What Does Institutional Investor Mean?

A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. Institutional investors face fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves.

Institutional investors are organizations which pool large sums of money and invest those sums in companies. They include : y y y y y banks insurance companies retirement or pension funds hedge funds mutual funds.

institutional investors : y y y y have the freedom to buy and sell shares play a large part in which companies stay solvent Influencing the conduct of listed companies providing them with capital are all part of the job of investment management.

In essence institutional investor, an accredited investor is defined in the rule as: y a bank, insurance company, registered investment company (generally speaking, a mutual fund), business development company, or small business investment company; y an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million; y y y y a charitable organization, corporation, or partnership with assets exceeding $5 million; a director, executive officer, or general partner of the company selling the securities; a business in which all the equity owners are accredited investors; a natural person who has individual net worth, or joint net worth with the persons spouse, that exceeds $1 million at the time of the purchase;

a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Foreign Institutional Investor (FII) is used to denote an investor - mostly of the form of an institution or entity, which invests money in the financial markets of a country different from the one where in the institution or entity was originally incorporated.

FII investment is frequently referred to as hot money for the reason that it can leave the country at the same speed at which it comes in. In countries like India, statutory agencies like SEBI have prescribed norms to register FIIs and also to regulate such investments flowing in through FIIs. In 2008, FIIs represented the largest institution investment category, with an estimated US$ 751.14 billion.[1] FEMA norms includes maintenance of highly rated bonds(collateral) with security exchange.

Investment management
Investment management is the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or exchange-traded funds) . The term asset management is often used to refer to the investment management of collective investments, (not necessarily) whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". The provision of 'investment management services' includes elements of financial statement analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Investment management is a large and important global industry in its own right responsible for caretaking of trillions

of dollars, euro, pounds and yen. Coming under the remit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Fund manager (or investment adviser in the United States) refers to both a firm that provides investment management services and an individual who directs fund management decisions.

FIIs
1618 FIIs registered with SEBI. SEBI registers Foreign Institutional Investors (FIIs) under the SEBI (Foreign Institutional Investors) Regulations, 1995. As per the latest information available, the number of FIIs registered as on 17.02.2009 is 1618.

Net investment by FIIs in year 2008 remained negative to the tune of US$10 billion. However, SEBI does not monitor sector wise investments made by the FIIs.

The information on the country wise distribution on 1618 FIIs is annexed.

India, which is the second fastest growing economy after China, has lately been a major recipient of foreign institutional investor (FII) funds driven by the strong fundamentals and growth opportunities. According to analysts, the late revival of monsoon, upward revision of economic growth from 5.8 per cent to 6.1 per cent, better-than-expected performance of companies in the quarter ended-June 30, the new direct taxes code, leading to savings in the tax payers money, and the trade policy with an ambitious target of US$ 200 billion exports for 2010-11 have all revived the confidence of FIIs investing in India. Both consumption and investment-led industries linked to domestic demand, such as auto, banking, capital goods, infrastructure and retail, are likely to continue attracting FII funds. FIIs have made net investments of US$ 10 billion in the first six months (April to September) of 2009-10. Major portion of these investments have come through the primary market, more than through buying via secondary markets. Earlier, FIIs net investments in Indian equities crossed the US$ 8 billion-mark in calendar 2009, the first time in this year, with foreigners buying stocks worth US$ 274 million on August 28, 2009. With FIIs

holding 16 per cent of India's biggest 500 companies and increasing growth of the economy, the FII sentiment is expected to remain positive towards India. At the end of July 2009, net inflows from FIIs stood at US$ 7.3 billion.

With FIIs increasingly investing in the country's construction sector, the market capitalisation of FII investment in construction has gone up by a substantial 422 per cent in the past six months. Further, till September 8, FIIs registered a net investment of US$ 8.38 billion in the domestic stock market. The total FII market cap in 13 leading sectors was US$ 92.5 billion.

Investment

in

Indian

market

India, among the European investors, is believed to be a good investment despite political uncertainty, bureaucratic hassles, shortages of power and infrastructural deficiencies. India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. No company, of any size, aspiring to be a global player can, for long ignore this country which is expected to become one of the top three emerging economies. Success in India

Success in India will depend on the correct estimation of the country's potential, underestimation of its complexity or overestimation of its possibilities can lead to failure. While calculating, due consideration should be given to the factor of the inherent difficulties and uncertainties of functioning in the Indian system.Entering India's marketplace requires a well-designed plan backed by serious thought and careful research. For those who take the time and look to India as an opportunity for long-term growth, not shortterm profit- the trip will be well worth the effort. Market potential

India is the fifth largest economy in the world (ranking above France, Italy, the United Kingdom, and Russia) and has the third largest GDP in the entire continent of Asia. It is also the second largest among emerging nations. (These indicators are based on purchasing power parity.) India is also one of the few markets in the world which offers high prospects for growth and earning potential in practically all areas of business.Yet, despite the practically unlimited possibilities in India for overseas businesses, the world's most populous democracy has, until fairly recently, failed to get the kind of enthusiastic attention generated by other emerging economies such as China. Lack of enthusiasm among investors

