Barcelona Panda

21st December,
2010.
 Market Size
 Liberalized Trade Policy
 Labour Costs and Productivity
 Political Scenario
 Infrastructure
 Disinvestment Policy
 Robust Bank & Financial Institutions
 Investor friendly policies and incentive
based schemes.
‘X’ a Foreign Central Bank approaches ‘M’ (Law
firm in India) to find out whether it can invest in
Indian Company ‘Z Industries Ltd’
‘X’ asks for legal advice in these area:
 the procedure of registering FII.
 Whether it can invest in company Z?
 If yes, what are the regulatory compliances that have
to be followed for such investment?
 What are the Tax Implications on such Investments?
 Securities and Exchange Board of India (Foreign
Institutional Investors) Regulations 1995.
SEBI
Securities and Exchange Board of India (Foreign
Institutional Investors) (Amendment) Regulations,
2010.

RBI
Regulation 5(2) of FEMA Notification No.20 dated
May 3, 2000,

DIPP
Duly filled in
Form ‘A’
with
required
documents

SEBI

Processing
of
Application
RBI’s
approval
Is the
applicant
eligible NO
Ye
s Issue Communicate the
Registratio rejection with reason
n and refund of
certificate application fee
Parameters on which SEBI decides FII applicants’ eligibility
 Applicant’s track record, professional competence,
financial soundness, experience, general reputation of
fairness and integrity. (The applicant should have been
in existence for at least one year)
 whether the applicant is registered with and regulated
by an appropriate Foreign Regulatory Authority in the
same capacity in which the application is filed with
SEBI
 Whether the applicant is a fit & proper person [In Re:
Jermyn Capital LLC, MANU/SB/0072/2009]
Regulation 15 of SEBI (FII) Regulations, 1995:
 Without permission of the company, all FII in aggregate
cannot hold more than 24% of the total equity of a
company
 A single FII cannot hold more than 10% of the total
equity of a company (5% for some FII)
 FII’s cannot engage in short selling of securities.
 Other additional restrictions as mentioned in SEBI FII
Regulations 1995.
•FII, on its own behalf, shall not invest in
equity more than 10% of total issued
capital of an Indian company.
•Investment on behalf of each sub-
account shall not exceed 10% of total
issued capital of an Indian company.
•For the sub-account registered under
Foreign Companies/Individual category,
the investment limit is fixed at 5% of issued
capital.
•Overall limit of 24% / 49 % / or the
sectoral caps as prescribed by
Government / Reserve Bank of India.
Government debt
100 % Debt Route -US $ 1.55
billion
70 : 30 Route- US $ 200 million
Total Limit -US $ 1.75 billion
For corporate debt the
investment limit is fixed at
US $ 500 million.
 FII
Portfolio investment by foreign
institutions in a market which is
not their home country.
Short term benefit to the
country
Influences Stock Market to a
greater level
FDI
Long term commitment to a
particular company in a sector
in terms of equity investment by
some foreign entity.
The Economy high and low
depends on the FDI's
Investment
have to follow a high rules and
regulations to enter the market

FDI the
FII flows into is perceived
secondaryto be more beneficial
FDI flows thanprimary
into the FII
market •Increases production and employment opportunities
market
•Brings revenue for the country by way of taxes
•FII exit is easier than that of FDI
 Participatory notes (PN) are derivative instruments that are held by foreign
investors not eligible to invest directly in the Indian capital markets.
 Regulation 15 A + 20A of the FII Regulations
 FII to follow requirements on disclosures and provide a complete
picture about its ODI issuances.
 FIIs can issue ODIs only to regulated entities.
 FIIs to observe KYC norms
 In Re: Societe Generale case
 Questions:
 Why Investors use PN?
 What is the problem with PN?
 What is the extent to which PN are used?
 Section 115AD of Income-Tax Act, 1961
levied a 10 per cent tax on the short-term
capital gains made in the stock market by
whether FII
FIIs. gains are in
the nature of
capital gains
or trading
 Issues: income?
 Taxation of Foreign Institutional Investors in India.
  How the Authority for Advanced Rulings is influencing
the tax-payers.
 How FIIs are avoiding tax by not having a Permanent
Establishment (PE) in India.
 The liability of FIIs in India in case of capital gains.
 Draft Code proposes to tax the income
the FIIs as capital gains which could
increase certain FII’s tax liability.   
 Capital gains to be subject to tax at

30% in case of non-residents 

 No distinction between short-term and

long-term capital gains

 in determining the tax liability of a

non-resident, the provision of the tax

law or a DTAA, whichever is more
beneficial, applies.
 creates liquidity: This leads to lower cost of
capital for the firm and allows firm to compete
more effectively in the global market place. This
directly benefits the economy and the country
 Black Monday: As per the information provided in BSE
India.com during the fortnight from May 16th to May 31st
2006, the withdrawals by FIIs were to the extent of
US$2.061 billion. This explains the fact that sales of FIIs
had a major impact on the market and this impact led to
the crash.
 foreign portfolio investments are found to be very
volatile in nature.
Impact of FII Investments on Indian Stock Market
Thank You