per capita

income of $3,300 at PPP and $714 at nominal.

The economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a

multitude of services. Although two-thirds of the Indian workforce still earn their livelihood

directly or indirectly through agriculture, services are a growing sector and are playing an


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increasingly important role of India's economy. The advent of the digital age, and the large

number of young and educated populace fluent in English, is gradually transforming India as an

important 'back office' destination for global companies for the outsourcing of their customer

services and technical support.

India is a major exporter of highly-skilled workers in software and financial services, and

software engineering. India followed a socialist-inspired approach for most of its independent

history, with strict government control over private sector participation, foreign trade, and

foreign direct investment. However, since the early 1990s, India has gradually opened up its

markets through economic reforms by reducing government controls on foreign trade and

investment. The privatization of publicly owned industries and the opening up of certain sectors

to private and foreign interests has proceeded slowly amid political debate. India faces aburgeoning population and the challenge of reducing economic and social inequality. Poverty

remains a serious problem, although it has declined significantly since independence, mainly due

to the green revolution and economic reforms. FDI up to 100% is allowed under the automatic

route in all activities/sectors except the following which will require approval of the

Government: Activities/items that require an Industrial License; Proposals in which the foreign

collaborator has a previous/existing venture/tie up in India

FDI in India includes, FDI inflows as well as FDI outflow from India. Also FDI foreign direct

investment and FII foreign institutional investors are a separate case study while preparing a

report on FDI and economic growth in India. FDI and FII in India have registered growth in

terms of both FDI flows in India and outflow from India. The FDI statistics and data are evident

of the emergence of India as both a potential investment market and investing country. FDI has

helped the Indian economy grow, and the government continues to encourage more investments

of this sort - but with $5.3 billion in FDI. India gets less than 10% of the FDI of China. Foreign

direct investment (FDI) in India has played an important role in the development of the Indian

economy. FDI in India has - in a lot of ways - enabled India to achieve a certain degree of

financial stability, growth and development. This money has allowed India to focus on the areas

that may have needed economic attention, and address the various problems that continue to

challenge the country. India has continually sought to attract FDI from the worlds major

investors.


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In 1998 and 1999, the Indian national government announced a number of reforms designed to

encourage FDI and present a favorable scenario for investors. FDI investments are permitted

through financial collaborations, through private equity or preferential allotments, by way of

capital markets through Euro issues, and in joint ventures. FDI is not permitted in the arms,

nuclear, railway, coal & lignite or mining industries. A number of projects have been announced

in areas such as electricity generation, distribution and transmission, as well as the development

of roads and highways, with opportunities for foreign investors. The Indian national government

also provided permission to FDIs to provide up to 100% of the financing required for the

construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores,

approximately $352.5m. Currently, FDI is allowed in financial services, including the growing

credit card business.

These services include the non-banking financial services sector. Foreign investors can buy up to

40% of the equity in private banks, although there is condition that stipulates that these banks

must be multilateral financial organizations. Up to 45% of the shares of companies in the global

mobile personal communication by satellite services (GMPCSS) sector can also be

purchased. By 2004, India received $5.3 billion in FDI, big growth compared to previous years,

but less than 10% of the $60.6 billion that flowed into China. Why does India, with a stable

democracy and a smoother approval process, lag so far behind China in FDI amounts? Although

the Chinese approval process is complex, it includes both national and regional approval in the

same process. Federal democracy is perversely an impediment for India. Local authorities are not

part of the approvals process and have their own rights, and this often leads to projects getting

bogged down in red tape and bureaucracy. India actually receives less than half the FDI that the

federal government approves.

INVESTMENT RISKS IN INDIA

Sovereign Risk

India is an effervescent parliamentary democracy since its political freedom from British rule

more than 50 years ago. The country does not face any real threat of a serious revolutionary

movement which might lead to a collapse of state machinery. Sovereign risk in India is hence nil

for both "foreign direct investment" and "foreign portfolio investment." Many Industrial and


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Business houses have restrained themselves from investing in the North-Eastern part of the

country due to unstable conditions. Nonetheless investing in these parts is lucrative due to the

rich mineral reserves here and high level of literacy. Kashmir on the northern tip is a militancy

affected area and hence investment in the state of Kashmir are restricted by law.

