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Welcome to the sessions on

FDI/FII

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What are the benefits of FDI ?

What are the benefits of FDI:

Investing company in new markets:

Expansion of business opportunities in new markets(cross border locations)

Increase in global market share

Greater opportunity to earn more income/profits

Host nations: Receipt of foreign capital would increasethe Forex Reserves

Long term investments especially in selected sectorsviz., infrastructure

Generates employment opportunities

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What about demerits of FDI?

Host nations: Stiff competition for domestic

players

Depletion of natural resources

Unfair/unethical trade practices

International legal frame work may create

more complications Smaller players may loose their opportunity to

do business

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Examples of FDI

Horizontal FDI: Firm duplicates its home country based activities in thehost country in the same value chain

- Vertical FDI: Firm moves up-stream or down stream in diffvalue(value adding activities) chains in host countries.

- Platform FDI: the output is (largely) sold in third markets rather

than in the parent or host markets. A firm in the high-costeconomies has a plant at home, and a plant in the low-cost countryto serve the other high-cost country. There is trade liberalizationbetween high cost & low cost country.

- In bound FDI: When a MNC invests in Indian Sector it is called as inbond FDI ex: Prudential invested in insurance sector through a JVwith ICICI

- Outbound FDI: When an Indian Company invests in a foreign nationit called as outbound FDI. Ex: TATA CORUS

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What/How?

What are the different forms of FDI and how

FDI helps in expansion of business?

FDI thro financial collaborations, private

equity or preferential allotments, by way of

capital markets thro euro issues & in joint

ventures.

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FII - Overview

These are organization which pool large sums ofmoney & invest in securities, real properties.

Investment in financial market is from the

investor registered outside India. Institutional investors are like hedge funds,

insurance company, pension & mutual funds.

The FII registered with SEBI come from manyforeign countries (including money managementcompanies operating in India on behalf of foreigninvestors).

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FII - benefits

Benefits of FII in the country e.g., INDIA:

1)Reduced cost of equity: FII augment thesource of funds, reduces required rate of

return, enhances stock prices.2)Stability in the balance of payment: The excess

of domestic investment over domestic savings

result un a current a/c deficit & this deficit isfinanced by capital flows in the balance ofpayments.

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FII - benefits

3)Inflation: The inflation is inversely proportionalwith foreign investment inflow.

4) Exchange rate: When the value of home

currency is stronger, the FII investment will alsoincrease as the % of returns the FII getautomatically increases & vice versa. So it can besaid that the inflation & risk in the domestic

country affects & return in foreign countryadversely affect the FII flowing in domesticcountry.

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FDI vs FII

FDI invests directly in the company (industry specific)whereas FIIs invest in listed shares of companies.

-FDI investment is viewed more positively because it investsdirectly in the company as compared to FII s who enter

through secondary market-FDI is long term capital whereas FII is short term capitalinvestment.

-Unlike FDI ,FII investments are more volatile in the sense theyenter and exit more frequently as and when

(i) they can book profits (ii) if, markets in other countriesare more attractive (iii) if, they can sense any sign of troublein the markets where they have invested

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Thanks and all the best regards