Foreign Institutional Investors

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Last updated: Jul, 2014

Introduction

India is an attractive market for foreign investors.In the four years ended December 2013, foreign investors invested about Rs 371,342 crore (US$ 61.81 billion) in Indian stocks.

Foreign investment is among the primary reasons for India's economic progress. When the country's government decided to allow 100 per cent foreign direct investment (FDI) in several sectors, it led to a market full of possibilities. The Centre's initiatives and relaxation of investment norms have meant that sectors such as automobiles, construction and real estate, among others, have flourished.

The Indian economy is expected to witness over 100 per cent increase in foreign investment inflows and cross US$ 60 billion in FY 15 from US$ 29 billion during FY14, according to a study by an industrial body.

Market size

During FY 14, foreign institutional investors (FIIs) invested a net amount of nearly Rs 80,000 crore (US$ 13.31 billion) in India's equity market, as per data by Securities and Exchange Board of India (SEBI).

At US$ 4.18 billion, the country's FII inflows are higher than that of other emerging economies such as Taiwan (US$ 3.6 billion), Indonesia (US$ 2.4 billion), Brazil (US$ 1.2 billion) and South Africa (US$ 0.7 billion).

FIIs have made a cumulative net investment of Rs 7.08 trillion (US$ 117.77 billion) in shares since 1992, the year they were allowed into the Indian market. During FY 14, the total number of FIIs registered in the country was 1,710.

Investments

The following are some of the keyinvestments and developments in India's FII market:

  • The Indian equities markets experienced FII net inflow of US$ 2.3 billion in May 2014, according to an HSBC report. "India still the most loved market in the region," as per the report. In the Asia region, investors favoured India, which received US$ 7.8 billion of the US$ 18.8 billion invested in the continent during the period January 1 - May 26, 2014.
  • Foreign investment inflows are projected to grow more than double to US$ 60 billion in FY 15, as per an industry study. Net foreign investment inflows, on the back of aggressive foreign institutional investmentin the Indian markets, are also anticipated to go past the US$ 46.17 billion recorded during FY 13,which is regarded as one of the best years for overseas investment inflows.
  • Deposits made by non-resident Indians (NRIs) increased by US$ 33.29 billion in FY14 against US$ 12.22 billion in the FY 13, as per a Reserve Bank of India (RBI) bulletin. The increase came about after the RBI announced several relaxations to assist banks bring in safe money.
  • Indian equities continue to be driven by FIIs. In the March quarter, FIIs invested Rs 21,921 crore (US$ 3.64 billion), owning one-fourth of the top 75 listed stocks of the country. During the quarter, their stakes have increased by 33 basis points sequentially.
  • India received foreign exchange (FOREX) remittances to the value of US$ 70 billion in 2013 from its migratory workforce. Other top remittance recipient nations included China (US$ 60 billion), the Philippines (US$ 25 billion), Mexico (US$ 22 billion), Nigeria (US$ 21 billion), and Egypt (US$ 17 billion), as per a report released by World Bank. The report also stated that India's US$ 70 billion in remittance receipts was "more than the US$ 65 billion earned from the country's flagship software services exports".
  • The RBI has allowed Hinduja Foundries, a group company of Hinduja Group, to raise its foreign investment limit up to 60 per cent of paid-up capital. This hike in investment limit is under the Portfolio Investment Scheme (PIS).
  • Britain's Tesco has sealed an agreement with Tata Group's Trent Ltd that will see the British company invest US$ 140 million and become the first foreign supermarket to enter India's US$ 500 billion retail sector. The deal is a 50:50 joint venture with Trent Hypermarket Ltdwhich operates the Star Bazaar retail business.

Government Initiatives

The RBI has enabled overseas investors, including foreign portfolio investors (FPIs) and NRIs, to invest up to 26 per cent in insurance and related activities through the automatic route. "Effective from February 4, 2014, foreign investment by way of FDI, investment by FIIs/FPIs and NRIs up to 26 per cent under automatic route shall be permitted in insurance sector," stated the RBI.

The RBI has allowed a number of foreign investors to invest, on repatriation basis, in non-convertible/ redeemable preference shares or debentures which are issued by Indian companies and are listed on established stock exchanges in the country.The investment will be within the overall limit of US$ 51 billion allocated for corporate debt. Long-term investors registered with SEBI will also be considered as eligible investors.

Road Ahead

Backed by considerable support from the Centre, the FII sectoris set to prosper in India's economy. The present looks encouraging. Foreign investors' net inflows reached Rs 1 trillion (US$ 16.63 billion) in stocks in India during 2013, the third time FII investments have breached the figure following their entry into the Indian market in 1992. Total investments in India's equity market also touched an all-time high of US$ 150 billion in the same year. According to market experts, sectors such as food and beverages, financial services, pharmaceuticals and biotechnology, among others, are attractive to FIIs.

Exchange Rate Used: INR 1 = US$ 0.0166 as on July25, 2014

References: Media Reports, Press Releases

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