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[Economy] QFI (Qualified Foreign Investor) vs FII, Need, Implication, Currency Depreciation, Demat Account and more (Story of Forex continues)

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The Technically incorrect Story of Forex continues with new topics. FII, QFI (Qualified Foreign Investors), Demat, PAN card and more

What is FII, Why did Rupee weaken against Dollar. Why did QFI come?

Foreign Institutional Investor (FII)

Tom Cruise: What is FII?Anil Kapoor: It means foreign player can invest money in Indian stock market.

Tom Cruise: Cool. Tell you what, I’m not getting much interest-rate in my savings account in American bank, I got $1 million in the suitcase, let’s go to Bombay Stock Exchange and buy some shares!

Anil Kapoor: Ain’t that easy! An individual foreigner can’t simply walk in the Dalal street and do shopping. Go to Maxwell Assets Manager. He will explain everything to you.

Sub-Account under FII

Maxwell Manager: I’m an established financial asset Management firm. I’ve got a licence from SEBI to operate as an FII (foreign institutional investor) in Indian market. (After paying $5000 application fees). Mr.Cruise, you will have to register as ‘sub-account’ under our FII firm. And then you give your suitcase to us, we’ll invest it in Indian stock market on your behalf.

Tom Cruise: Are you the only FII guy ?

Maxwell Manager: Well I’m not the only FII, there are many others like BNP PARIBAS, MORGAN STANLEY and other 1,700 FIIs and more than 5,500 sub-accounts registered with SEBI. But we are the best, we charge the least Commission and give free caller tunes and Unlimited talk time*. So, Let’s goto SEBI office and get it done. (*conditions apply)

cut to SEBI Office.

Peon. Our Saaheb is gone for tea-break so wait for 145 minutes.

(after 145 minutes)

Tom Cruise: (to the SEBI clerk) ya I wanna open a FII sub-account.

SEBI Clerk: oh Really? Every desi dude here wants to be an IAS, IIM, IIT and every firangi dude wants to be an FII ever since the sub-prime crisis. But are you a wealthy foreign individual or firm with a minimum net worth of $50 million (about Rs. 260 crore)? Only then we give the license, and not to any random swinging dude that walks into our office!

Tom Cruise You don’t know me? I’m the Tom Cruise .

SEBI Clerk Who’s that?

Maxwell Manager He is a famous Hollywood hero, got billions of dollars.

SEBI Clerk hmm never heard of you. I only watch the movies of India’s Finest Actor, Fighter, Dancer and Bollywood Superstar Mimoh Chakraborty. Anyways here is the application form for $1000. Fill it up, Attach photocopies of your id and address proof, 10 th ,12 th. Graduation marksheets, Work-Ex and Extra curricular activity certificates: Everything in triplicate, and attested by a Gazetted Officer and your three passport sized photographs with white background, no smile, and sign on your photo with black pen only.

Tom Cruise: Man this is so hopeless, it sounds like a perfect plot for Mission Impossible #5. Anil Kapoor can get the 2 minute’s role of Gazetted Officer, while I fool the Indian audience for the second time spreading rumors that he is given a big role just like in MI-4!

Tom gets the sub account opened.

Maxwell Manager: congrats. Now we can invest your money in Indian Stock market on your behalf, so which company do you want to put your money in?

Tom Cruise: hmm, I’ve been doing some market research myself, recently saw Abhishek Bacchan’s Idea 3G ad in Divya-Bhaskar (Gujarati Edition ), I think that company and its 3G service is going to be huge hit. Buy some Idea-shares for me so I can earn huge dividends later on. Also buy a few of Vedanta cause they acquired some oilfields from Cairn India, they will also make huge profits and pay good dividends to their shareholders.

Maxwell Manager Whaat an Idea sir-ji!

Cut to. Supreme Court cancels 2G licenses of all Telecom companies.

Tom Cruise Man this is hopeless. I think investing in Idea was a bad Idea. Company is gonna make any decent money now, my return on investment will be

ridiculous. Vedanta-Cairn deal is also stuck in the Cabinet, means no quick and huge profit there either.

Tom Cruise (phonecall to Maxwell Manager) hi, sell all my shares of Idea and Vedanta.

Maxwell Manager Sure. But Where should I invest the money then?

Tom Cruise. I have no idea sir-ji, what do you suggest?

Maxwell Manager I have been looking at the IIP (index of industrial production), the numbers are going in negative range. RBI is also hellbent on tightening the monetary policy, thus increasing the loan-rates and decreasing the demand of products to contain inflation. Indian industries are facing a slump, there is electricity problem, there is problem of getting environment clearances. Even blue chip software, chemical or automobile companies are not doing good thanks to slowdown in America and Europe. No hope in Airline companies either..

I don’t think it is worth it to play in Indian market any more. Besides you’ve one million dollars, meaning If Indian market gives you 5% return on Investment and Singapore’s gives you just 6%, still you should run away because 1% of one million dollar= easy $10,000. huge cash! So, I suggest we pull out your money completely from India and get it invested somewhere else, Singapore, Australia, perhaps?

Tom Cruise: Just Do It. Anything is better than the stalemate and “Policy paralysis” in India.

Serious Note on FII (copied from Newspapers)

  • At present, a foreign individual seeking to invest in Indian stocks has to be registered as a sub-account of an FII, which in turn has to apply to Sebi on the behalf of the sub-account holder.
  • India allows only wealthy foreign individuals or high networth individuals (HNIs) who have a minimum net worth of $50 million (about R260 crore) and registered as a sub-account of a foreign institutional investor (FII) to invest directly in local equities
  • FIIs pulled out money on account of growth falling below 7% and widely-publicised difficulties in obtaining regulatory clearances. Net outflows exceeded $450 million last year
  • For many FIIs, economic woes in their home markets, especially due to the European debt crisis and a perceived policy paralysis in India following a string of scams, exacerbated their pull-out.
  • Euro zone crisis has led to investors pulling money out of Indian equities. For India, the problem has been compounded by a slump in investor confidence because of policy inaction leading to a sharp fall in new projects.
  • Reserve Bank of India (RBI) estimate says that a 10 percent fluctuation in FII investment results in a 35 percent variation in stock prices.
  • FIIs pulled out money on account of GDP falling below 7% and widely-publicised difficulties in obtaining regulatory clearances. Net FII outflows exceeded $450 million last year.

QFI: Qualified Foreign Investor

Finance Minister’s office

Secretary: Sir, the FIIs are pulling out their money like there is no tomorrow. They have lost confidence in India’s growth story (thanks to you). Since they’re pulling out money, Demand of Dollar is increased and demand of rupee is decreased. Currently $1 goes for 54 Rupees in Forex market. We have to do something before all hell breaks loose!

Finance Minister: damn, let us start a new scheme “Qualified Foreign Investor” (QFI) as New year gift from 1st January 2012 to increase the ‘confidence’ of investors in Indian Market.

Secretary: What does is do? Another (bogus) scheme like your MNREGA?

Finance Minister It means a foreign individual, group or foreign firm can directly invest in Indian stock-market like any normal Indian citizen, without requiring the sub-account with FII. This should bring in some more investors, who’re interested in investing in India but feel turned off because of this sub-account and strict High Net-worth rules.

Tell RBI manager to do verification of the applicants though, make sure these individual, group or associations are resident in a foreign country that adheres to anti-money laundering and anti-terrorist financing guidelines as defined by the financial action task force (FATF) .

Secretary: Good idea but I suggest we name this scheme “IGQFI” or “RGQFI”

Finance Minister:.

Secretary: Indira Gandhi or Rajiv Gandhi QFI

Category: Forex

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