Sectors where FDI is NOT ALLOWED

FDI in the following sectors are prohibited completely – i.e., under both Automatic and Government routes it is not allowed.

 Atomic Energy

 Agricultural and Plantation activities

 Gambling, betting and lottery

 Nidhis and Chit Funds

 Real Estate

 Manufacture of cigarettes and tobacco

What are FIIs?

Foreign Institutional Investors (FIIs) are persons or companies incorporated outside India(companies can be Mutual funds, Pension funds, investment companies, foreign banks etc.), investing in shares of a company – where their investment is very

less. They do not have any sizeable investment – they do not have any controlling power in the company.

It is just like you and me investing in shares of Reliance Industries – only investing is done by people who are not Indian residents; and they have to be registered with SEBI to participate in the market.

So, basically FIIs are the financial market players – and the source of liquidity in the markets. Their investing in the Indian markets project a +ve image and brings in more investors.

There is a ceiling limit of 24% FII of paid-up capital of an Indian company, and 20% in case of PSU banks.

Just like FDIs, FIIs also bring in forex – but when the share Indian sharemarket sees a down – or the markets of other countries sees an upswing – these FIIs are quick to sell their stakes in Indian companies and invest the money where the markets are progressing!

The major difference between FDIs and FIIs are that the former actually has a lot of stake in the company’s well being and profitability in the long run – whereas the FIIs want short term returns on the investments.

Foreign exchange reserves always favour more FDIs rather than FIIs as FIIs are the first to abandon the sinking ship!