INDIAN INSTITUTE OF MANAGEMENT

SHILLONG
2019-2021

GROUP PROJECT SUBMISSION

FINANCIAL MANAGEMENT- I

A study on impact of
FDI investment on Indian Stock market

Section 3: Group 8
Shikhar Shrikantiah 2019PGP184
Stanzin Gurmet 2019PGP185
Subham Vasisth 2019PGP186
Subhashish Das 2019PGP187
Sumedha Arya 2019PGP188
Suryansh Singh 2019PGP189
Suyash Garg 20149PGP190

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Effects of LPG on International Business
Liberalization loosens government control. It means it's easier to get a building permit to
build a house or factory in the business world. Liberalization liberalizes the industry from
restrictions on government. A third of the retail price is now going to the government, from
licensing to taxes. The quantity may double in cigarette and liquor.
Privatization means that the government tries to do less in the world of business and
allows citizens to own their own factories and businesses. A country that owns the oil wells
and gas stations would decide to "get out of the oil business" and allow it to be run by private
citizens. The government still collects money from taxes but no longer has to run the business.
The reverse of nationalization is privatization. We have nationalized many service ventures,
but now we feel that all nationalized units are losing. Once again, we are considering
privatization. (The advantage: our airlines compete in terms of fare with the railways.)
Globalization means you're crossing borders. If you want to build a new car for sale in
America, you may be buying steel from India; setting up the factory in Mexico; opening car
dealerships to sell cars in America. Globalization is about removing restrictions on buying or
selling goods fabrics abroad. We can get cheaper, but our choice of quality products.
Developed countries are advanced by being exposed to a broader global market for goods.
They are no longer able to tolerate under-standard goods. If they also produce, they will try
to produce a better product than they have used up to now.
Export and Import:

In the year 2001-02, India's export and import amounted to 32,572 million and 38,362
million respectively. In the international scene, many Indian companies have started to
become respectable players. Agricultural exports represent approximately 13 to 18 percent
of the country's total annual exports. In 2000-01 Agricultural products valued at more than 6
million dollars were exported from the country, 23 percent of which was contributed by
marine products. In recent years, marine products have emerged as the largest single
contributor to the country's total agricultural exports, accounting for more than one-fifth of
the total agricultural exports. Other prominent products are cereals (mostly basmati rice and
non-basmati rice), oilseeds, tea, and coffee, each of which accounts for nearly 5-10% of total
agricultural exports in the country.

Allowing Foreign Direct Investment (FDI)

Allowing FDI across a wide range of industries and encouraging flows of non-debt. The
Department has established a liberal and transparent foreign investment regime in which the
majority of activities are opened to foreign investment on an automatic route without any
limitation on the extent of foreign ownership. Some of the recent initiatives to further
liberalize the FDI regime include, inter alia, opening up sectors such as insurance (up to 26
percent); development of integrated townships (up to 100 percent); defence industry (up to
26 percent); tea planting (up to 100 percent subject to a 5-year FDI divestment; improvement

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of FDI limits in the private banking sector, allowing FDI up to 100% on the automatic route for
most SEZ manufacturing activities; opening up B2B e-commerce; Internet service providers
(ISPs) without gateways; electronic mail and voice mail to 100% foreign investment subject
to 26% divestment condition; etc. Through the Foreign Investment Implementation Authority
(FIIA), the Department has also strengthened investment facilitation measures.

Foreign Direct Investment (FDI)

� In Basic, Cellular Mobile, Paging and Value Added Service, and Global Mobile
Personal Communications by Satellite, Composite FDI is allowed to grant a license
from the Telecommunications Department subject to security and license conditions
74 percent (49 percent on automatic route).

FDI up to 74% (49% under automatic route) is also permitted for the following: -

� Radio Paging Service

Internet Service Providers (ISP's)

FDI up to 100% permitted in respect of the following telecom services: -

� Infrastructure Providers providing dark fibre

� Electronic Mail

� Voice Mail

Subject to the conditions that, if these companies were listed in other parts of the world,
they would divest 26 percent of their equity in favour of the Indian public in 5 years.

� In telecom manufacturing sector 100% FDI is permitted under automatic route.

� The government has modified the method of calculating the direct and indirect
foreign investment in the capped sector and has also issued downstream investment
guidelines by Indian Companies.

� Guidelines have been issued for the transfer of ownership or control of Indian
companies to non-resident entities in sectors with caps from resident Indian citizens

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 IMPACT OF FDI ON INDIAN STOCK MARKETS

Preface
Apart from being a primary driver of financial development, Foreign Direct Investment (FDI)
is a significant wellspring of non-obligation money related assets for the financial
improvement of India. Foreign organizations put resources into India to exploit moderately
lower wages here, extraordinary venture benefits, for example, tax exclusions, and so forth.
For a nation where outside investments and investments are being made, it likewise implies
accomplishing specialized expertise and creating work opportunities.
The Indian government's favourable approach system and stable business conditions have
guaranteed that foreign capital continues streaming into the nation. The legislature has taken
numerous measures as of late, for example, easing FDI standards across segments, for
example, defence, PSU oil refineries, telecom, power, stock exchanges, etc.

