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Foreign Institutional Investors

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Last updated: Jan, 2021

Introduction

Foreign Portfolio Investors/Foreign Institutional Investors (FPI/FII) have been one of the biggest drivers for India’s financial markets, having invested around Rs. 2.17 trillion (US$ 30 billion) in 2020-21 (as of January 07, 2021). Highly developed primary and secondary markets have attracted FIIs/FPIs to the country. Investment made by FIIs/FPIs in India is regulated by the Securities and Exchange Board of India (SEBI), while the ceiling on such investments is maintained by the Reserve Bank of India (RBI). Type of FIIs investing in India are as below:

  • Hedge Funds
  • Foreign Mutual Funds
  • Sovereign Wealth Funds
  • Pension Funds
  • Trusts
  • Asset Management Companies
  • Endowments, University Funds, etc.

The total market capitalisation (M-cap) of all the companies listed on Bombay Stock Exchange (BSE) rose to a record level of Rs. 184.77 trillion (US$ 2.53 trillion) in 2020-21 from Rs. 104.55 trillion (US$ 1.43 trillion) in 2019-20.

Recent Developments/Investments

Some of the recent and significant FII/FPI developments are as below:

  • According to depository reports, in December 2020 (between 1st and 24th), FPIs invested a net Rs. 56,643 crore (US$ 7.75 billion) in equities and Rs. 3,451 crore (US$ 471.90 million) in debt instruments. During the period under review, the overall net investment stood at Rs. 60,094 crore (US$ 8.22 billion).
  • The overall net investment of FPIs stood at Rs. 62,951 crore (US$ 8.61 billion) in November 2020.
  • In December 2020, Embassy Office Parks REIT ('Embassy REIT'), India's first listed REIT and one of Asia's largest by area, announced that through an institutional placement of units, it has successfully completed a unit capital raise of Rs. 36.8 billion (US$ 501 million).
  • On December 9, 2020, Indian stock markets achieved a record high, as the approval of COVID-19 vaccines strengthened investor sentiments. BSE Sensex reached the 46,000-mark, rising over 1% during the day, while the Nifty topped the 13,500-level for the first-time.
  • In the last week of November 2020, domestic institutional investors (DIIs) sold stocks worth ~Rs 60.9 billion (US$ 832.83 million).
  • Foreign investors invested >Rs. 1.4 trillion (US$ 19 billion) in the Indian stock market in 2020.

 

Government/Regulatory Initiatives

  • In December 2020, SEBI announced a proposal to ease ownership requirements for companies intending to start new stock exchanges in India; this step could end the 16-year-long domination of National Stock Exchange (NSE), enabling foreign exchanges to join and reducing trading costs for investors.
  • To enhance innovation and expansion in the MF market, SEBI announced in December 2020, to relax profitability requirements for mutual fund sponsors. The regulator also proposed to segregate assets and liabilities of mutual fund schemes.
  • In November 2020, the Securities and Exchange Board of India (SEBI) approved the proposal of the mutual fund industry for a new category of 'flexi cap' with the right to invest through categories of market capitalisation.
  • In November 2020, SEBI implemented a code of conduct for fund managers and AMC dealers. In addition, on behalf of its mutual fund schemes, asset management companies (AMCs) have been allowed to become self-clearing members to clear and settle debt-segment trades.

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 investment have been strong and is expected to improve going forward.

"The midcap and smallcap space are providing investors with an attractive opportunity for long term investment at current valuations. This could be an apt time for investors to build their midcap and smallcap portfolio while sticking to their asset allocation," said Mr. Gaurav Garg, Head of Research at CapitalVia Global Research Limited.

BofA Securities stated that “FII flows for industrials and materials sectors could turn positive especially given their underweight positioning and improving traction for Make in India and government’s capex push.”

“India equities represent one of the fastest growth sectors globally and the country is looked up at the top of the list with China for investment returns over the next 12-24 months (2021-22),” said Mr. Nuno Fernandes from GW&K Investment Management LLC in New York

Note: Conversion rate used for December 2020 is Rs. 1 = US$ 0.014