Foreign Institutional Investors

Overview

Last updated: Aug, 2022

Introduction

India is considered one of the fastest emerging economies in the world and a leading country in attracting foreign investments. India has several investment opportunities in its equity market for local and Foreign Institutional Investors (FIIs). Since its inception in 1992, India’s FII investments have largely remained positive. FIIs in the primary markets were the highest as compared to the last 10 years; this was at Rs. 80,309 (US$ 10.15 billion) in 2021 and Rs. 6,371 crores (US$ million) in 2022 (Until July 2022). Net inflows for FII investors in India were Rs. 50,089 crores (US$ 7.06 billion) in the calendar year 2021. India also posted a record increase in market cap in FY2021-22 of Rs. 264.06 trillion (US$ 3.42 trillion) compared to Rs. 204.31 trillion (US$ 2.76 trillion) during 2020-21. Despite COVID-19, India had the best-performing equity market in 2021. Additionally, the Indian rupee performed better than other major global currencies such as the British pound, Japanese yen, and euro. The government has also loosened regulations for foreign capital. All these factors have further strengthened India’s position in global markets.

Recent Developments

India has taken several initiatives recently to attract more foreign capital to the country. These initiatives have made it an attractive destination for investments. India-focused offshore funds have been able to generate more returns compared to other funds in emerging markets, which has attracted foreign investors to the country. Some of the recent developments in foreign investments are listed below:

As of June 2022, India’s FII investments in the primary market were Rs. 8,474 crores (US$ 1,089 million).
According to the Department for Promotion of Industry and Internal Trade (DPIIT), the FDI equity inflow in India stood at US$ 588.52 billion between April 2000-March 2022.
As per depository data, Foreign Portfolio Investors (FPIs) invested Rs. 3,202 crores (US$ 428.03 million) in India during the first week of January 2022.
According to the DPIIT, FDI equity inflow in India stood at US$ 572.80 billion between April 2000-December 2021.
FDI equity inflow in India stood at US$ 12.021 billion from October-December 2021. The FDI inflows stood at US$ 43.17 billion in FY22 (until December 2021). According to a UN report, India received US$ 64 billion FDIs in 2020, the fifth-largest recipient of inflows in the world.
India's National Stock Exchange (NSE) had the eighth-largest market capitalization in the world, with a total market value of US$ 3.34 trillion in FY22.
In the calendar year 2021, India's stock rally made investors rich by Rs. 72 lakh crore (US$ 962.22 billion), with the Sensex crossing the 50,000 mark for the first time and reaching a lifetime high of 61,765.59 on 18 October 2021.
In April 2022, Domestic Institutional Investors (DIIs) were the net buyers in the Indian equity market and accounted for Rs. 29,869.52 crores (US$ 3.86 billion).
Foreign investors invested over Rs. 1.4 trillion (US$ 19 billion) in the Indian stock market in 2020.
In 2021, around 63 Initial Public Offerings (IPOs) (including Brookfield REIT, PowerGrid Infrastructure Investment Trust, Nykaa and Zomato) had raised Rs. 1.19 trillion (US$ 15.89 billion).

Government/Regulatory Initiatives

The Government of India has taken several initiatives to improve regulations and attract foreign capital. India has set up an international stock exchange for assisting foreign investors investing in the country. It also plans to launch the first India International Bullion Exchange (IIBX) at GIFT City. Apart from these, the government has undertaken several initiatives to attract foreign capital. Some of the recent government initiatives and regulations in the FII space are as follows:

The Government of India increased FDI in the defence sector by increasing it to 74% through the automatic route and 100% through the government route.
By February 2022, the Union Cabinet allowed 20% FDI for the Life Insurance Corporation of India (LIC).
In October 2021, the government allowed 100% FDI in the telecom sector.
In August 2021, the Securities and Exchange Board of India (SEBI) introduced the idea of 'accredited’ investors in the Indian securities market to explore a new channel for raising funds.
In August 2021, SEBI mandated using blockchain or distributed ledger technology to monitor the bond's status or other listed debt securities.
In June 2021, SEBI announced the revised overseas investment limit for mutual funds to US$ 1 billion from the previous US$ 600 million.
In the Union Budget 2021-22, the finance bill proposed amendments to allow FPIs to participate in the debt financing of emerging investment vehicles such as REITs and InvITs. This move is aimed at enhancing funding for infrastructure and real estate.
Employees’ Provident Fund Organisation (EPFO) investments in the equity market were worth Rs. 1.23 lakh crore (US$ 16.4 billion) until November 2021.

Road Ahead

India has emerged as one of the most important global investment hubs in recent years. Despite various challenges such as rising interest rates, excessive inflation in global commodity prices and the threat of a global recession, the Indian economy and markets have shown to be incredibly robust. Indian markets have provided good returns compared to other emerging markets. India is also one of the most attractive FDI destinations. In FY22, India was able to attract FDI of US$ 58,773 million and has also signed free trade agreements with countries such as the UAE, Australia, Singapore and Japan. This is expected to buoy investors’ sentiment and increase global private investments. India also has a strong start-up ecosystem: the number of Indian start-ups has increased from 471 in 2016 to 72,993 in 2022. India also had one of the best-performing IPO markets in 2021. Favourable government policies, increased infrastructure investment, relaxation of norms and improvement in financial infrastructure can further boost the inflow of foreign capital in the country in future.