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Foreign Institutional Investors

March, 2011

Foreign institutional investors (FIIs) have invested US$ 1.16 billion in equities and bonds, taking total net inflows in 2011 so far (till March 16, 2011) to US$ 1.63 billion, as per the data available with the Securities and Exchange Board of India (SEBI). In 2010, foreign investors bought stocks and bonds valued at nearly US$ 221.34 billion, a record number in a year.

Net FII investments as on March 29, 2011 were recorded at US$ 1.13 billion. India witnessed high mergers & acquisitions (M&A) activity during February 2011. The month witnessed Indian corporates seal deals worth over US$ 8 billion in February 2011, three times what was recorded in January 2011 about US$ 2.6 billion, according to the data put out by Thomson One Banker and E&Y analysis. In terms of volume (deal count), domestic deals dominated the space. Of the total 71 deals struck during the month, 42 were domestic deals, while inbound and outbound made up 17 and 12 deals respectively.

India is expected to have received more than US$ 7 billion in private equity (PE) investments in 2010, up from US$ 3.5 billion in 2009, according to a global consultancy firm Ernst & Young (E&Y). Sectors such as power and transportation, consumer and branded products, infrastructure ancillaries, education and financial services, and healthcare are likely to witness increased PE activity in 2011.

Investment Scenario

  • As much as 75 per cent of global businesses already present in the country are looking to considerably expand their operations going forward, according to Ernst & Young (E&Y)’s first Indian Attractiveness Survey
  • Sri Biotech Laboratories India Limited, a Hyderabad-based multi-disciplinary agri biotechnology company, is in the process of setting up an integrated discovery centre at Genome Valley on the outskirts of the city with an investment of US$ 6.7 million. The project will be funded through the US$10 million private equity (PE) money that was infused into the company by Rabo Equity Advisors through its US$ 100 million India Agri Business Fund in 2009. Sri Bio raised the PE fund to focus on seed research and development of new molecules for crop protection besides putting up infrastructure for the same
  • Housing Development Finance Corporation (HDFC), the country’s leading home mortgage provider, will invest in Kaizen asset Management Company, the manager for India’s first education-focused PE fund, Kaizen Private Equity. HDFC will invest in the education sector through its wholly owned subsidiary, HDFC Holdings Ltd, said a press release
  • Car rental company, Carzonrent India is close to raising US$ 22.19 million from two PE firms including BTS India Private Equity Fund in lieu of a minority stake. This would be the third round of capital infusion for the Delhi-based company which is promoted by Rajiv K Vij
  • Karur Vysya Bank (KVB) plans to increase the ceiling of holding by FIIs, non resident Indians (NRIs) and foreign direct investments (FDI) in the equity share capital of the bank to 35 per cent from the current 24 per cent. The move comes in the wake of a recent approval the bank got from Foreign Investment Promotion Board to issue shares worth US$ 23.86 million to foreign investors
  • Value-added service firm, One97 Communications has entered into an agreement with Mauritius-based PE firm SAIF Partners to launch a US$ 107.9 million fund to provide seed capital to start-up technology companies, according to a company executive. Both partners have ventured into a fund referred as One97 Mobility Fund to invest between US$ 431,600 and US$ 6.32 million in startups in the mobile value-added services (VAS) space
  • Olympus Capital, the Asia-focussed PE fund will invest about US$ 600 million in India in big and established companies in infrastructure supply chain management, within the next two-three years

Government Initiatives

In line with its focus on infrastructure development and also deepening the corporate debt market, the Centre has increased the FII investment limit in corporate bonds to US$ 40 billion from the prior limit of US$ 20 billion. The additional limit of US$ 20 billion will be available to FIIs only for investments in corporate bonds issued by companies in the infrastructure sector, as highlighted by Mr Pranab Mukherjee, the Finance Minister in his Budget speech. Prior to this announcement, the total FII investment limit in corporate bonds was pegged at US$ 20 billion, including a US$ 5 billion sub-limit for bonds with a residual maturity of over five years and issued by companies in the infrastructure sector.

SEBI has announced revised reporting formats for FIIs on their offshore derivatives instruments (ODIs), which include participatory notes (PNs). ODIs have Indian equity or debt as underlying securities and are issued by registered FIIs or sub-accounts to clients abroad.

Starting April 2011, reports providing details of ODI/ PN activity for the month should be filed before October 10. This is apart from the monthly summary report FIIs have to file on the seventh of every month, for the previous month.

Exchange rate used: 1 USD = 45.18 INR (as on March 2011)