Foreign Portfolio Investors/Foreign Institutional Investors (FPIs/FIIs) have been one of the biggest drivers of India’s financial markets, having invested ~Rs. 2.59 trillion (US$ 35.69 billion) in 2020-21 (as of March 24, 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
- Asset Management Companies
- Endowments, University Funds, etc.
The total market capitalisation (M-cap) of all companies listed on Bombay Stock Exchange (BSE) rose to a record-level of Rs. 205.7 trillion (US$ 2.83 trillion) in 2020-21 from Rs. 113.4 trillion (US$ 1.56 trillion) in 2019-20.
Some of the recent and significant FII/FPI developments are as below:
- As of March 10, 2021, foreign portfolio investors inflows into equities stood at US$ 36 billion in FY21.
- The net foreign direct investment inflows increased to US$ 44 billion, until January 2021, up from US$ 36.3 billion in January 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.
- On March 21, 2021, domestic institutional investors (DIIs) were the net buyers in the Indian equity market and accounted for Rs. 559.62 crore (US$ 77.07 million).
- Foreign investors invested >Rs. 1.4 trillion (US$ 19 billion) in the Indian stock market in 2020.
- India's IPO fundraising is at a 13-year high due to increased foreign funds and rising interest from small investors, making it one of the hottest IPO markets in 2021. In 2021, Indian companies raised US$ 2.2 billion through initial public offerings (IPOs), the highest since 2008, as indicated by data from Refinitiv.
- 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.
- In February 2021, the government announced that the Securities and Exchange Board of India (SEBI), the country's capital market regulator, will be the designated regulator for gold exchanges, ensuring greater transparency in gold transactions.
- In February 2021, SEBI eased the norms for large companies to list on the stock exchange. According to reports, this move will pave the way for LIC's mega-float IPO. The minimum offer and public holding requirements will be relaxed as a result, giving the Centre more time to comply with the rules.
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 March 2021 is Rs. 1 = US$ 0.014