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Foreign institutional investors and the stock exchange

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  1. Introduction to the Indian economy
  2. Introduction to foreign institutional investors
  3. Guidelines for FII's
  4. Stock market and stock exchanges
  5. Role of stock exchanges in the economy
  6. The investment scenario
  7. FIIs, Indian stock exchanges and Indian economy
  8. Subscription to participatory notes
  9. Policies recently changed/modified for FII's
  10. Overview of the stock market movement
  11. Trend of FII's in 2005-06
  12. Importance and role of FII's
  13. Growth in FII's
  14. Impact of overseas investors
  15. Indirect effects: Growth of securities brokers
  16. Finding from the study
  17. Conclusion
  18. Bibliography

India has struggled financially since independence, experiencing slow economic growth and economic setbacks due to climatic extremes or political disturbances. The country has been gradually transforming its economic base from agrarian to industrial and commercial. Under British rule in the 19th century, India's cottage industries and thriving trade were virtually destroyed to make way for European manufactured goods, paid for by exports of agricultural products such as cotton, opium, and tea. Beginning in the late 19th century a modern industrial sector and an extensive infrastructure of railways and irrigation works were slowly built with British and Indian capital. Nevertheless, India's economy stagnated during the last 30 or so years of British rule. At independence in 1947 India was desperately poor, with an aging textile industry as its only major industrial sector.

Economic policy after independence emphasized central planning, with the government setting goals for and closely regulating private industry. Self-sufficiency was promoted in order to foster domestic industry and reduce dependence on foreign trade. These efforts produced steady economic growth in the 1950s, but less positive results in the two succeeding decades. By the early 1970s India had achieved its goal of self-sufficiency in food production, although this food was not equally available to all Indians due to skewed distribution and occasional shortfalls in the harvest.

[...] has allowed foreign institutional investors to invest in the securities traded on the primary and secondary markets, including equity shares and other securities listed or to be listed on stock exchange in India. Eligible FIIs can be categorized as pension funds, mutual funds, investments trust, insurance or reinsurance companies, university funds and charitable societies. Further asset management companies and portfolio managers registered with the SEBI can register themselves as FIIs to manage foreign investments in the capital market through the portfolio investment route. [...]


[...] Using stock returns based on the NSE index and net foreign institutional investment flows, there is no evidence to statistically support the positive feedback process. One of the standard models in finance is the capital asset pricing model. Despite its imperfections, it is one of the best tools available to investment managers. From a stock perspective, the implication of this model is that the non diversifiable market risk is the important risk and a stock's riskiness is measured by its vulnerability to market risk. [...]


[...] OVERVIEW OF THE STOCK MARKET MOVEMENT Trend of FIIs in 2003-04 Buoyed by a conducive investment environment, net inflows of foreign institutional investors (FIIs) in the Indian equity and debt markets recorded an almost 10-fold rise in 2003 at Rs crore (US dollar 7.59 billion) as against Rs crore (USD 763.5 million) registered in the previous year. The net purchases in equities stood at Rs crore (USD 6.59 billion) in the calendar year 2003 while in case of debt instruments, it was Rs crore (USD 995.4 million), according to the data available with Securities and Exchange Board of India (SEBI) at Mumbai. [...]

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