The reason being, after independence from Britain 50 years ago, India developed a highly protected, semi-socialist autarkic economy. Structural and bureaucratic impediments were vigorously fostered, along with a distrust of foreign business. Even as today the climate in India has seen a seachange, smashing

barriers and actively seeking foreign investment, many companies still see it as a difficult market. India is rightfully quoted to be an incomparable country and is both frustrating and challenging at the same time. Foreign investors should be prepared to take India as it is with all of its difficulties, contradictions and challenges. Developing a basic understanding or potential of the Indian market, envisaging and developing a Market Entry Strategy and implementing these strategies when actually entering the market are three basic steps to Developing make a basic a successful understanding or entry potential of the into Indian India. market

The Indian middle class is large and growing; wages are low; many workers are well educated and speak English; investors are optimistic and local stocks are up; despite political turmoil, the country presses on with economic reforms.But there is still cause for worriesInfrastructural hassles.

The rapid economic growth of the last few years has put heavy stress on India's infrastructural facilities. The projections of further expansion in key areas could snap the already strained lines of transportation unless massive programs of expansion and modernization are put in place. Problems include power demand shortfall, port traffic capacity mismatch, poor road conditions (only half of the country's roads are surfaced), low telephone penetration (1.4% of population). Indian Bureaucracy.

Although the Indian government is well aware of the need for reform and is pushing ahead in this area, business still has to deal with an inefficient and sometimes still slow-moving bureaucracy. Diverse Market .

The Indian market is widely diverse. The country has 17 official languages, 6 major religions, and ethnic diversity as wide as all of Europe. Thus, tastes and preferences differ greatly among sections of consumers. Therefore, it is advisable to develop a good understanding of the Indian market and overall economy before taking the plunge. Research firms in India can provide the information to determine how, when and where to enter the market. There are also companies which can guide the foreign firm through the entry process from beginning to end --performing the requisite research, assisting with configuration of the project, helping develop Indian partners and financing, finding the land or ready premises, and pushing through the paperwork required. Developing Market up-front takes: Study

Is there a need for the products/services/technology? What is the probable market for the product/service? Where is the market located? Which mix of products and services will find the most acceptability and be

the most likely to generate sales? What distribution and sales channels are available? What costs will be involved? Who is the competi Check on Economic Policies

The general economic direction in India is toward liberalization and globalization. But the process is slow. Before jumping into the market, it is necessary to discover whether government policies exist relating to the particular area of business and if there are political concerns which should be taken into account.

Period

Debt/Equity

Gross Purchases(Rs Crores) 144068 327744 217578 298605 135948.16 153733.05 100435.90 109804.91 45045.25 62186.46 36663.58 63169.93 14520.89 46663.83 12098.11 33583.64 11375.78 13512.17 11070.54 2764.72

Gross Sales(Rs Crores) 137085 245942 201274 224816 126885.82 101189.59 86133.70 73003.67 44597.23 45199.17 35355.67 40469.18 16587.59 34059.41 15893.99 22624.42 20142.76 8488.68 11492.19 1864.29

Net Investment (Rs Crores) 6983 81803 16306 73790 9062.34 52543.46 14302.20 36801.24 448.02 16987.29 1307.91 22700.75 -2066.70 12604.42 -3795.88 10959.22 -2766.98 5023.49 -421.65 900.43

April 2008-Mar 2009 Equity Debt April 2007-Mar 2008 Equity Debt April 2006-Mar 2007 Equity Debt April 2005-Mar 2006 Equity Debt April 2004-Mar 2005 Equity Debt April 2003-Mar 2004 Equity Debt April 2002-Mar 2003 Equity Debt April 2001-Mar 2002 Equity Debt April 2000-Mar 2001 Equity Debt Jan 2000-Mar 2000 Equity Debt

FDI Report Investment in India Foreign Direct Investment Introduction

Foreign Direct Investment (FDI) is permited as under the following forms of investments. y y y y 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: y y y y y Foreign Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.

Investment

through

GDRs/ADRs

is

treated

as

Foreign

Direct

Investment

in

Indian companies y are allowed to raise equity capital in the international market through the issue of Global Depository Receipt (GDRs)/ADRs (American Depository Receipts). y y GDRs are designated in dollars and are not subject to any ceilings on investment. An applicant company seeking Government's approval in this regard should have consistent track record for good performance (financial or otherwise) for a minimum period of 3 years. y This condition would be relaxed for infrastructure projects such as power generation, telecommunication, petroleum exploration and refining, ports, airports and roads.

Restrictions in case of FDIs : Investment in stock markets and real estate will not be permitted. y Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end uses. y Any investment from a foreign firm into India requires the prior approval of the Government of India.

Investment in India - Foreign Direct Investment Approval Foreign direct investments in India are approved through: Automatic approval by RBI: The Reserve Bank of India accords automatic approval within a period of two weeks (provided certain parameters are met) to all proposals involving: foreign equity up to 50% in 3 categories relating to mining activities. foreign equity up to 51% in 48 specified industries. foreign equity up to 74% in 9 categories. where List 4 includes items also listed in List 3, 74% participation shall apply. The lists are comprehensive and cover most industries of interest to foreign companies. Investments in high-priority industries or for trading companies primarily engaged in exporting are given almost automatic approval by the RBI. Opening an office in India

Opening an office in India for the aforesaid incorporates assessing the commercial opportunity for self, planning business, obtaining legal, financial, official, environmental, and tax advice as needed, choosing legal and capital structure, selecting a location, obtaining personnel, developing a product marketing strategy and more.

