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Foreign Institutional Investors

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Last updated: Oct, 2021

Introduction

Foreign Portfolio Investors/Foreign Institutional Investors (FPIs/FIIs) have been one of the largest drivers of India’s financial markets, having invested ~Rs. 31,498 crore (US$ 4.27 billion) in 2021-22 (as of September 22, 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 companies listed on the Bombay Stock Exchange (BSE) rose to a record level of Rs. 257.38 trillion (US$ 3.49 trillion) in 2021-22, from Rs. 204.31 trillion (US$ 2.76 trillion) in 2020-21.

Recent Developments/Investments

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

  • As per the depositories data, foreign portfolio investors (FPIs) invested US$ 2.5 billion in India in August 2021.
  • According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 547.2 billion between April 2000 and June 2021.
  • FDI equity inflow in India stood at US$ 17.56 billion between April 2021 and June 2021. The foreign direct investment inflows stood at US$ 81.7 billion in FY21. According to a UN report, India received US$ 64 billion FDIs (foreign direct investments) in 2020, the fifth-largest recipient of inflows in the world.
  • As per Bloomberg data published on September 16, 2021, India’s market capitalisation reached ~US$ 3.5 trillion, making it the sixth most-valued market worldwide.
  • 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.
  • On August 27, 2021, domestic institutional investors (DIIs) were the net buyers in the Indian equity market and accounted for Rs. 1,646.19 crore (US$ 223.30 million).
  • Foreign investors invested >Rs. 1.4 trillion (US$ 19 billion) in the Indian stock market in 2020.
  • In 2021 (until June 2021), ~ 19 IPOs (including Brookfield REIT and PowerGrid Infrastructure Investment Trust) have raised >Rs. 29,000 crore (US$ 3.91 billion).
  • In April 2021, Amazon India launched US$ 250 million the ‘Amazon Smbhav Venture Fund’ (the venture fund) for Indian start-ups and entrepreneurs to boost technology innovations in areas of digitisation, agriculture and healthcare.

Government/Regulatory Initiatives

  • 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 the use of blockchain or distributed ledger technology (DLT) to monitor the bonds status or other listed debt securities.
  • In June 2021, the Securities and Exchange Board of India (SEBI) announced the revised overseas investment limit for mutual funds (MFs) to US$ 1 billion from the previous US$ 600 million.
  • In the Union Budget 2021-22, the finance bill proposed amendments to allow foreign portfolio investors (FPIs) to participate in debt financing of emerging investment vehicles such as REITs and InvITs. This move is aimed at enhancing funding for infrastructure and real estate.
  • From April 2020 to February 2021, the employees provident fund organisation (EPFO) invested Rs. 27,532 crore (US$ 3.79 billion) in the stock market.

Road Ahead

According to a report published by the UN Conference on Trade and Development (UNCTAD), India's robust fundamentals offer anticipation for rise in investments in medium term. Increase in FDIs in 2020 indicated recovery in trade and industrial production and provided a strong basis for FDI growth in 2021.

By 2024, India is expected to exceed the UK and the Middle East as the global fifth- largest stock market. The growth is expected to be driven by the pipeline for future public listings. As of Sept. 2021, start-ups in India have raised US$ 10 billion through IPOs, a significant growth over the last three years. This growth is further expected to go north and drive India’s aggregate stock market value to >US$ 5 trillion by 2024 from the current US$ 3.5 trillion.

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 September 2021 is Rs. 1 = US$ 0.014

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