Market size
 As per the Department for Promotion of Industry and Internal Trade (DPIIT), FDI value
inflows in India in 2019-20 (till August) remained at US$ 19.33 billion, showing that
the administration's push to enhance Ease of Doing Business and laxation in FDI
standards is yielding outcomes.
 The Mutual Fund industry has seen fast development in Assets Under Management
(AUM). Absolute AUM of the Business remained at Rs 23.80 trillion (US$ 340.48 billion)
between April 2018-February 2019. Simultaneously the quantity of Mutual store (MF)
value portfolios arrived at a high of 74.6 million as of June 2018.
 Another critical segment of India's monetary industry is the insurance business. The
complete first year premium of life insurance organizations arrived at Rs 214,673 crore
(US$ 30.72 billion) during FY19.
 Alongside the secondary market, the market for Initial Public Offers (IPOs) has likewise
seen agile development. The aggregate sum of Initial Public Offerings (IPO) expanded
to US$ 1.2 billion raised from 37 between April – June 2018.
 In the course of recent years India has seen an immense increment in Mergers and
Acquisition (M&A) movement. In H12018, 74 arrangements of securing occurred in
the monetary division. The all-out estimation of such exchanges was US$ 4.166 billion.
Also, Bombay Stock Exchange (BSE) will set up a joint venture with Ebix Inc to make a
strong insurance distribution network in India via a new platform.
 The net FDI remained at US$ 1.8 billion in August 2019 and US$ 3.8 billion in July 2019.
India welcomed US$ 2.73 billion of foreign interest in the month of August 2019 when
contrasted with US$ 2.54 billion in the past year.

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  Information for Q1 2019-20 shows that the telecommunications sector pulled in the
most noteworthy FDI value inflow of US$ 4.22 billion, trailed by administration part -
US$ 2.79 billion, IT programming and equipment – US$ 2.24 billion, and Trading – US$
1.13 billion. Most recently, the total FDI value inflows for the long stretch of June 2019
reached US$ 7.28 billion.
 During Q1 2019-20, India got the greatest FDI value inflows from Singapore (US$ 5.33
billion), trailed by Mauritius (US$ 4.67 billion), Netherlands (US$ 1.35 billion), USA
(US$ 1.45 billion), and Japan (US$ 0.47 billion).

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Developments/ improvements
India came out to be the top beneficiary of greenfield FDI Inflows from the Commonwealth,
according to an exchange audit discharged by The Commonwealth in 2018.
A portion of the ongoing huge FDI declarations are as per the following:
In October 2019, French oil and gas company Total S.A. has gained a 37.4 percent stake
in Adani Gas Ltd for Rs 5,662 crore (US$ 810 million), making it the most significant
Foreign Direct Investment (FDI) in India's city gas dispersion (CGD) division.
In August 2019, Reliance Industries (RIL) reported one of India's greatest FDI bargains,
as Saudi Aramco will purchase a 20 percent stake in Reliance's oil-to-chemicals
concoctions (OTC) business at an endeavor estimation of US$ 75 billion.
In October 2018, VMware of the US has reported an investment of US$ 2 billion in
India between by 2023.
Foreign Portfolio Investors (FPIs) have invested in Indian stock markets up to Rs 6,310
crore (US$ 899.12 million) till November, 2018.
The Financial Inclusion Lab has chosen 11 fintech pioneers with a venture of US$ 9.5
million advanced by the IIM-Ahmedabad's Bharat Inclusion Initiative (BII) alongside
the Bill and Melinda Gates Foundation, Michael and Susan Dell Foundation, and JP
Morgan.
The private equity (PE/VC) and venture capital came to US$ 25.20 billion between
January to October 2018
In August 2018, Bharti Airtel got an endorsement of the Government of India available
to be purchased of 20 percent stake in its DTH arm to an America based private value
firm, Warburg Pincus, for around $350 million.
In June 2018, Idea's request for 100 percent FDI was endorsed by the Department of
Telecommunication (DoT) trailed by its Indian merger with Vodafone making
Vodafone Idea the biggest telecom administrator in India.
In February 2018, Ikea declared its arrangements to contribute up to Rs 4,000 crore
(US$ 612 million) in Maharashtra to set up multi-group stores and experience focuses.
Kathmandu based CG Group is hoping to contribute Rs 1,000 crore (US$ 155.97
million) in India by 2020 in its nourishment and drink Business, expressed Mr Varun
Choudhary, Executive Director, CG Corp Global.
International Finance Corporation (IFC), the venture arm of the World Bank Group, is
wanting to contribute about US$ 6 billion through 2022 out of a few renewable and
sustainable power source programs in India.

