Impact of Fii on Indian Economy

India’s economy is booming! With large decreases in poverty, increases in literacy and GDP, India is continuing to make its way out of the third world and into the first. India is predicted to surpass even China in growth by 2050. A competitive private capital market has instilled Indians with a low cost high quality mentality and has resulted in some of the highest return rates for any country. India has been averaging 6% growth compared to China’s 9.5% with half the investments. India capital efficiency is one of its strongest economic benefits.

The goal of this case is to help Sandra Meyer develop a presentation to address Henry Bosse’s concerns about international investments. The general idea is to demonstrate to Henry the benefits of international diversification, if any. To achieve this goal, you need to have a view on 1) the impact of foreign exchange (FX) rates on the return and risk of international investments, and 2) the impact of having more assets on the return and risk of the investment portfolio To form views on these two points, answer the following questions: I. The impact of FX rates on the risk and return of foreign investments 1a) Using data in Appendix A, calculate the

The BRIC emerging economies are some of the most successful market liberalisers with India having particular prosperity in liberalising its inward capital flows and currency convertibility from 1991 to foreign investors. Post liberalisation India is regarded as one of the fastest growing economies with an annual growth rate of 6.86% compared to 4.07% pre liberalisation (World Bank, 2014). Economists such as Saikia (2012) regards this success down to India’s rise in investment. In the decade after reforms FDI inflows to India has grown by a staggering sixty fold increase to $6 billion (Kletzer, 2004) showing how the India economy has become a major destination for FDI and is reaping the economic benefits.

The goal of this case is to help Sandra Meyer develop a presentation to address Henry Bosse’s concerns about international investments. The general idea is to demonstrate to Henry the benefits of international diversification, if any. To achieve this goal, you need to have a view on 1) the impact of foreign exchange (FX) rates on the return and risk of international investments, and 2) the impact of having more assets on the return and risk of the investment portfolio To form views on these two points, answer the following questions: I. The impact of FX rates on the risk and return of foreign investments 1a) Using data in Appendix A, calculate the

In the recent past, the trend in the flow of foreign investors in the United States has been overwhelming. Notably, the numbers of foreign holdings have indicated a consistent desire to purchase stocks and bonds. For instance, external investors own at least 20% of the stocks and 43% of the bonds in the United States stock market. In 2015, the American stock market reached a peak in its investors trust and confidence. The U.S. economy has gained credibility and admiration across the world. It has remained competitive and

Although the U.S. has become the world 's largest economy by making up half the world 's total global market capitalization, an investor would likely miss opportunities elsewhere by holding only domestic stocks. Spreading the portfolio across a number of countries helps investors to take advantage of a larger opportunity set, reducing the chances of losses that occur only on a single market. Although, diversification cannot guarantee profits or protect against losses, historically U. S. market returns have benefited more from emerging markets than from other developed markets. In recent years, emerging markets have become more attractive to investors due to their rising economic productivity and favorable demographics, associated with

Several growth factors contribute to India’s burgeoning national and global economic presence. Having the largest population of youth on the planet means that India’s workforce is surging, especially in the areas of agriculture and manufacturing. The nation’s growth in production, income, and education leads to a rising middle class consumer base. Finally, the growth of India’s economy is facilitated by political leadership changes and government initiatives that favor an open economy and global competition.

When understanding the balance of goods and services that are traded by a country, it is reliant in a negative manner on the imports needed to produce the products. Also, the flow of money in the international market is depending on interest rates from all nations and can be positively or negatively affected dependent on how high or low these rates are by nation. When investors are looking to increase their financial position, country’s offering higher

Invesco can establish a new branch in a new market and then either inject cash or capital from their various funds. However, an investment in emerging market countries carries greater risks compared to more developed counties, for example many of the assets in these countries can be less liquid. The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues (Invesco, 2013). Therefore, there are both increased risks as well as opportunity in many of the emerging markets that Invesco is operating in.