Political Risk

India has enjoyed successive years of elected representative government at the Union as well as

federal level. India suffered political instability for a few years in the sense there was no single

party which won clear majority and hence it led to the formation of coalition governments.

However, political stability has firmly returned since the general elections in 1999, with strong

and healthy coalition governments emerging. Nonetheless, political instability did not change

India's bright economic course though it delayed certain decisions relating to the economy.

Economic liberalization which mostly interested foreign investors has been accepted as essential

by all political parties including the Communist Party of India though there are bleak chances of

political instability in the future, even if such a situation arises the economic policy of India

would hardly be affected... Being a strong democratic nation the chances of an army coup or

foreign dictatorship are minimal. Hence, political risk in India is practically absent.

Commercial Risk

Commercial risk exists in any business ventures of a country. Not each and every product or

service is profitably accepted in the market. Hence it is advisable to study the demand / supply

condition for a particular product or service before making any major investment. In India one

can avail the facilities of a large number of market research firms in exchange for a professional

fee to study the state of demand / supply for any product. As it is, entering the consumer market

involves some kind of gamble and hence involves commercial risk

Risk Due To Terrorism

In the recent past, India has witnessed several terrorist attacks on its soil which could have a

negative impact on investor confidence. Not only business environment and return on

investment, but also the overall security conditions in a nation have an effect on FDI's. Though

some of the financial experts think otherwise. They believe the negative impact of terrorist


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attacks would be a short term phenomenon. In the long run, it is the micro and macro economic

conditions of the Indian economy that would decide the flow of Foreign investment and in this

regard India would continue to be a favorable investment destination.

FDI POLICY IN INDIA

Foreign Direct Investment Policy

FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken.

Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes

by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy

announcement by SIA are subsequently notified by RBI under FEMA. All Press Notes are

available at the website of Department of Industrial Policy & Promotion. FDI Policy permits FDI

up to 100 % from foreign/NRI investor without prior approval in most of the sectors including

the services sector under automatic route. FDI in sectors/activities under automatic route does

not require any prior approval either by the Government or the RBI. The investors are required to

notify the Regional office concerned of RBI of receipt of inward remittances within 30 days of

such receipt and will have to file the required documents with that office within 30 days after

issue of shares to foreign investors.

The Foreign direct investment scheme and strategy depends on the respective FDI norms and

policies in India. The FDI policy of India has imposed certain foreign direct investment

regulations as per the FDI theory of the Government of India. These include FDI limits in India

for example:

Foreign direct investment in India in infrastructure development projects excluding arms and

ammunitions, atomic energy sector, railways system , extraction of coal and lignite and mining

industry is allowed upto 100% equity participation with the capping amount as Rs. 1500 crores.

FDI figures in equity contribution in the finance sector cannot exceed more than 40% in banking

services including credit card operations and in insurance sector only in joint ventures with local

insurance companies.

FDI limit of maximum 49% in telecom industry especially in the GSM services
http://www.indiahousing.com/infrastructure-in-india/indian-railways-information.htmlhttp://www.indiahousing.com/infrastructure-in-india/mining-industry-in-india.htmlhttp://www.indiahousing.com/infrastructure-in-india/mining-industry-in-india.htmlhttp://www.indiahousing.com/infrastructure-in-india/telecom-industry-india.htmlhttp://www.indiahousing.com/infrastructure-in-india/telecom-industry-india.htmlhttp://www.indiahousing.com/infrastructure-in-india/mining-industry-in-india.htmlhttp://www.indiahousing.com/infrastructure-in-india/mining-industry-in-india.htmlhttp://www.indiahousing.com/infrastructure-in-india/indian-railways-information.html


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GOVERNMENT APPROVALS FOR FOREIGN COMPANIES DOING BUSINESS IN

INDIA

Government Approvals for Foreign Companies Doing Business in India or Investment Routes

for Investing in India, Entry Strategies for Foreign Investors India's foreign trade policy

has been formulated with a view to invite and encourage FDI in India. The Reserve Bank of

India has prescribed the administrative and compliance aspects of FDI. A foreign company

planning to set up business operations in India has the following options:

Investment under automatic route; and Investment through prior approval of Government.

