FDI-Foreign direct investment in Indian stock market

FDI stands for Foreign Direct Investment, a component of a country’s national financial accounts.It plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development

Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner.More specifically, Foreign direct investment is a cross-border corporate governance mechanism through which a company obtains productive assets in another country.Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.The FDI relationship consists of a parent enterprise and a foreign affiliate which together form an international business or a multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.

“An investment abroad, usually where the company being invested in is controlled by the foreign corporation”

FOR EXAMPLE: FDI is an INDIAN company taking a majority stake in a company in USA.

FDI MUST DO:

Assessment of internal resources,
Competetiveness
Market analysis
Market expectation

Advantages of Foreign Direct Investment:

* Most successful domestic companies, especially those with unique advantages, invest abroad
* Direct investment makes companies more successful domestically