Foreign institutional investors (FIIs) were net sellers from November 1997 through January 1998.

y y

. Foreign institutional investors (FIIs) need to be enlisted with the Securities and Exchange Board of India (SEBI). The number of foreign institutional investors enlisted at the SEBI stood at 1,219 at the end of 2007. According to analysts, ambitious target of US$ 200 billion exports for 2010-11 have all revived the confidence of FIIs investing in India.

FIIs have made net investments of US$ 10 billion in the first six months (April to September) of 2009-10. A major portion of these investments have come through the primary market, than through buying via secondary markets.

FII inflows into Indian equities have been steady ever since the markets were opened up to FIIs in 1993. With the exception of FY99 and FY09, net flows have been positive.

FIIs own a dominant 16% of Indian equities (worth US$147bn) and account for 10-15% of the equity volumes.

Although FIIs pulled out US$ 9.77 billion of the Indian equity markets during FY09, they have been quick to return in FY10 and within just the first four months they have nearly made up for the exit, reinvesting US$ 8.50 billion or 87% of the amount that they had pulled out in FY09.

India is well placed to attract FII flows over the long term. With FIIs holding 16 per cent of equity of India's biggest 500 companies and as growth in the Indian economy accelerates, FII sentiment is expected to remain positive towards India.

Buying/ Selling by FIIs: Clutching the highest number of votes (45.3%), FII activity was seen as the key driver that could impact the Indian markets over the longer term.

y y

As seen from the following graph, higher FII inflows have been an important parameter Determining the movement of the stock markets. In 2007, when FII invested US$ 17.2 bn, stock markets notched 46% gains. The Indian economy grew over 8%. However in the following year, global financial crisis clouted the world markets, with India being no exception. This led to the FIIs turn into net sellers. The total FII disinvestment in 2008 was to the tune of US$ 13 bn. In the same period, the benchmark BSE Sensex lost 52% of its market capitalization. This clearly indicates that the FIIs play a critical role.

Foreign Institutional Investment in Indian Economy

Foreign Institutional Investment in Indian Economy has been substantial of late. Positive vibes about the resurgent Indian economy has attracted a substantial amount of foreign institutional investors in India.

Mode of entry for Foreign Institutional Investment in the Indian Economy :

1. 2.

Incorporated entity Unincorporated Entity.

As an incorporated Entity y Foreign investing firms entering as incorporated entities need to abide by certain rules. They need to enter as a company as per the Companies Act, 1956. y The incorporation can occur either through joint ventures or as wholly owned subsidiaries. Foreign equity investment in these companies can reach up to 100%. Investment is subject to the set equity caps as directed by the Foreign Direct Investment Policy of India.

As an Unincorporated Entity, y a foreign investment company can operate through its Liaison Office, Branch Office or Project Office. y Investment activities undertaken by these offices need to be under India's Foreign Exchange Management Regulations, 2000.

In recognition of the important role of Foreign Direct Investment(FDI) in the accelerated economic growth of the country, Government of India initiated a slew of economic and financial reforms in 1991. India is now ushering in the second generation reforms aimed at further and faster integration of Indian economy with the global economy. As a result of the various policy initiatives taken, India has been rapidly changing from a restrictive regime to a liberal one, and FDI is encouraged in almost all the economic activities under the automatic route.

2. Over the years, FDI inflow in the country is increasing. However, India has tremendous potential for absorbing greater flow of FDI in the coming years. Serious efforts are being made to attract greater inflow of FDI in the country by taking several actions both on policy and implementation front. Since the last publication of the Manual in November 2002, Foreign Investment Promotion Board has been shifted to Department of Economic Affairs, Ministry of Finance and Company Affairs. However, the subject relating to FDI Policy and its promotion and facilitation as also promotion and facilitation of investment by Non-Resident Indians(NRIs) and Overseas Corporate Bodies (OCBs) will continue to be handled by this Department. Further, application form required for Carry on Business(COB) License has been revised. Thesechanges have been incorporated in this issue of the Manual. In Annexure-IV of this Manual, guidelines regarding print media has been also elaborated. To make the Manual more userfriendly, some new additions have been made such as write-up on Departments website, online Chat and Bulletin Board facilities, brief details of clearances/approvals required, 4 agencies concerned and their website address and Frequently AskedQuestions. As the main emphasis of the Manual is to facilitate more FDI in India, from this issue the name of the Manual has been also changed.

3. An essential requirement of the foreign investing community in making their investment decision is availability of timely and reliable information about the policies and procedures governing FDI in India. This publication is a part of our endeavour to apprise the investing community of our policy measures and the opportunities available for investment in India.

4. We hope that this Manual will be found useful by the investing community. We welcome suggestions for its improvement.