Procedure under automatic route

FDI in sectors/activities to the extent permitted under automatic route does not require any prior

approval either by the Government or RBI. The investors are only required to notify the Regional

office concerned of RBI within 30 days of receipt of inward remittances and file the required

documents with that office within 30 days of issue of shares to foreign investors.

List of activities or items for which automatic route for foreign investment is not available,

include the following:

Banking NBFC's Activities in Financial Services Sector Civil Aviation Petroleum Including Exploration/Refinery/Marketing Housing & Real Estate Development Sector for Investment from Persons other

than NRIs/OCBs.

Venture Capital Fund and Venture Capital Company Investing Companies in Infrastructure & Service Sector Atomic Energy & Related Projects Defense and Strategic Industries Agriculture (Including Plantation) Print Media


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Broadcasting Postal Services

Procedure under Government approval

FDI in activities not covered under the automatic route, requires prior Government approval and

are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite

proposals involving foreign investment/foreign technical collaboration are also granted on the

recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI)

investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit,

Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100%

EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.

Investment by way of Share Acquisition

A foreign investing company is entitled to acquire the shares of an Indian company without

obtaining any prior permission of the FIPB subject to prescribed parameters/ guidelines. If the

acquisition of shares directly or indirectly results in the acquisition of a company listed on the

stock exchange, it would require the approval of the Security Exchange Board of India.

New investment by an existing collaborator in India

A foreign investor with an existing venture or collaboration (technical and financial) with an

Indian partner in particular field proposes to invest in another area, such type of additional

investment is subject to a prior approval from the FIPB, wherein both the parties are required to

participate to demonstrate that the new venture does not prejudice the old one.

General Permission of RBI under FEMA

Indian companies having foreign investment approval through FIPB route do not require any

further clearance from RBI for receiving inward remittance and issue of shares to the foreign

investors. The companies are required to notify the concerned Regional office of the RBI of

receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares

to the foreign investors or NRIs.

Participation by International Financial Institutions


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Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in

domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and

sector specific cap on FDI.

FDI IN SMALL SCALE SECTOR (SSI) UNITS

A small-scale unit cannot have more than 24 per cent equity in its paid up capital from any

industrial undertaking, either foreign or domestic.

If the equity from another company (including foreign equity) exceeds 24 per cent, even if the

investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses its

small-scale status and shall require an industrial license to manufacture items reserved for small-

scale sector. See also FDI in Small Scale Sector in India Further Liberalized
http://madaan.com/sectors.html#SSIhttp://madaan.com/sectors.html#SSI


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ADITYA TRADING SOLUTIONS (ATS)

We are a full spectrum investment management house specializing in online commodity trading.

We are one of the earliest members ofMCX and pioneers of online commodity broking in

TAMILNADU. ATS is promoted by young and dynamic entrepreneurs who have years of

proven experience in international derivative markets like NYMEX and worked with several

FORTUNE 500 companies. We are the largest online commodity Trading Company in

Tamilnadu. Our client base consists of a long list of satisfied institutional and retail client base

broking.

Mission

To provide cost effective Trading, Investment & Risk Management solutions to our ever

increasing client base in a professional and ethical way.

Services

Trading & investment access to MCX, NCDEX, NSE, BSE &Currency futures

Physical Delivery of commodities

Price risk management & Hedging

Wealth management with capital protection

Research & investment advisory

24 X 7 online back office

When you are a client of ATS you never have to worry about not knowing your account status.

You can access your Trading/Accounts statement any time, anyplace at your convenience

with help of our 24 X 7 online back office software.

Online Trading Platform

We provide you online trading software to help you place your orders at the click of a button.

