INTERNATIONAL FINANCIAL INTERNATIONAL FINANCIAL INVESTMENT STRATEGIES AND INVESTMENT STRATEGIES AND

REGULATIONS FOR INDIAN REGULATIONS FOR INDIAN COMPANIESCOMPANIES

P.C.T.E)P.C.T.E) PRESENTED By:PRESENTED By:

International Financial Investment StrategiesInternational Financial Investment Strategies

These are strategies that helps & supports the corporations in These are strategies that helps & supports the corporations in creating decisions at the same time helping governments to creating decisions at the same time helping governments to enhance their appeal for capital investmentsenhance their appeal for capital investments

These strategies may concern different factors that include These strategies may concern different factors that include competitive assessments, market analysis, investment climate competitive assessments, market analysis, investment climate analysis, marketing and branding analysis, qualitative factor analysis, marketing and branding analysis, qualitative factor analysis.analysis.

Criteria For International InvestorsCriteria For International Investors

Size of internal marketSize of internal market Freedom of Access to the marketFreedom of Access to the market Labour Force and raw materialLabour Force and raw material Protection from currency devaluationProtection from currency devaluation Regulatory BurdensRegulatory Burdens Political Risk FactorPolitical Risk Factor Export PotentialExport Potential Tax IncentivesTax Incentives

Types Of Foreign InvestmentsTypes Of Foreign Investments

Portfolio InvestmentsPortfolio Investments

The U.S. government defines portfolio investment as stock The U.S. government defines portfolio investment as stock purchases that involve less than 10 per cent of the voting stock purchases that involve less than 10 per cent of the voting stock of a corporation. of a corporation.

Portfolio or financial investments take place primarily through Portfolio or financial investments take place primarily through financial institutions such as banks and investment funds.financial institutions such as banks and investment funds.

Portfolio Investments: Portfolio Investments: purely financial assets, such as stocks purely financial assets, such as stocks and bonds, denominated in a national currency.and bonds, denominated in a national currency.

Stocks and BondsStocks and Bonds

With bonds, the investor simply lends capital to get fixed With bonds, the investor simply lends capital to get fixed payouts or a return at regular intervals and then receives the payouts or a return at regular intervals and then receives the face value of the bond at a pre-specified date.face value of the bond at a pre-specified date.

With stocks the investor purchases equity, or a claim on the With stocks the investor purchases equity, or a claim on the net worth of the firm. net worth of the firm.

Motives for International Portfolio InvestmentsMotives for International Portfolio Investments

Earn higher returns abroad.Earn higher returns abroad. Residents of one country purchase bonds of another country if Residents of one country purchase bonds of another country if

the rates of return on the bonds are higher in the other country. the rates of return on the bonds are higher in the other country. Residents of one country purchase stock in a corporation in Residents of one country purchase stock in a corporation in

another country if they expect the future profitability of the another country if they expect the future profitability of the foreign corporation to be higher than the domestic foreign corporation to be higher than the domestic corporations. corporations.

Risks Associated With InvestmentsRisks Associated With Investments

Investors are interested not only in the rate of return but also Investors are interested not only in the rate of return but also in the risk associated with a particular investment.in the risk associated with a particular investment.

The risks with bonds consist of bankruptcy and the variability The risks with bonds consist of bankruptcy and the variability in their market value.in their market value.

Investors maximize returns for a given level of risk and Investors maximize returns for a given level of risk and generally accept a higher risk only if returns are higher.generally accept a higher risk only if returns are higher.

Foreign Direct InvestmentsForeign Direct Investments

FDI or Foreign Direct Investment is any form of investment FDI or Foreign Direct Investment is any form of investment that earns interest in enterprises which function outside of the that earns interest in enterprises which function outside of the domestic territory of the investor. domestic territory of the investor.

It require a business relationship between a parent company It require a business relationship between a parent company and its foreign subsidiary. and its foreign subsidiary.

For an investment to be regarded as an FDI, the parent firm 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 needs to have at least 10% of the ordinary shares of its foreign affiliates. affiliates.

Motives for Foreign Direct InvestmentsMotives for Foreign Direct Investments

Earn higher returns from Earn higher returns from – higher growth rates abroad higher growth rates abroad – more favorable tax treatment more favorable tax treatment – greater availability of infrastructuresgreater availability of infrastructures

Diversify risks.Diversify risks. Firms with a stronger international orientation, either Firms with a stronger international orientation, either

through exports and/or through foreign production through exports and/or through foreign production sales facilities, are more profitable and have a much sales facilities, are more profitable and have a much smaller variability in profits that pure domestic firms.smaller variability in profits that pure domestic firms.

Source of cheaper raw materials.Source of cheaper raw materials.

Motives for Foreign Direct InvestmentsMotives for Foreign Direct Investments

Avoid tariffs and other restrictions that nations impose Avoid tariffs and other restrictions that nations impose Take advantage of various government subsidies to encourage Take advantage of various government subsidies to encourage

direct foreign investments.direct foreign investments. Enter a foreign oligopolistic market so as to share in the Enter a foreign oligopolistic market so as to share in the

profitsprofits Purchase a promising foreign firm to avoid future competition Purchase a promising foreign firm to avoid future competition

and the possible loss of exports marketand the possible loss of exports market

Foreign Institutional InvestmentsForeign Institutional Investments

FII is the investment made by Foreign mutual funds in the FII is the investment made by Foreign mutual funds in the Indian marketIndian market

An institution established outside India, which invests in An institution established outside India, which invests in securities traded on the markets in India eg-securities traded on the markets in India eg-

-Pension Funds -Pension Funds -Mutual Funds -Mutual Funds -Insurance companies -Insurance companies

Indian Companies Indian Companies

Indian companies are generally allowed to raise equity capital Indian companies are generally allowed to raise equity capital through issue of ADR/GDR in case of Portfolio Management . through issue of ADR/GDR in case of Portfolio Management .

