A quarter of India’s biggest companies are owned by foreign institutional investors (FIIs) with the value of their equity ownership standing at US$ 315 billion. Foreign investors find India an attractive market. In the four years ended December 2013, they invested close to Rs 371,342 crore (US$ 60.68 billion) in Indian stocks. They have had a considerable hand in India’s growth as an economic power.
When the Government of India decided to allow 100 per cent foreign direct investment (FDI) in many sectors, it led to a market teeming with possibilities. The Centre's initiatives and easing of investment norms have allowed sectors such as automobiles, construction and real estate, among others, to flourish.
The Indian economy is projected to cross US$ 60 billion in FY15 from US$ 29 billion during FY14, over a 100 per cent increase, as per a study conducted by an industrial body.
Net investments by overseas investors into India reached the $30-billion level by August end 2014, while their cumulative total inflows into the country crossed the $200-billion mark.
During FY14, FIIs invested a net amount of nearly Rs 80,000 crore (US$ 13.07 billion) into India's equity market, as per data by Securities and Exchange Board of India (SEBI).
FIIs have invested a cumulative Rs 7.08 trillion (US$ 115.71 billion) in shares since 1992, the year they were allowed into the Indian market. During FY14, the total number of FIIs registered in India was 1,710.
Foreign investment inflows are anticipated to grow more than double to US$ 60 billion in FY15, according to an industry study. Net foreign investment inflows, driven by aggressive foreign institutional investment in the markets, are also projected to go past the US$ 46.17 billion recorded during FY13, which is widely regarded as one of the best years for foreign investments.
The following are the key investments and developments in India's FII market in the recent past:
Overseas investors invested US$ 20.4 billion into the Indian market in the first half of 2014, primarily on hopes of a stable government. Foreign net investments into equity markets stood at US$ 9.96 billion during January–June 2014, while investments for debt markets stood at US$ 10.4 billion, as per industry data.
Venture capital (VC) investments rose during the first half of 2014, reflecting the potential of the country's market. As per data from audit and advisory firm EY, investments in startups and early-stage companies increased nearly 40 per cent to 121 deals with transaction value jumping 66 per cent to US$ 605 million compared to the corresponding period in 2013. VC investments were at their highest for the first half since 2010, when US$ 663 million of investment was made across 51 deals.
Private equity (PE) investors’ sentiments towards the country are also showing signs of optimism. A PricewaterhouseCoopers India report based on a survey of 40 PE firm partners has projected that the country has the potential to get PE funding of US$ 40 billion by 2025. Future PE investments would be driven by India’s consumption story, realistic valuations, competitive businesses, growing private entrepreneurship, among other factors, as per the report.
India received foreign exchange (Forex) remittances worth US$ 70 billion in 2013 from its migratory workforce. Other top remittance recipient nations were China (US$ 60 billion), the Philippines (US$ 25 billion), Mexico (US$ 22 billion), Nigeria (US$ 21 billion), and Egypt (US$ 17 billion), according to a study by World Bank. Also, as per the report, 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 Reserve Bank of India (RBI) has allowed Hinduja Foundries, a group company of Hinduja Group, to increase its foreign investment limit up to 60 per cent of paid-up capital. This raise in investment limit is under the Portfolio Investment Scheme (PIS).
The RBI has hiked the FIIs’ sub-limit in government bonds by US$ 5 billion, after the US$ 20 billion limit was nearly exhausted. The move is projected to stabilise yields that were unstable in the recent past. The overall limit for FII investment in government bonds has been kept at the previous US$ 30 billion.
The RBI has allowed foreign investors, including foreign portfolio investors (FPIs) and non-resident Indians (NRIs) to invest up to 26 per cent in insurance and related activities via 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," as per the RBI.
The RBI has also allowed a number of foreign investors to invest, on repatriation basis, in non-convertible/redeemable preference shares or debentures issued by Indian companies listed on established stock exchanges in India. The investment should be within the overall limit of US$ 51 billion allocated for corporate debt. Long-term investors registered with SEBI will also be deemed as eligible investors.
Backed by support from the country’s government, the FII sector in India looks set to prosper. At present, the scenario looks encouraging. Foreign investors' net inflows crossed Rs 1 trillion (US$ 16.34 billion) in stocks in India during 2013, which was only the third time FII investments have gone past the figure since they were allowed into the Indian market in 1992. Total investments in India's equity market also reached an all-time high of US$ 150 billion in 2013. As per market experts, sectors such as financial services, food and beverages, pharmaceuticals and biotechnology, among others, attract FIIs.
Exchange Rate Used: INR 1 = US$ 0.0163 as on October 28, 2014
References: Media Reports, Press Releases