We ensure that the entire process right from opening your account to placing an order online is

as simple and hassle free as possible.

Research Guidance

We provide you with highly successful Trading/Investment calls to enhance your profitability.


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Our research will guide you in making informed decisions which will make your

WEALTH GROW.

Research on your mobile

Imagine how profitable you can be if critical research calls are available to you on time. We

at ATS deliver trading calls to your mobile through SMS on time, every time.

Personalized service

We understand that each of our clients have unique set of trading requirements. We

customize our service package to suit your trading needs

PROMOTERS OF THE COMPANY

Mr. Vikas Jain - ATS Founder

Mr. Vikas Jain is Managing Director of Aditya Trading Solutions Private Limited (ATS) and

started the business along with co-promoter, Mr. Sunish C V in 2003. Prior to this, Mr. Vikas

Jain was the part of Asset Liability Management Team of Standard Chartered Bank. IN the year

2002 he was conferred the Best Performer Award for his outstanding performance in the

development of Wholesale Banking by Standard Chartered Bank. Earlier, Mr. Vikas Jain worked

as Risk Manager, in Chemoil Corp, which is the largest independent oil bunkering company in

United States of America and was in charge of oil trading positions for various group companies

in Chemoil Corp. Mr. Vikas Jain is part of many social service and charity programs and

channels his contributions through the Rotary club of Madras Downtown. Mr. Vikas Jain is a

post graduate in Business Management and holds Master in Finance from the Institute of

Chartered Financial Analysts of India.

Mr. Sunish C V - Director

Mr. Sunish C V is the CoFounder and Director of Aditya Trading Solutions Private Limited

(ATS). Sunish C V has a 10-year professional track in the field of investment banking, where he

has had a challenging career across various regions and businesses. Excelling in all

responsibilities handled, he has acquired functional expertise in Risk Management, Retail

Broking, Asset Management and corporate planning. As the Manager of the Risk Mgmt Team in

Chemoil Corp of USA, Sunish C V held a number of leadership roles, particularly in setting up


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Risk Management Policies and its implementation throughout various trading desks of Chemoil

group across the world. Prior to this, Sunish C V, held various positions in Systematix Corporate.

He was part of the team which leads the company from a one branch broking company to its

present stature of one of the leading brokerage houses in India. Sunish C V is a member of the

Institute of Chartered Financial Analysts of India. He also delivers guest lectures at National

Institute of Technology, Trichy, and ICFAI Business School. Sunish C V graduated in

Electronics and Communication Engineering, a Master of Business Administration from

Regional College of Engineering, Trichy and is a Chartered Financial Analyst. Sunish C V is

affiliated with certain non-profit organizations, including the Rotary Club.

Mr. Suresh Kumar P - Vice President

He is a Post graduate in Business administration (Marketing) from NIT Trichy, and a Bachelor of

Engineering (Mechanical) from HCE Chennai. He had worked with Apex management

consulting P ltd as a business consultant and had advised Murugappa group of companies,

Godrej saralee ltd and Reynolds pens for Business process reengineering, ERP implementation

and productivity improvement.

Ms. Divya B - Financial Controller

She is responsible for Operational development at ATS. She has done M.B.A (Finance) and

associated with ATS since August 2004. She started her career with ATS as Accounts Assistant,

later on appointed as Back Office Manager before assuming the role of Financial Controller.

Mr. Manoharan - Business Leader

Joined as a Dealer and promoted to Business Leader he has been awarded Best Branch Manager

for 2009. He is the person who gives equal importance to hard work and smart work. He has over

5 years of industry experience He has a graduate in Corporate Secretary ship and currently

pursuing Master of Business Administration - (Finance).

Mr. V Sunil Kumar - Branch Manager

Joined as a Dealer in ATS and was promoted to Branch Manager. He has even worked with

Astron Technologies Pvt Ltd and has over 3 years of industry experience. He is a commerce

graduate


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Mr. Lenish K - Risk Manager

He is in employment with Aditya Trading Solutions Private Limited (ATS) for the past Four and

Half years and showed a significance increase relationship between clients.

