In
Indian Stock Market, Foreign Institutional Investor (FII)
is allowed to invest in the primary and secondary capital markets through the
portfolio investment scheme (PIS).
Under
this scheme, FIIs can acquire share / debentures of Indian
companies through the stock exchanges in India. The ceiling for overall investment for FIIs
is 24 percent of the paid up capital of the Indian company. The limit is 20 percent of the paid up
capital in case of public sector banks, including the State Bank of
India, whose huge selling by FIIs brought the share to below 2000 level
in February and March series. The besttrading software analyses these aberration in FIIs inflow or outflow
resulting in such a sharp reaction in even BULL MARKET.
THE CUT-OFF
The
ceiling of 24 per cent for FII investment can be raised up to sectoral cap /
statutory ceiling, subject to the approval of the board and the general body of
the company passing a special resolution to that effect. And the ceiling of 10
per cent for NRIs / PIOs can be raised to 24 per cent subject to the
approval of the general body of the company passing a resolution to that
effect. The ceiling for FIIs is
independent of the ceiling of 10 / 24 per cent for NRIs / PIOs.
The
Reserve Bank of India (RBI) monitors the ceilings on FII / NRI / PIO investment
in Indian companies on a daily basis.
Fore effective monitoring of foreign investment ceiling limits, The RBI
has fixed cut-off points that are two percentage points lower than the
actual ceilings. The Intraday tradingsoftware keeps track of these investments on daily basis too. It helps
analyse the mood of FIIs towards Indian stock market.
RBI’s STANDING ACTION
Once
the aggregate net purchase of equity shares of the company by FIIs / NRI / PIO
reach the cut-off point, which is 2 % below, the overall limit, the RBI
cautions all designated bank branches so as not to purchase any
more equity shares of the respective company on behalf of FII /
NRI / PIO without prior approval of the RBI.
The link offices are then required to intimate the RBI about the total
number and value of equity share /convertible debentures of the company
they propose to buy on behalf of FII / NRI / PIO. On receipt of such proposals, the RBI gives
clearance on a first come first basis
till such investments in the companies reach 10 / 24 / 30 / 40 / 49 per cent limit or the sectoral caps /
statutory ceilings as
applicable. On reaching the aggregate
ceiling limit, the RBI advises all designated bank branches to stop purchases
on behalf of their FII / NRI / PIO clients.
The RBI also informs the general public about the ‘caution’ and ‘stop
purchase’ in these companies through press release.
The
intraday traders cautiously watch the moves of FII and go with their
flow. The activity of FII can also be
seen majorly in NIFTY FUTURE OR NIFTY OPTION trade which shows sudden
spur and nose-dive reactions.
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