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Foreign Institutional Investors

April, 2012

FII – Brief Introduction

Indian economy’s growth prognosis remains strong, which, in turn, is attracting major capital inflows from foreign institutional investors (FIIs). The Government opened doors to this class of investors in 1993. The market value of listed Indian equities is estimated at US$ 1.3 trillion out of which FII investments are calculated to be around US$ 200 billion.

According to a report titled ‘India Market Strategy’ by UBS, FII ownership in Indian stocks increased from 15 per cent in the September 2011 quarter to 15.2 per cent in the December 2011 quarter (if BSE 500 is taken as a representative for the overall market).

FIIs are keen to harness India’s growth trajectory by making huge investments and strategic moves in the financial markets. Key statistics, developments, Government’s role and predictions pertaining to the same are discussed hereafter.

FII – Key Statistics

  • According to the data released by Securities and Exchange Board of India (SEBI), net investment in equities made by foreign institutional investors (FIIs) stood at Rs 47, 935 crore (US$ 9.34 billion) the financial year ended March 31, 2012. During the reported fiscal, foreign fund houses injected Rs 49, 053 crore (US$ 9.56 billion) in the debt market taking the collective net investments by FIIs in stocks and bonds to Rs 93,725 crore (US$ 18.26 billion)
  • A statement released by the Reserve Bank of India (RBI) has revealed that due to a rise in the core foreign currency assets (FCAs), India’s foreign exchange reserves grew by US$ 862 million to US$ 294.82 billion for the week ended March 16, 2012
  • Furthermore, according to data released by SEBI, FIIs invested a little less than US$ 19 billion in corporate debt and debt mutual funds as of February 29, 2012 while their investment in infrastructure has been US$ 2 billion
  • FIIs can invest up to US$ 60 billion annually in Indian bonds. In order to deepen the bond market as well as to meet India’s need to raise US$ 1 trillion for infrastructure spending by 2013, the Government has raised these investment limits
  • According to the Asia Securities Industry and Financial Markets Association lobby group, overseas funds have invested more than US$ 200 billion (or 17 per cent of the capitalization of India’s equity market), and have injected a substantial amount in Government and corporate debt
  • Meanwhile, data from EPFR Global reveals that during the first quarter of 2012, exchange traded funds (ETFs) have participated to the extent of 62 per cent of the total net inflows into India, which is around US$ 1.8 billion. It was way higher than 23 per cent in 2011.

FII- Key Investments

  • US-based private equity (PE) firm Warburg Pincus and World Bank affiliate International Finance Corp have collectively invested US$ 50 million in AU Financiers (India) Pvt Ltd. According to a press statement released, the investment will be majorly used to drive the future growth of the Jaipur-based non-banking finance company’s fund and will also offer certain liquidity to early investors
  • Indivest Pte Ltd and a Mauritius-based FII will jointly infuse Rs 500 crore (US$ 97.43 million) into Indian FMCG major Marico Ltd. Marico is waiting for the shareholders’ approval for the preferential allotment of shares to the two entities

    Indivest Pte Ltd is a foreign venture capital investor and is an affiliate of Government of Singapore Investment Corporation Pte Ltd that manages Singapore’s foreign reserves