PRODUCTS AND SERVICES

EQUITY

The section attempts to assist and guide our valuable investors in their decision making process

with the thorough company-specific in-depth analysis. Based on the complete evaluation and

study of the stocks, done by our highly experienced and efficient research and analytical team,

the investors, with different risk appetites, may judge their past, present and likely future position

in equity shares. The report covers various aspects like valuation, revenue projection, future

financial position of the business, key ratios, trading comparables, market data, current

positioning of the company and industry, key developments and other relevant details. To make

the information reader friendly and simpler, it is also presented in tabular and graphical forms.

Analysis of impact of any important business, economic or political development, on the

revenues and margins is conduct to give a clear insight to the investors. Finally an investment

call to BUY, SELL, HOLD, or ACCUMULATE is provided by the analyst. Besides, a

similar approach is followed in offering industry reports as well.

DERIVATIVES

Derivatives are tools used to hedge position of an investor in a future position. However, in

recent times, Futures and Options have also grabbed investors attention in view of their

lucrative returns. A daily derivative report is provided in order to give an insight on the day-to-

day F&O highlights, overview, pivot table, nifty put call ratio over the month, daily future open

interestgainers & losers and recommendation. We also provide information on daily trading

strategy in the F&O.

IPO

This includes the extensive coverage of the companies entering the capital market with their

Initial Public Offers (IPO). Mostly, investors are unaware regarding the longevity of these

companies operations and where will they stand in future. Our IPO report, which incorporates


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all the relevant information including future earnings forecast, growth and its current market

performance, acts as a complete investment guide. Besides, our specialized team also ranks the

IPO, in order to make the investment decision simpler.

MUTUAL FUND

The section includes the daily updates in Mutual funds including New Fund Offers, Dividend

declaration, buying and selling by Mutual funds in equity as well as in debt market. Besides, it

also highlights the in-depth analysis on mutual funds, in which the news and developments,

category wise top gainers and over all top gainers schemes, portfolio and scheme analysis of top

three schemes are covered along with the updates on NFO and latest dividends.

COMMODITIES

A commodity, the only asset class that is negatively correlated to bonds is a powerful tool for

diversification, and has developed into a new opportunity for investors to get heavy returns. With

ATS, you can cash on the lucrative opportunity of investing in commodities or the raw

materials used to create the products that people really need, demand for which is endless and

ever increasing. Our report covers various aspects including Agricultural Commodities, Precious

Metals, Base Metals, Energy segment, coupled with the analysis of impact of the global and

domestic news. Finally an investment call to BUY, SELL, orHOLD, is provided by the

analyst, and a similar approach is followed in offering industry reports as well.

ANNOUNCEMENTS

Daily corporate announcements made by the top companies in the BSE and NSE are covered

throughout the day, coupled with the analysts view on the major business events.

COMPANY INFORMATION

An overall company snapshot captures all the relevant details including contact information, top

management, listings, latest financial results, market performance, news, shareholding pattern

and announcements.


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TRADING GUIDELINES

Equity trading is no more risky, as now ATS is there with you to take care of your investment

portfolio by providing assistance in the world of stock markets. We support our customers by

providing them timely recommendations, fact based reliable and "dependable" research calls.

Bundled with this, we also offer value-added tools and services to our customers to enrich their

trading know how.

Investing in equities is considered risky due to the highly volatile nature of stock markets and

their dependence on the varied factors ranging from global and domestic economic and political

situations.

However, the high returns from equities offset the underlying risk and can become the best

option for long term wealth accumulation. Hence, before investing you should always a consult a

knowledgeable and experienced expert who will guide you during the course of investment

process.

We want to explain some trading guidelines, please implement our trading guidelines. Trade

management is more important than successful trading tips.

1. Please place stop loss orders in trading system not in your mind, without stop loss don't trade

its nothing but suicide attempt.

2. Trade all our tips, do not select our tips. If you have Rs.50,000 rupees, non risky traders fix

your each trade value as Rs.25,000 (50% value of your cash), risky traders fix your each trade

value as Rs.50,000(100% value of your cash).

