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Foreign Institutional Investors (FII) in India

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Foreign Institutional Investors (FII) in India

October, 2013

FII – Brief Introduction

Foreign Institutional Investors (FIIs) have retained their faith in the resilient Indian economy ever since the markets were opened up to them in 1993. FIIs have been the backbone of the Indian markets for the past few years and have given reasonable impetus to the capital markets.

India is also one of the most favourable investment destinations for foreign investors owing to its decent valuations and stable democratic set-up. Democracy is not an issue for domestic investors, but for an FII, 'country risk' is a huge factor to be considered before taking any investment decision.

FII sentiment is expected to remain positive towards India in the long-run as the country is poised to mark commendable growth across sectors in the years to come. FIIs hold around 16 per cent of the equity of India's biggest 500 companies, according to industry sources.

FII – Key Statistics

  • Investments in Indian markets (equity, debt and derivatives) through participatory notes (P-Notes) increased to US$ 23.74 billion by the end of July 2013, according to the data released by Securities and Exchange Board of India (SEBI).

    P-Notes allow high net-worth individuals (HNI), hedge funds and other foreign institutions to invest in Indian markets through registered FIIs.

    The FIIs investments through P-Notes registered a growth of 11.45 per cent in July 2013 as compared to 10.93 per cent in June 2013.
  • Overseas investors infused more than US$ 2 billion in the Indian stock market in the month of September 2013. Since the beginning of 2013, they have pumped a net US$ 13.7 billion in equities.
  • Moreover, given the higher yields offered by Government and corporate debt, the FIIs have been aggressively buying bonds since the beginning of 2013. The debt market attracted a net inflow of about Rs 25,000 crore (US$ 4.08 billion) in January-May 2013.
  • As of October 4, the number of registered FIIs in the country stood at 1, 744 and the total number of sub-accounts at 6, 358.

FII- Key Investments and Developments

  • Bangalore-based online retailer Flipkart has raised US$ 200 million from its existing investors including South African technology company Naspers Group and private equity (PE) firms Accel Partners and Tiger Global. The investors have already placed investments to the tune of US$ 181 million in the Indian e-commerce company and this fifth round of funding has marked the single-largest round of investment infusion.

    The funds would be used to build technology and will help the company strengthen its supply chain and human resource base.
  • British telecom giant Vodafone intends to invest as much as US$ 2 billion in its Indian arm. The company has filed an application for the same with the Foreign Investment Promotion Board (FIPB). Though, in July 2013, the Indian Cabinet raised the foreign investment limit in the telecom sector to 100 per cent from 74 per cent in a bid to intensify capital inflows, the world's second-largest telecoms operator will not up its stake to 100 per cent. Vodafone owns about 64 per cent of Vodafone India and plans to buy out some minority stakeholders.
  • India is also considering a proposal to allow foreign investment in the railway sector; an area where foreign investment is currently prohibited.
    The Department of Industrial Policy and Promotion (DIPP), the decisive authority for policies regarding foreign investment, is awaiting Cabinet’s approval to allow full or partial foreign ownership in companies having business in railway industry.