"Global Interest Rate Rise Tests India's Investment Appeal"
FDI (Foreign Direct Investment)
a non-debt creating capital flow involving lasting control or majority equity in a company
FPI (Foreign Portfolio Investment)
investment in shares or bonds without seeking management control, more easily reversible
A government bond is a loan that an investor gives to a government. The government pays regular interest called a coupon and repays the full amount when the bond matures. A bond's yield is its real annual return at the current market price. Yield and price always move in opposite directions. For decades, US Treasuries offered the world's lowest yields. Investors saw them as the safest asset. Riskier economies, including India, had to offer higher returns to attract the same money.
When global investors like Blackstone or Fairfax Financial put money into India, this can take different forms. Foreign Direct Investment (FDI) is a non-debt creating capital flow. It usually involves a lasting management interest or majority equity stake in a company. This means the investor owns and helps run the business, not just holds shares for returns. This differs from Foreign Portfolio Investment (FPI). In FPI, investors buy shares or bonds without seeking control. They can exit quickly. India also allows Foreign Institutional Investors (FIIs) to hold Government Securities (G-Secs). But only within limits set by the Reserve Bank of India (RBI). This distinction matters because FDI tends to be sticky, long-term capital. FPI can flow out rapidly when global conditions change.
India's capital markets have deepened considerably over the past decade. The financialisation of household savings means more people invest through formal instruments like mutual funds and bonds. They invest instead of just gold or property. This has allowed companies to raise far more capital through new equity and bond issues than before. This deepening, along with investment in physical and digital infrastructure, has made India's exit routes for investors more robust. IPOs and stock sales are far more robust than in the past.
Alternative Investment Funds (AIFs) are a regulatory category for pooled investment vehicles like hedge funds and venture capital funds. They are distinct from traditional securities like bonds and stocks. Global Depository Receipts (GDRs) represent shares of foreign companies. They are not classified as Foreign Direct Investment. Subsidiaries and majority equity holdings in operating companies are classified as FDI.
Global bond yields move together largely because central banks, especially the US Federal Reserve, keep policy rates high to control inflation. When US yields rise, the gap between US returns and riskier emerging-market returns narrows. This makes it harder for countries like India to attract the same foreign capital at the same cost. Indian G-Sec yields respond to Fed decisions, RBI operations, and domestic inflation and short-term rates. A rate move in Washington can quickly affect what the Indian government pays to borrow at home.
The RBI manages this transmission through specific tools. The RBI typically sells government securities to reduce money supply when inflation is high. …
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?
Consider the following statements:
1.In India, Non-Banking Financial Companies can avail the Liquidity Adjustment Facility window of the Reserve Bank of India.
2.In India, Foreign Institutional Investors can be holders of the Government Securities (G-Secs).
3.In India, Stock Exchanges can provide a separate trading platform for debts.
Which of the statements given above is/are correct?
With reference to investments, consider the following:
I.Bonds
II.Hedge Funds
III.Stocks
IV.Venture Capital
How many of the above are treated as Alternative Investment Funds?
Consider the following:
1.Foreign currency convertible bonds
2.Foreign institutional investment with certain conditions
3.Global depository receipts
4.Non-resident external deposits
Which of the above can be included in Foreign Direct Investments?
Which of the following is/are considered a non-debt creating capital flow for India?
1.Foreign Direct Investment
2.External Commercial Borrowings
3.Global Depository Receipts representing equity
Select the correct answer using the code given below:
With reference to India's Government Securities (G-Secs) market, consider the following statements:
1.Foreign Institutional Investors can hold G-Secs only within limits set by the RBI.
2.The RBI sells government securities to reduce money supply when inflation is high.
Which of the statements given above is/are correct?
Match List-I (Investment Type) with List-II (Nature of Flow) and select the correct answer using the code given below:
List-I
A.Foreign Direct Investment
B.Foreign Portfolio Investment
C.External Commercial Borrowing
D.Government Security held by FII
List-II
1.Debt flow with repayment obligation
2.Non-debt, control-seeking equity flow
3.Non-debt, passive equity/bond flow without control
4.Debt instrument held by foreign investor within RBI limits
Consider the following statements regarding Alternative Investment Funds (AIFs) in India:
1.Hedge funds are classified as AIFs.
2.Venture Capital funds are classified as AIFs.
3.Ordinary listed stocks and bonds are classified as AIFs.
How many of the above statements are correct?
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