3. Book 75% quantity at first target then change stop loss to actual recommended price for

remaining quantity, place first target order in advance, some times price come and go very

quickly. Execute trades very quickly price movements are very sharp in intraday.


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INDUSTRY PROFILE OF FDI

FOREIGN DIRECT INVESTMENT INDUSTRY IN INDIA

Introduction

India is a country that has been able to restore investor confidence in its markets, even during the

toughest of times. Increase in capital inflows, foreign direct investments (FDI) and overseas

entities participation reflect the fact that Indian markets have fared well in recent times.

Moreover, foreign companies are viewing the South-Asian nation as a strategic hub for their

operations and investments owing to investor-friendly policy environment, positive eco-system

and huge potential for growth.

India Incs increasing presence over the global canvas and Indian governments consistent

support to the FDI space have facilitated remarkable developments and investments from

overseas partners. Some of them are discussed hereafter:

Key Statistics

FDI inflows rose by 36 per cent to US$ 23.69 billion during January-October 2011, while thecumulative amount of FDI equity inflows from April 2000 to October 2011 stood at US$

226.05 billion, according to the latest data released by the Department of Industrial Policy

and Promotion (DIPP).

The services (including financial and non-financial) sectors attracted highest FDI equity

inflows during April-October 2011-12 at US$ 3.43 billion. India received maximum FDI

from countries like Mauritius, Singapore, and the US at US$ 61.2 billion, US$ 15.2 billion

and US$ 10 billion, respectively, during April 2000-October 2011.

Global consultancy firm Ernst & Young (E&Y) has stated that the value of mergers andacquisition (M&A) deals involving Indian companies aggregated to US$ 34.4 billion in 2011

involving 806 transactions. There were 177 outbound deals with an aggregate disclosed value

of US$ 8.8 billion in 2011; forming 25.6 per cent of the total M&A pie.


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Adani Enterprises acquisition of Abbot Point Coal Terminal in Australia (US$ 2 billion) and

the GVK Groups purchase of Australia-based Hancock Coals Queensland coal assets (US$

1.3 billion) were among the biggest outbound deals recorded in 2011.

According to data released by auditing and consultancy firm KPMG, India Inc witnessed a31 per cent increment in private equity (PE) investment to US$ 7.89 billion during the first

three quarters of 2011. PE firms like Blackstone India and Kohlberg Kravis Roberts & Co

(KKR & Co) are betting high on Indian markets. The Blackstone India chief was reported to

have said that he intends to close 5-6 deals a year in India whose financial valuations would

revolve around roughly US$ 100 million to US$ 120 million each.

According to the weekly statistical supplement of the Reserve Bank of India (RBI), Indiasforeign exchange reserves (forex) stood at US$ 293.54 billion for the week ended January 6,2012. Foreign currency assets aggregated to US$ 259.80 billion and the value of gold

reserves stood at US$ 26.62 billion for the week. The value of special drawing rights (SDRs)

was calculated at US$ 4.41 billion, and India's reserves with the International Monetary Fund

(IMF) came out to be US$$ 2.69 billion.

Important Developments

The government of India is continuously working towards increasing FDI flows into the country.FDI rose by an impressive 56 per cent to US$ 2.53 billion in November 2011. The cumulative

flows of for April-November 2011 aggregated to US$ 22.83 billion, exceeding the total FDI of

US$ 19.43 billion for 2010-11 fiscal.

Recently, the Government has approved 20 FDI proposals worth Rs 1,935.24 crore (US$ 384.5

million). The approved major investments, that were consulted with Foreign Investment

Promotion Board (FIPB) as well, are enlisted below:

Sterlite Grid had proposed to act as an investment company and invest Rs 1,150 crore (US$228.48 million) via FDI

Equitas Micro Finance would invest Rs 230.7 crore (US$ 45.83 million) for demerging itsmicrofinance business with its wholly-owned subsidiary


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TV Vision proposed to induce Rs 200 crore (US$ 39.81 million) of foreign investment through

an issue of equity shares via an initial public offer (IPO). The deal is to undertake the business of

broadcasting a non-news and current affairs TV channel

New York-based Chatwal Hotels & Resorts LLC plans to expand its foothold in India by

inducing US$ 200 million and open over 50 hotels during 2012-17. The expansion would take

place through the franchise model wherein local partners would help in development.