What are ADR / GDR ?What are ADR / GDR ?

- American Depository Receipts - American Depository Receipts

- Global Depository Receipts - Global Depository Receipts

Regulations relating to issue of ADR/GDRRegulations relating to issue of ADR/GDR

Indian companies registered through ADR/GDR would be free Indian companies registered through ADR/GDR would be free to access ADR/GDR markets through automatic routeto access ADR/GDR markets through automatic route

Automatic route will cover issue of employee option stock by Automatic route will cover issue of employee option stock by IT Companies IT Companies

Approvals frm RBI like as under companies act , overseas act Approvals frm RBI like as under companies act , overseas act would have to be obtained .would have to be obtained .

Issue related expenses subjected to ceiling of 4% in case of Issue related expenses subjected to ceiling of 4% in case of GDR and 7% in case of ADR . GDR and 7% in case of ADR .

Cont…..Cont…..

After completion of all such transactions the companies would After completion of all such transactions the companies would require to furnish all the details to RBI within 30 days of require to furnish all the details to RBI within 30 days of completion of such transactions completion of such transactions

Various methods of Investing abroad Various methods of Investing abroad

Joint venture Joint venture

Mergers & Acquisitions / Cross Border Acquisitions Mergers & Acquisitions / Cross Border Acquisitions

Licensing Licensing

Franchising Franchising

Top acquisitions made by Indian Top acquisitions made by Indian companies worldwide:companies worldwide:

Acquirer Acquirer Targeted Company Targeted Company Country TargetedCountry Targeted

Tata SteelTata Steel Corus Group plcCorus Group plc UKUK

HindalcoHindalco NovelisNovelis CanadaCanada

VideoconVideocon Daewoo Electronics Corp.Daewoo Electronics Corp. KoreaKorea

Dr. Reddy’s LabsDr. Reddy’s Labs BetapharmBetapharm GermanyGermany

Suzlon EnergySuzlon Energy Hansen GroupHansen Group BelgiumBelgium

HPCLHPCLKenya Petroleum Kenya Petroleum

Refinery Ltd.Refinery Ltd. KenyaKenya

Ranbaxy LabsRanbaxy Labs Terapia SATerapia SA RomaniaRomania

Tata SteelTata Steel NatsteelNatsteel SingaporeSingapore

VideoconVideocon Thomson SAThomson SA FranceFrance

VSNLVSNL TeleglobeTeleglobe CanadaCanada

Foreign Exchange Management Act , Foreign Exchange Management Act , 19991999

Foreign Exchange transactions were earlierForeign Exchange transactions were earlier

regulated in India by the Foreign Exchangeregulated in India by the Foreign Exchange

Regulation Act, 1973.Regulation Act, 1973.

Extent and Application of FEMA:Extent and Application of FEMA: Whole of indiaWhole of india All the branches, offices and agencies outside All the branches, offices and agencies outside

India owned and controlled by PRIIndia owned and controlled by PRI

Cont…….Cont……. FEMA replaced FERA in 1999.FEMA replaced FERA in 1999. Came into effect from Jan 1, 2000.Came into effect from Jan 1, 2000.Objectives :Objectives : Consolidate and amend the law relating to Consolidate and amend the law relating to

foreign exchangeforeign exchange Facilitating external trade and paymentsFacilitating external trade and payments Promoting the orderly development and Promoting the orderly development and

maintenance of foreign exchange market in maintenance of foreign exchange market in IndiaIndia

Restrictions on dealing in Foreign Restrictions on dealing in Foreign Exchange and Foreign SecuritiesExchange and Foreign Securities

Restriction on dealing Restriction on dealing Restriction on paymentsRestriction on payments Restriction on receiptsRestriction on receipts Acquisition etc. of assets outside Acquisition etc. of assets outside

IndiaIndia Relaxation in restrictionsRelaxation in restrictions

Securities and Exchange Board Securities and Exchange Board of India Act ,1992of India Act ,1992

Objects of the SEBI ActObjects of the SEBI Act Protection of the interests of the investors Protection of the interests of the investors Promoting orderly and healthy growth of Promoting orderly and healthy growth of

the securities marketthe securities market Regulating and developing a code of Regulating and developing a code of

conduct and fair practices by conduct and fair practices by intermediaries.intermediaries.

Monitoring the activities of stock exchange, Monitoring the activities of stock exchange, mutual funds and merchant bankers etc.mutual funds and merchant bankers etc.

POWERS OF SEBIPOWERS OF SEBI

Grounds for ordering investigationGrounds for ordering investigation Duties of directors, officers and employeesDuties of directors, officers and employees Powers of the investigating authorityPowers of the investigating authority a) power to retain books etc.a) power to retain books etc. b) power to examine on oathb) power to examine on oath c) power to take notes on examinationc) power to take notes on examination Seizure of documents by the investigating Seizure of documents by the investigating

authorityauthority

Thank youThank you