Foreign investment refers to investments made by the residents of a country in the financial assets and production processes of another country. After the opening up of the borders for capital movement, these investments have grown in leaps and bounds. The effect of foreign investment, however, varies from country to country. It can affect the factor productivity of the recipient country and can also affect the balance of payments. In developing countries there has been a great need for foreign capital, not only to increase the productivity of labor but also because foreign capital helps to build up the foreign exchange reserves needed to meet trade deficits. Foreign investment provides a channel through which developing countries can gain access to foreign capital. It can come in two forms: foreign direct investment (FDI) and foreign institutional investment (FII). Foreign direct investment involves in direct production activities and is also of a medium- to long-term nature. But foreign institutional investment is a short-term investment, mostly in the financial markets. FII, given its short-term nature, can have bidirectional causation with the returns of other domestic financial markets such as money markets, stock markets, and foreign exchange markets. Hence, understanding the determinants of FII is very important for any emerging economy as FII exerts a larger impact on the domestic financial markets in the short run and a real impact in the long run. The present study examines the role, impact and relationship of FII's and Indian capital market, and also determinants of foreign institutional investment in India, a country that opened its economy to foreign capital following a foreign exchange crisis. India, being a capital scarce country, has taken many measures to attract foreign investment since the beginning of reforms in 1991. Up to the end of January 2003, India succeeded in attracting a total foreign investment of around U.S.$48 billion out of which U.S.$12 billion was in the form of FII. These figures show the importance of FII in the overall foreign investment program. India is in the process of liberalizing its capital account, and this has a significant impact on foreign investment and particularly on FII, which affects short-term stability in the financial markets.
Tags: Indian foreign institutional investors, Role of foreign institutional investors, Impact of foreign institutional investors, Duties of foreign institutional investors
[...] The present study examines the role, impact and relationship of FII's and Indian capital market, and also determinants of foreign institutional investment in India, a country that opened its economy to foreign capital following a foreign exchange crisis. India, being a capital scarce country, has taken many measures to attract foreign investment since the beginning of reforms in 1991. Up to the end of January 2003, India succeeded in attracting a total foreign investment of around U.S.$48 billion out of which U.S.$12 billion was in the form of FII. [...]
[...] FOREIGN INSTITUTIONAL INVESTMENT IN INDIA India opened its stock market to foreign investors in September 1992 and since then has received portfolio investment from foreigners in the form of foreign institutional investment in equities. This has become one of the main channels of FII in India. In order to trade in the Indian equity market, foreign corporations need to register with the Securities and Exchange Board of India (SEBI) as foreign institutional investors. India allows only authorized foreign investors to invest in pension funds, investment trusts, asset management companies, university funds, endowments, foundations, charitable interests and charitable societies that have a track record of five years and which are registered with a statutory authority in their own country of incorporation or settlement. [...]
[...] On culture and media, the Steering Group observed that there was a need for true cultural globalization not a one-way process of only India having access to the culture of the rest of the world but a two-way street and in the field of current affairs and news programs, editorial control must vest with Indian nationals and eventually could be replaced by limits on aggregate market share (25 49 per cent) that can accrue to foreign controlled news/current affairs companies taken together. [...]
[...] Considering investors as risk averse, when risk in the foreign (U.S.) market increases, investors will withdraw from the foreign (U.S.) market and invest in the Indian (domestic) market. When inflation in the domestic country increases, the purchasing power of the funds invested declines, hence investors will withdraw from the domestic market. Similarly, when inflation in the foreign country increases, the purchasing power of funds invested in the foreign country declines, causing institutional investors to withdraw from the foreign (U.S.) market and make investment in the domestic (Indian) market. [...]
[...] FOREIGN INSTITUTIONAL INVESTMENT IN INDIA: AN OVERVIEW India opened its stock markets to foreign investors in September 1992 and has, since 1993, received considerable amount of portfolio investment from foreigners in the form of Foreign Institutional Investor's (FII) investment in equities. This has become one of the main channels of international portfolio investment in India for foreigners. In order to trade in Indian equity markets, foreign corporations need to register with the SEBI as Foreign Institutional Investors (FII). SEBI's definition of FIIs presently includes foreign pension funds, mutual funds, charitable/endowment/university funds etc. [...]
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