German luxury car maker Mercedes-Benz would invest Rs 1000 crore (US$ 199 million) in its

Indian operations with an aim to enhance its capacity and increase sales. The company, facing

fierce competition from brands like BMW and Volkswagen, intends to increase its sales to 25,

000 units by 2016 and to 90, 000 units by 2020.

Marking the biggest FDI in Indian mutual fund space, Japans Nippon Life Insurance Co has

acquired 26 per cent stake in Reliance Capital Asset Management for Rs 1,450 crore (US$

288.64 million).

Japan is planning to enhance its investments in the Indian road and maritime sectors. The Asian

country has already infused investments in the railways and metro rail transportation in India by

part-funding the rail-freight corridor and the Delhi Metro Rail infrastructure. It is also curious to

impart financial assistance to the proposed high-speed train projects in India.

Policy Initiatives

In a bid to enable foreign brands expand their presence in the flourishing Indian market, the RBI

has finally notified changes in FDI policy relating to single-brand retailing. This implies that

restrictions on foreign investments in single-brand retail have been eradicated and FDI up to 100

per cent is being allowed for the same.

Making another modification in Foreign Exchange Management Act (FEMA), the RBI has given

its nod to notify FDI in limited liability partnerships (LLPs). This form of organisation is very

popular globally and 6, 738 of them are operational in India.


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The Government has recently stated that it may soon launch a process that would enable foreign

airlines to hold 49 per cent stake in Indian carriers. The move would mark a major modification

in policies as earlier FDI was allowed in Indian aviation sector but foreign airlines were not

allowed to hold stakes. There is a possibility that FDI cap in the sector could be raised to 51 per

cent from 49 per cent.

In order to expand investor base, reduce market volatility, attract more foreign funds and deepen

Indian capital markets, the Government has allowed a foreign individual, a foreign pension fund

or even a foreign trust to invest directly in the Indian equity market. These investors will be

called Qualified Foreign Investors' (QFIs).

Future Outlook

Morgan Stanley anticipates that India could attract FDI worth as much as US$ 80 billion in next

1-2 years while KPMG officials believe that FDI in 2011-12 may cross the US$ 35 billion mark.

Exchange Rate Used: INR 1 = US$ 0.0199 as on January 20, 2012

SECTOR SPECIFIC FOREIGN DIRECT INVESTMENT IN INDIA

HOTEL & TOURISM: FDI IN HOTEL & TOURISM SECTOR IN INDIA

100% FDI is permissible in the sector on the automatic route.

The term hotels include restaurants, beach resorts, and other tourist complexes providing

accommodation and/or catering and food facilities to tourists. Tourism related industry include

travel agencies, tour operating agencies and tourist transport operating agencies, units providing

facilities for cultural, adventure and wild life experience to tourists, surface, air and water

transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for

tourists and Convention/Seminar units and organizations.


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For foreign technology agreements, automatic approval is granted if

i. up to 3% of the capital cost of the project is proposed to be paid for technical andconsultancy services including fees for architects, design, supervision, etc.

ii. up to 3% of net turnover is payable for franchising and marketing/publicity support fee,and up to 10% of gross operating profit is payable for management fee, including

incentive fee.

PRIVATE SECTOR BANKING:

NON-BANKING FINANCIAL COMPANIES (NBFC)

49% FDI is allowed from all sources on the automatic route subject to guidelines issued from

RBI from time to time.

a. FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be as perlevels indicated below:

i. Merchant bankingii. Underwriting

iii. Portfolio Management Servicesiv. Investment Advisory Servicesv. Financial Consultancy

vi. Stock Brokingvii. Asset Management

viii. Venture Capitalix. Custodial Servicesx. Factoring

xi. Credit Reference Agenciesxii

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