Analysis of Foreign Institutional Investment in Leading Indian Companies

1.1 Foreign Investment:

Foreign Investment refers to investments made by residents of a country in financial assets and production process of another country. After the opening up of the borders for capital movement these investments have grown tremendously. But it had varied effects across the countries. It can affect the factor productivity of the recipient country and can also affect the balance of payments. In developing countries there was a great need of foreign capital, not only to increase their productivity of labor but also to build the foreign exchange reserves to meet the trade deficit. Foreign investment provides a channel through which these countries can have access to foreign capital.( Union Budget 2008)

Foreign capital can come in two forms: Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). Foreign direct investment relates to direct investment in an Indian company either through a joint venture agreement or as a wholly owned subsidiary with management interest. Foreign direct investment is also permitted through the route of Global Depository Receipt/Euro issue/FCCB. The portfolio investments in Indian companies can be made through acquisition of shares and debentures in the primary and secondary market (stock market) without any management interest. (Union Budget 2008)



2. OBJECTIVE :

The present study is aimed at examining the determinants of Foreign Institutional Investments in a few leading companies in the Information Technology, Banking and Pharmaceuticals sector in India. The sample set of the companies comprises the entities forming part of the Bombay Stock Exchange s sectoral Indices with respect to the relevant three sectors. An attempt is being made to determine the reasons for high levels of FII shareholding in some companies while that for low in others. Further the relative importance of some parameters, like the BSE Sensex returns, the Dow Jones Industrial Average returns, the Net profit and Earnings per Share of the sample companies etc., in influencing the foreign investors to select the stocks in the respective sectors, is being judged.( FDI policy, 2006)

The present study also tries to examine the effect of Regulatory policy changes on Foreign Institutional Investments in India. An account of the policy changes since the onset of liberalization is being analyzed to study the pattern of changes over time. Given the huge volume of these flows and its impact on the economy, understanding the behavior of these flows becomes very important in the era of a liberalized capital account. ( SEBI regulations, 1995)

3. FOREIGN INSTITUTIONAL INVESTMENT (SEBI FII Regulations 1995)



3.1 Foreign Institutional Investor





3.2 Investment Instruments

3.3 Investment Limits

3.4 Reporting for FII Investments ( SEBI FII Regulations, 1995)

3.5 Sectoral Caps on Foreign Investment ( Union Budget 2008)

3.5.1 FOREIGN INVESTMENT NORMS FOR THE BANKING SECTOR

3.5.2 FOREIGN INVESTMENT NORMS FOR THE DRUG &

PHARMACEUTICALS SECTOR

3.5.3 FOREIGN INVESTMENT NORMS FOR THE INFORMATION

TECHNOLOGY SECTOR



4. TRENDS IN FOREIGN INVESTMENT SINCE LIBERALIZATION ( SEBI guidelines, 1995)



4.1 The Foreign investment policy ( Union Budget, 2008)

5. DATA AND METHODOLOGY (BSE India, 2007)

5.1 Data

5.2 Methodology

6. FINDINGS

6.1 Regression result ( Data and statistical services, Princeton university)

List of Sample Companies ( BSE India , 2007)



a) Information Technology (Software solutions) Companies in the BSE Technology Index

 Financial Technologies (I) Ltd. Included

 HCL Technologies Ltd. Included

 I-Flex Solutions Ltd.  Complete data not available

 Infosys Technologies Ltd. Included

 Moser-Baer (India) Ltd.  Hardware company

 Mphasis Ltd. Included

 Patni Computer Systems Ltd.  Complete data not available

 Rolta India Ltd. Included

 Satyam Computer Services Ltd. Included

 Tata Consultancy Services Ltd.  Complete data not available

 Tech Mahindra Ltd.  Complete data not available

 Wipro Ltd.  Included



b) Companies in the BSE the Banking Index

 AXIS Bank Ltd.

 Centurion Bank of Punjab Ltd.

 Federal Bank Ltd.

 HDFC Bank Ltd.

 ICICI Bank Ltd.

 Kotak Mahindra Bank Ltd.

 Yes Bank Ltd.



c) Companies in the BSE Healthcare Index

 Dishman Pharmaceuticals & Chemicals Ltd.

 Ipca Laboratories Ltd.

 Opto Circuits (India) Ltd.

 Nicholas Piramal India

 Orchid Chemicals Pharmaceuticals

 Apollo Hospitals Enterprises Ltd.

 Aurobindo Pharma Ltd.

 Aventis Phrama Ltd.

 Biocon Ltd.

 Cadila Healthcare Ltd.

 Cipla Ltd.

 Divis Laboratories Ltd.

 Dr Reddys Laboratories Ltd.

 Fortis Healthcare Ltd.

 GlaxoSmithKline Pharmaceuticals Ltd.