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Government Initiatives

 In August 2019, the government allowed 100 percent FDI under the programmed
course in coal digging and mining for open deal (just as in creating partnered
framework like washeries).
 In Union Budget 2019-2020, the legislature of India proposed opening of FDI in
aeronautics, media (animation, AVGC) and insurance in discussion with all partners.
 100 percent FDI is allowed for middlemen of insurance sector.
 The Government of India came up with a guide to accomplish its objective of US$ 100
billion worth of FDI inflows.
 In February 2019, the Government of India discharged the Draft National E-Commerce
Policy which empowers FDI in the marketplace/ commercial model of web-based
Business or ecommerce. Further, it expresses that the FDI strategy for online business
segment has been created to guarantee a level playing field for all members.
 GOI is intending to consider 100 percent FDI in Insurance intermediaries in India to
give a lift to the division and drawing in more assets.
 In December 2018, the Government of India modified FDI rules identified with internet
business. According to the guidelines 100 percent FDI is permitted in the commercial
center based model of internet business.
 In September 2018, the Government of India discharged the National Digital
Communications Policy, 2018 which visualizes expanding FDI inflows in the media
communications division to US$ 100 billion by 2022.
 In January 2018, Government of India enabled foreign carriers to put resources into
Air India up to 49 percent with government endorsement. The investment can't
surpass 49 percent straightforwardly or in a roundabout way.
 No administration endorsement will be required for FDI up to a degree of 100 percent
in Real Estate Broking Services.
 The Government of India is looking at stakeholders to ease up (FDI) in defence under
the automatic course to 51 percent from the current 49 percent, so as to give a lift to
the Make in India campaign and to produce jobs.
 The Government of India has found a way to extend the changes in the capital
markets, including simplifying of the Initial Public Offer (IPO) process which permits
qualified foreign financial investors (QFIs) to get to the Indian security markets. Till
now, Rs 14,674 crore (US$ 2.09 billion) has been raised from Initial Public Offerings
(IPOs).
 According to Union Budget 2019-20, 100 percent FDI will be allowed for insurance
mediators. The insurance sector can be made accessible to 74 percent FDI from 49 for
each cent. Government has endorsed 100 percent FDI for protection middle people.

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Future Forward
India has become the most alluring developing business sector for Global Partners (GP)
venture for the coming year, according to an ongoing business sector market attractiveness
survey led by Emerging Market Private Equity Association (EMPEA).
Yearly FDI inflows in the nation are relied upon to ascend to US$ 75 billion throughout the
following five years, according to a report by UBS.
The Government of India is planning to accomplish US$ 100 billion worth of FDI inflows in the
following two years.
Note: Conversion rate used as on August 2019, Re 1 = US$ 0.014056

Findings
1. The FDIs stream has demonstrated expanding pattern with the exception of the
ongoing recent years and during 2002 to 2004.
2. The inflow of FIIs didn't have much of a significant pattern during the given times.
3. The flow of FII is not as much as FDI in to India aside from three years 2003 to 2006.
4. A strong positive correlation is derived between FDI & nifty and the FDI & Sensex, and
the correlation is significant at 1% level of significance.
5. There is a moderate positive relationship between FII and Sensex and FII and clever
however the connection isn't critical at 1 percent level of centrality.
6. There is a moderate positive correlation between FII & nifty and FII & Sensex but the
correlation is not significant at 1% level of significance.
7. The inflow of FDI into India and the trends of the BSE & Sensex are dependent.
8. Similarly, the inflow of FII into India and the trends of the BSE & Sensex are dependent.
9. Flow of FDIs into India and CNX Nifty trend and the flow of FIIs into India and CNX Nifty
trend are dependent.

Implications
The ramifications of exact outcomes are multifaceted. GoI can encourage FDI in India by
making different arrangements. As a matter of first importance measure might be the
confirmation of political strength in the nation. Sufficient arrangement of infrastructure
framework can enhance the FDI. Instability of foreign exchange and the rates of interest ought
to be limited through proper monetary strategy. Results propose positive effect of all
macroeconomic and monetary factors on the stock markets of India. Among these are the
economic growth, domestic savings, and inflation rates.

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Inferences
The flow of FDI & FII propelled the Indian economy and also opened doors for the Indian
industry to:
 gain access to global managerial skills and practices,
 technological up-gradation,
 global competitive advantage, and
 optimizing utilization of human and natural resources and with greater efficiency.
Most importantly FDI is empirical to India's integration with global supply & production
chains, which involves production by Multinationals spread across locations all over the
world.
From the current study it can be construed that there is a strong positive correlation between
and FDI & Nifty 50 and, FDI & Sensex and moderate positive correlation between FII & Sensex
and FII.

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