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Foreign Institutional Investors

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Foreign Institutional Investors

April, 2015


Economies like India, which offer relatively higher growth than the developed economies, have gain favour among investors as attractive investment destinations for foreign institutional investors (FIIs). Investors are optimistic on India and sentiments are favourable following government’s announcement of a series of reform measures in recent months.

According to a poll conducted by Bank of America Merrill Lynch (BofA-ML) recently, in which 50 investors participated, India was the most favourite equity market for the global investors for the year 2015 at 43 per cent, followed by China at 26 per cent. The global investment bank is of the view that India remains to be in a structural bull market.

India is poised to become the second biggest ecosystem option after the US in the next two years on account of the on-going high growth rates. Several technology based start-ups have received over US$ 2.3 billion in funding since 2010, while over 70 private equity (PE) and venture capital (VC) funds remain active in the segment.

Market Size

FII’s net investments in Indian equities and debt have touched record highs in the past financial year, backed by expectations of an economic recovery, falling interest rates and improving earnings outlook. FIIs have invested a net of US$ 89.5 billion in 2014-15— expected to be their highest investment in any fiscal year. Of this, a huge amount—US$ 57.2 billion—was invested in debt and it is their record investment in the asset class, while equities absorbed US$ 32.3 billion.

India continues to be a preferred market for foreign investors. India-focused offshore equity funds contributed US$ 0.5 billion, whereas India-focused ETFs added a much higher US$ 1.2 billion of the total net inflows of about US$ 1.7 billion into the India-focused offshore funds and ETFs during the quarter ended June 2015.

India companies signed merger and acquisition (M&A) deals worth US$ 31.16 billion in January-November 2015. The total M&A transaction value for the month of November 2015 was US$ 2.97 billion involving a total of 47 transactions.

In Private Equity, a total of 91 deals worth disclosed value of US$ 1.43 billion were reported in November 2015.


  • Singapore-based investment firm, Temasek Holding, has acquired 73 per cent stake in Hyderabad-based Care Hospitals, India's fifth largest private healthcare network, for Rs 1,800 crore (US$ 268.7 million).
  • Macquarie Infrastructure and Real Assets (MIRA), the realty investment arm of Australian Macquarie Group Ltd, plans to invest in real estate projects in India and is in talks with Tata Housing Development Co. to jointly set up an investment platform to invest in luxury residential projects.
  • KKR India, the Indian arm of global private equity firm KKR & Co. L.P., has planned to raise its second alternative investment fund (AIF) of Rs 1,500 crore (US$ 226.4 million) which will offer credit solutions to Indian companies.
  • Global private equity major Warburg Pincus plans to invest Rs 1,800 crore (US$ 283 million) in Piramal Realty, which will help the real estate company to expand its portfolio and to acquire land parcels in and around Mumbai.
  • Sequoia Capital, one of the leading venture capital firms, will invest Rs 125 crore (US$ 20 million) in Bengaluru-based MedGenome, a genomics-based diagnostics and research firm specialising in DNA sequencing and data analytics.
  • Viacom, one of the leading American global mass media companies, has acquired 50 per cent stake in Prism TV for Rs 940 crore (US$ 153 million). Prism TV owns and operates regional entertainment channels under the ‘Colors’ umbrella.
  • Global funds such as Macquarie Infrastructure and Real Assets (MIRA), I Squared Capital, Brookfield Asset Management Inc. are investing in Indian road construction and power projects as a result of government’s efforts to improve infrastructure and ease the operating environment for such projects.
  • Japanese conglomerate SoftBank has led a group of investors to pump Rs 630 crore (US$ 100 million) in Gurgaon-based OYO Rooms, which helps local hotels and select set of vendors to spruce up room amenities.
  • Acumen, a not-for-profit global venture fund, has invested US$ 1.8 million in Sahayog Dairy, an integrated company that sources milk from 272 centres across five districts adjoining Harda district in Madhya Pradesh.
  • Global infrastructure investment manager I Squared Capital, has decided to invest US$ 150 million in Amplus Energy Solutions Private Ltd, which sets up distributed solar power generation projects in India.
  • Zomato, a restaurant search and discovery platform, has raised US$ 60 million from Singapore government-owned investment company Temasek, along with existing investor Vy Capital, in order to explore new business verticals.

Government Initiatives

Government of India has accepted the recommendation of A.P. Shah Committee to not impose minimum alternate tax (MAT) on overseas portfolio investors retrospectively for the years prior to April 01, 2015, thereby providing significant relief to foreign portfolio investors (FPIs).

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. The Government of India is also planning to relax some of the safe harbour rules set for offshore fund managers, in order to allow private equity investors to shift their base to India without attracting a tax on capital.

The People’s Bank of China (PBoC) has invested US$ 500 million in Indian bonds for the first time since the Indian government eased restrictions on foreign investors.

Road Ahead

India is being viewed as a potential opportunity by investors, with the economy having the capacity to grow tremendously. Buoyed by strong support from the government, FII investments have been strong and are expected to continue to improve going forward. "FIIs are flocking towards Indian bonds as the confidence level of central bank and the government is at one of the highest levels and benign commodity prices have added confidence," said Rahul Goswami, Chief Investment Officer for fixed income at ICICI Pru Mutual fund. "India is among the few markets where interest rates are expected to drop with fair visibility, which would attract flow from FIIs" said Arvind Sethi, MD & CEO, TATA Asset Management.

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.

"The FII participation has been very consistent as far as India is concerned and we see the trend continuing. We have been overweight India in the context of Asia and emerging markets since November 2013 and that stance very much continues," said Mr Bharat Iyer, MD, Global Research, JP Morgan India.

Exchange Rate Used: INR 1 = US$ 0.015 as on December 28, 2015

References: Media Reports, Press Releases