Some studies do examine the portfolio management along with the market volatility, impact however; the scope is often limited to a Bangalore. This study takes a look at the awareness of Mutual fund industries its growth in India. If one considers the transactions by domestic mutual funds (MFs) in the equity market an indicator of domestic investor participation in the stock market, domestic investors have been active participants in recent times. But the common perception that domestic investors lack market-moving influence is not entirely based on fact.

Article that provide from the guardian, the recently protest in Thailand has affect the economy of Thailand. (Guardian Liberty Voice, Tom Clark , April 2014) Generally, the war, protest, terrorism activity or any other unexpected political issues may bring a negative impact towards investors. Foreign investors might get affected if the government decides to impose new tax laws on withdrawals of cash out from the country or it might be even worst that the profits that make by investors might turn into the government coffers. Different countries have different regulations. Many foreign countries such as countries that are consider as second or third world country do not have a good supervision and control standards. Full financial disclosure may not require from different country. This may bring difficulty to investors to obtain necessary information from the corporation. Even though if adequate information can be obtained, it is very time consuming and costly for investors or fund managers to obtain. Investing on the international markets can be more expensive than investing on the domestic market. This might due to taxes, transaction costs for the securities, and commission for brokers. As a result, mutual funds that invest in international markets tend to have higher expensive ratios than similar domestic funds. Investing in the international

This article will consider the global issues that has led to stock market volatility in the past year. It will look at how these issues developed, its effect on the equity and global economy and how they interrelate with each other. It considers how investors can benefit by selecting and allocating assets alternative to equity in their investment portfolio. This would help counteract the effects of the

As a result, investors assess the risk of different investments not only basing on historical standard deviation; investors tend to impute additional "risk" to foreign asserts because they have less or lagging information about foreign economic environment and markets. (French & Poterba, 1991) Information asymmetry can cause another problem pointed out by French & Poterba (1991)is that return expectations of investors in different countries vary systematically; it is hard for investors to learn that expected returns in domestic markets are not systematically higher than those abroad because estimating expected returns in equity markets is statistical uncertain. Apart from information asymmetry, tax burdens also should be taken into consideration. Tax burdens on foreign equity interest are higher than domestic, leading investors toward holding domestic equity (French & Poterba, 1991). Therefore, it is hard to say investors are irrational solely because of the preference of investing in domestic equities.

Internationally, the flow of capital across national borders and into markets once believed to be impregnable is occurring at the speed of light. Technological innovation, accessibility to international market economies, and increased globalization has expanded the universe of securities available for investments and more importantly portfolio diversification. The developments mentioned above questions traditionally accepted principles by investors who believed that investing solely in U.S. securities would result in a better risk-return tradeoff. Prudent investors have known that diversifying across industries and markets will lead to a given level of expected return at a significantly lower level of risk, and vice versa. However, the advantages of such diversification are limited due to the same cyclical economic fluctuations that all assets (or companies) in a particular country are exposed to.

In 2013 the total exports for India was at $313.2 billion whereas the import stood at $467.5 billion (CIA, 2014). India followed the Adam Smith model producing only what it was efficient at and imported the rest. There started a reversal in capital inflows which hit the export demand and posted a crunch in the domestic markets leading to a decline of more than 2% in India’s GDP in the fiscal year 2008-2009 (Kumar & Vashisht, 2009). In 2008 India was already experiencing a high inflation rate, which reduced expenditure in the country. To address the crisis and its affects the Indian government and the banks introduced fiscal stimulus and relaxed monetary policies in order to boost domestic demand. The market interest rates increased to 20% and above suddenly. India had received a fiscal stimulus of $80 billion injected into the economy to ensure liquidity. India was loosing badly on FDI’s and remittances. During 2008, India’s FDI inflows experienced a negative growth of 2% (Kumar & Vashisht, 2009). Remittances also are a major part of the capital inflows of the country, in 2008 the remittance inflow declined by more than 29% (Kumar & Vashisht, 2009) as every country first wanted to protect jobs of its home citizens and there was a severe lay off. Exports to USA is a major component of India’s GDP. After a sharp decline in the demand from the US, India had to lay off more than 300,000 workers instantly. There was a decline in exports of India by