 Glenmanrk Pharmaceuticals Ltd.

 Lupin Ltd.

 Matrix Laboratories Ltd.

 Pfizer Ltd.

 Ranbaxy Laboratories Ltd.

 Sterling Biotech Ltd.

 Sun Pharmaceutical Inds Ltd.

 Wockhardt Ltd.

 Bilcare Ltd.

 Sun Pharma Advanced Research Co.



LIST OF BOOKS USE IN MY COURSE IN MSC FINANCE

1. ARNOLD, G.CORPORATE(2005) FINANCIAL MANAGEMENT. HARLOW: FT/PRENTICE HALL

2. JOHNSON, G., SCHOLES AND WHITTINGTON, R. (2004) EXPLORING CORPORATE STRATEGY. (7TH ED.). HARLOW: FT/ PRENTICE HALL

3. COLLIER, P.M. (2006) ACCOUNTING FOR MANAGERS: INTERPRETING ACCOUNTING INFORMATION FOR DECISION MAKING. CHICHESTER: WILEY

4. KAPLAN, R.S. AND NORTON, D.P (2004) STRATEGY MAPS: CONVERTING INTANGIBLE ASSESTS INTO INTANGIBLE ASSETS. CAMBRIDGE, MASS: HARVARD BUSINESS SCHOOL PRESS

5. KAPLAN, R.S. AND NORTON, D.P (2006) ALIGNMENT: HOW TO APPLY THE BALANCE SCORECARD TO CORPORATE STRATEGY. CAMBRIDGE, MASS: HARVARD BUSINESS SCHOOL PRESS

6. SMITH, M (1995) PERFORMANCE MEASUREMNT AND MANAGEMENT. LONDON: SAGE

7. YOUNG, S. (2004) READINGS IN MANAGEMENT ACCOUNTING. HARLOW: PRENTICE HALL

8. NEALE, W AND MCELROY, T. (2004) BUSINESS FINANCE, A VALUE-BASED APPROACH, FT/PRENTICE HALL

9. BARKER, R (2001) DETERMINING VALUE, FT/ PRENTICE HALL

10. ARNOLD, G.(2005) CORPORATE FINANCIAL MANAGEMENT, FT/PRENTICE HALL

11. BAILEY, R.E (2005) THE ECONOMICS OF FINANCIAL MARKETS, CAMBRIDGE, CUP

12. PILBEAM, K (2005) FINANCE AND FINANCIAL MARKETS 2ND EDITION, BASINGSTOKE, PALGRAVE/MACMILLIAN

13. HOWELLS, P AND BAIN, K (2005) THE ECONOMICS OF MONEY, BANKING AND FINANCE 3RD EDITION, HARLOW, FT/PRENTICE HALL

14. KOHN, M(2004) FINANCIAL INSTITUTIONS AND MARKETS, NEW YORK/ OXFORD, OUP

15. SHLEIFER, A(2000) INEFFICIENT MARKETS: AN INTRODUCTION TO BEHAVOURIAL FINANCE, OXFORD

16. ALLEN, F AND GALE, DALE (2000) COMPARING FINANCIAL SYSTEMS, MIT PRESS

17.COPELAND, L.S (2005) EXCHANGE RATES AND INTERNATIONAL FINANCE, 4TH EDITION, FT PRENTICE HALL

18. EITEMAN, D K ., STONEHILL, A.I AND MOFFETT, M.H (2003) MULTINATIONAL BUSINESS FINANCE, 10TH EDITION, ADDISON WESLEY LONGMAN

19. HALLWOOD, C. AND MACDONALD, R. (2000) INTERNATIONAL MONEY AND FINANCE, 3RD EDITION, BLACKWELL

20. MARK, N.(2001) INTERNATIONAL MACROECONOMICS AND FINANCE, BLACKWELL

21. BENNINGA, S. (2000) FINANCIAL MODELLING, 2ND EDITION, CAMBRIDGE: MIT PRESS

22. DAY, A. (2001) MASTERING FINANCIAL MODELLING: A PRACTITIONERS GUIDE TO APPLIED CORPORATE FINANCE, LONDON: FINANCIAL TIMES PRENTICE HALL

23. HELFERT, E. (2003) FINANCIAL ANALYSIS TOOLS AND TECHNIQUES, MCGRAW-HILL

24. OAKSHOTT, L. (2006) ESSENTIAL QUANTITATIVE METHODS FOR BUSINESS, MANAGEMENT AND DINANCE. PALGRAVE MACMILLIAN

25. SENGUPTA, C. (2004) FINANCIAL MODELLING: USING EXCEL AND VBA, CHICHESTER: WILEY

26. TSAY, R. (2005) ANALYSIS OF FINANCIAL TIME SERIES: FINANCIAL ECONOMETRICS, 2ND EDITION, CHICHESTER: WILEY