Presented By:- Ajay Kumar Honey Bhartwaj Preeti Jaiswal Tanveer Navaj

The Analysis Of Indian Financial Market With

Special Reference Of FDI & FII

Flow of money

Surplus

sector

Deficit

sector

Financial Market

Money always flows from surplus sector to deficit sector.

Similarly, in business sectors the surplus money flows from the investors or lenders to the businessmen for the purpose of production or sale of goods and services.

The financial markets act as a link between these two different groups.

Financial Market

So, financial market may be defined as:-

“A transmission mechanism between investors (or lenders) and the borrowers (or users) through which transfer of funds is facilitated”.

Financial Market

It consists of individual investors, financial institutions and other intermediaries who are linked by a formal trading rules and communication network for trading the various financial assets and credit instruments.

The Main Functions Of Financial Market

(a) It provides facilities for interaction between the investors and the borrowers.

(b) It provides pricing information resulting from the interaction between buyers and sellers in the market when they trade the financial assets.

(c) It provides security to dealings in financial assets.

(d) It ensures liquidity by providing a mechanism for an investor to sell the financial assets.

(e) It ensures low cost of transactions and information.

TYPES OF FINANCIAL MARKETS

Financial market

Money market

Short term credit

Capital market

Middle term credit

Long term credit

MONEY MARKET

The money market is a market for short-term funds, which deals in financial assets whose period of maturity is up to one year.

Money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc.

The Indian money market consists of Reserve Bank of India, Commercial banks, Co-operative banks, and other specialised financial institutions.

The Reserve Bank of India is the leader of the money market in India.

Some Non-Banking Financial Companies (NBFCs) and financial institutions like LIC, GIC, UTI, etc. also operate in the Indian money market.

MONEY MARKET INSTRUMENTS

(a) Call Money: (b) Treasury Bill: (c) Commercial Paper: (d) Certificate of Deposit: (e) Trade Bill:

CAPITAL MARKET

Capital Market may be defined as a market dealing in medium and long-term funds.

It is an institutional arrangement for borrowing medium and long-term funds and which provides facilities for marketing and trading of securities.

So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and raising of capital by issue various securities such as shares debentures, bonds, etc.

Securities Market

The market where securities are traded known as Securities Market. It consists of two different segments namely Primary and Secondary market.

PRIMARY MARKET:-The Primary Market consists of arrangements, which facilitate the procurement of long term funds by companies by making fresh issue of shares and debentures.

SECONDARY MARKET:-It provides a place where these securities can be encashed without any difficulty and delay. It is an organized market where shares, and debentures are traded regularly with high degree of transparency and security.

FDI

FDI:- (Foreign Direct Investment)- It is a direct investment by a corporation in a commercial venture in another country.

FDI is permitted as under the following forms of investments

Through financial collaborations. Through joint ventures and technical

collaborations. Through capital markets via Euro

issues. Through private placements or

preferential allotments.

Forbidden Territories

FDI is not permitted in the following industrial sectors:-

Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome,

gypsum, sulphur, gold, diamonds, copper, zinc.

Foreign direct investments in India are approved through two routes

1. Automatic approval by RBI 2. The FIPB Route – Processing

of non-automatic approval cases

FDI EQUITY INFLOWS

SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS

SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS

STATEMENT ON RBI’S REGIONAL OFFICES (WITH STATE COVERED) RECEIVED FDI EQUITY INFLOWS1

(from April 2000 to December 2010):

FINANCIAL YEAR-WISE FDI INFLOWS DATA: (amount in USD)

DIPP’S - FINANCIAL YEAR-WISE FDI EQUITY INFLOWS:

STATEMENT ON COUNTRY-WISE FDI INFLOWS FROM APRIL 2000 TO

DECEMBER 2010

STATEMENT ON SECTOR-WISE FDI INFLOWS FROM APRIL 2000 TO

DECEMBER 2010

FII:- (Foreign institutional investor)

FII is a legal entity such as an investment fund or mutual fund that puts money into a business venture or project in a country other than the one in which the investor lives or is based.

Since 1992-93, when FIIs were allowed entry into Indian financial markets, foreign institutional investment has increased over the years except in 1998-99 and 2008-09.

Investment in Indian Companies by FIIs

Regulations:- (a)Foreign Institutional Investors

(FIIs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). (b)Under this scheme, FIIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

Ceiling

The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company.

The limit is 20 per cent of the paid up capital in the case of public sector banks, including the State Bank of India.

FII Trend in Indian Financial Market

The gross purchases of debt and equity by FIIs increased by 37.7 percent to Rs.8,46,438 crore in 2009-10 from Rs.6,14,579 crore in 2008-09.

The combined gross sales by FIIs increased by 6.6 percent Rs.7,03,780 crore from Rs.6,60,389 crore during the same period in previous year.

The total net inflow of FII was Rs.1,42,658 crore as against an outflow of FII was Rs.45,811 crore in 2008-09.

Cont/…

During 2009-10, there was a net inflow in the equity segment by FIIs amounting to Rs.1,10,220 crore.

FII poured a net Rs.1,42,658 crore in Indian markets.

Month-wise, the net FII inflow was the highest in equity segment in May 2009 (Rs.20,017 crore) followed by March 2010 (Rs.19,928 crore) and September 2009 (Rs.18,344 crore).

Cont/…

The FIIs were permitted to trade in the derivatives market in February 2002.

The cumulative FIIs Net investment was Rs.3,88,310 crore as on March 31, 2010 as compared to Rs.2,45,653 crore as on March 31, 2009.

Investment by Foreign Institutional lnvestors

Trends in foreign institutional investment

Investment by mutual funds & foreign institutional investment

Net institutional investment & monthly average nifty and sensex values

Regulatory Actions against FIIs

During 2009-10, one adjudication proceeding was initiated against one Foreign Institutional Investor. Directions were issued under Section 11(1), 11(4) and 11(B) of SEBI Act, 1992 against Barclays Bank PLC and Societe Generale