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Foreign Institutional Investors

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Foreign Institutional Investors

October, 2012


Indian equities have attracted maximum investments by Foreign Institutional Investors (FIIs) as compared toany other Asian market on the back of policy reforms undertaken by the Government of India to promote economic growth.

FIIs remain substantially bullish on Indian markets and have invested over US$ 13 billion into Indian stocks till September 2012.. A sectoral break-up reveals that finance sector accounted for 26 per cent of the inflows and if banks are included, the pie grows to 32 per cent. Fast moving consumer goods (FMCG) and information technology (IT) attracted 17 per cent and 15 per cent of the inflows, respectively.

India is considered to be the third most favoured destination for investment after China and the US for major global companies, according to UNCTAD's World Investment Report 2012. The report anticipates that foreign investments in India could increase by over 20 per cent in 2012-13.

Key Statistics

  • Overseas investors infused about US$ 645 million from October 1, 2012 to October 5, 2012 itself, while they invested more than US$ 3.5 billion in the month of September 2012, according to data released by capital market regulator, the Securities and Exchange Board of India (SEBI)
  • FIIs also infused Rs 1,382 crore (US$ 260.47 million) in the debt market in October 2012 first week
  • As on October 5, the number of registered FIIs in the country stood at 1,753 while the total number of sub-accounts were 6,329
  • Another statement issued by the Reserve Bank of India (RBI) revealed that foreign exchange reserves stood at US$ 294.81 billion for the week ended September 28, 2012 wherein the value of gold reserves was recorded at US$ 28.133 billion and that of foreign currency assets (FCAs) was at US$ 259.96 billion
  • The value of special drawing rights (SDRs) was US$ 4.45 billion and the country’s reserve position with the IMF was at US$ 2.27 billion

Key Investments and Developments

  • India’s power sector has attracted a lot of foreign attention recently. Japan’s Ministry of Economy has stated that the country’s power equipment companies and lenders are looking forward to working with their Indian counterparts in all segments of the power industry. Japanese companies such as Toshiba, Hitachi and Mitsubishi have already ventured into Indian markets and still have considerable technological and engineering capabilities that can be offered to Indian companies
  • Similarly, India’s Rs 10,000 crore (US$ 1.88 billion)-diagnostics market has been witnessing a rage of foreign investments. Recently, Mumbai-based medical diagnostics services provider Thyrocare Technologies has raised about Rs 120 crore (US$ 22.62 million) from private equity (PE) firm Norwest Venture Partners (NVP). This is the company’s second PE funding. CX Partners had infused Rs 188 crore (US$ 35.43 million) for a 30 per cent stake in the company in 2010. Also, in 2010, US-based TA Associates had invested US$ 35 million in Dr Lal Pathlabs
  • Government of India’s scheme for attracting funds from qualified foreign investors (QFIs) has started reaping benefits for the country. India has received its first investment through the QFI route wherein Kotak Mahindra bank has bagged a US$ 5 million-deal from an American client. The QFI scheme, under which a foreign individual or trust is allowed to invest directly in Indian capital markets (including mutual funds, debt and equities), was implemented in 2011-12

Government Initiatives

The Government has been taking various initiatives to boost economic growth and hence attract foreign investments in a big way. Recent reforms like the Cabinet approval for 49 per cent foreign direct investment (FDI) in insurance and FDI in pension sector have given a new direction to investor sentiment.

Meanwhile, SEBI has relaxed debt allocation norms for FIIs wherein they will be allowed to carry forward 50 per cent of their debt holdings to the next calendar year. The reform would be implemented with effect from January 1, 2014. SEBI has also reduced the utilisation period for Government securities (G-secs) and corporate debt limits to 30 days (from 45 days) and 60 days (from 90 days), respectively.

Within the FII debt limit, the unutilised limit in respect of corporate debt infra long term bonds category may be availed by the FIIs/Sub Accounts without obtaining prior SEBI approval till the overall FII investments reaches 90 per cent of the limit.

Furthermore, in a bid to simplify investment process for overseas investors and strengthen their faith in the Indian markets, SEBI has proposed to formulate uniform guidelines for all classes of foreign investors such as FIIs, non-resident Indians (NRIs), Foreign Venture Capital Investors (FVCIs) and QFIs. The regulator would prepare draft guidelines for the same.

Road Ahead

The Center for Monitoring Indian Economy (CMIE) projects that FII inflows would strengthen in the second half of FY13 at US$ 11.2 billion as India is looked upon as a viable long-term investment destination on the global canvas. Major FIIs like JP Morgan, Morgan Stanley and Deutsche Bank are believed to drive the positive wave of foreign investments.

Exchange Rate Used: INR 1 = US$ 0.01884 as on October 10, 2012

References: Media Reports, Press Releases.