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JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 Capital Markets of India An Investor’s Guide ALAN R. KANUK John Wiley & Sons, Inc. iii JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 vi JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 Capital Markets of India i JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 Founded in 1807, John Wiley & Sons is the oldest independent publishing companyintheUnitedStates.WithofficesinNorthAmerica,Europe,Aus- tralia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional andpersonalknowledgeandunderstanding. TheWileyFinanceseriescontainsbookswrittenspecificallyforfinance and investment professionals as well as sophisticated individual investors andtheirfinancialadvisers.Booktopicsrangefromportfoliomanagementto e-commerce, risk management, financial engineering, valuation, and finan- cialinstrumentanalysis,aswellasmuchmore. Foralistofavailabletitles,visitourWebsiteatwww.WileyFinance.com. ii JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 Capital Markets of India An Investor’s Guide ALAN R. KANUK John Wiley & Sons, Inc. iii JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 Copyright(cid:2)C 2007byAlanR.Kanuk.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. PublishedsimultaneouslyinCanada. WileyBicentennialLogo:RichardJ.Pacifico Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or otherwise,exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyright Act,withouteitherthepriorwrittenpermissionofthePublisher,orauthorizationthrough paymentoftheappropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222 RosewoodDrive,Danvers,MA01923,(978)750-8400,fax(978)646-8600,orontheWebat www.copyright.com.RequeststothePublisherforpermissionshouldbeaddressedtothe PermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030, (201)748-6011,fax(201)748-6008,oronlineathttp://www.wiley.com/go/permissions. LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheirbest effortsinpreparingthisbook,theymakenorepresentationsorwarrantieswithrespecttothe accuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimanyimplied warrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarrantymaybecreated orextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceandstrategies containedhereinmaynotbesuitableforyoursituation.Youshouldconsultwitha professionalwhereappropriate.Neitherthepublishernorauthorshallbeliableforanylossof profitoranyothercommercialdamages,includingbutnotlimitedtospecial,incidental, consequential,orotherdamages. Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,outside theUnitedStatesat(317)572-3993orfax(317)572-4002. Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsin printmaynotbeavailableinelectronicformats.FormoreinformationaboutWileyproducts, visitourWebsiteatwww.wiley.com. LibraryofCongressCataloging-in-PublicationData: Kanuk,AlanR. CapitalmarketsofIndia:aninvestor’sguide/AlanR.Kanuk. p.cm.—(Wileyfinanceseries) “PublishedsimultaneouslyinCanada.” Includesbibliographicalreferencesandindex. ISBN978-0-470-13763-5(cloth) 1.Capitalmarket–India. 2.Stockexchanges–India. I.Title. HG5732.K362007 332(cid:3).04150954—dc22 2007003314 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 iv JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 To my wonderful wife, Jaqui, whose love and support are a neverending source of great energy and inspiration for me. And to Max and Sarah, my two spectacular children, who give me the greatest joy and a constant smile. v JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 vi JWPR021-FM JWPR021-Kanuk June24,2007 13:23 CharCount=0 Contents ListofFigures xi ListofTables xiii Preface xvii Acknowledgments xxiii AbouttheAuthor xxvii CHAPTER1 India’sCapitalMarkets 1 GrowthofForeignInvestment 1 ImprovedFIIInterestandAccesstothePublicMarkets 5 RisingDomesticInvestmentDemand 9 MarketRisks 11 Summary 17 CHAPTER2 ForeignPortfolioInvestmentinIndia 19 ForeignInvestment 20 TaxConsiderationsforFIIs 26 RepatriationofInvestmentFunds 29 ChallengesforU.S.HedgeFundFIIs 29 FinancialInstrumentsAvailabletoFIIs 33 InvestmentLimits 48 BrokerageFees 51 FIIApplicationProcedures 52 TradingandSettlement-RelatedIssues 56 SummaryofFIIInvestment 56 vii

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The book is a good indicator of India's promise. The strong growth of the Indian economy in recent years has attracted much foreign investment. But if you want to invest directly, instead of through a mutual fund, the book has detailed explanations of the Indian financial structure. Much attention i