Foreign Portfolio/Institutional Investors (FPI/FII) have been one of the biggest drivers of India’s financial markets and have invested around Rs 13.39 trillion (US$ 191.60 billion) in India between FY02-20 (till December 4, 2019). Highly developed primary and secondary markets have attracted FIIs/FPIs to the country. Investments by FIIs/FPIs in India are regulated by the Securities and Exchange Board of India (SEBI) while the ceilings on such investments are maintained by the Reserve Bank of India (RBI). Following are the few types of FIIs investing in India:
- 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 the companies listed on Bombay Stock Exchange (BSE) rose to a record high level of Rs 151.08 trillion (US$ 2.16 trillion) in 2018-19 and reached Rs 154.12 trillion (US$ 2.20 trillion) in 2019-20.
Some of the recent significant FII/FPI developments are as follows:
- In 2018-19, India ranked seventh with a market cap of US$ 2.1 trillion.
- From February to June 2019, FIIs invested a net of US$ 11.4 billion in Indian equities.
- Domestic Institutional Investors (DIIs) and foreign portfolio investors (FPI) together invested Rs 1.43 lakh crore (around US$ 20 billion) in 2019.
- Foreign institutional ownership increased to an eight-quarter high of 20.93 per cent by the end of September for 414 firms in the BSE 500 index.
- In quarter 2 (up to September 2019), FIIs have sold Indian shares worth US$ 3.17 billion.
- Union Bank of Switzerland (UBS) maintained its Nifty target at 9,500 by March 2019.
- Morgan Stanley has set its Sensex target to 40,000 by June 2020.
- Investments by foreign portfolio investors (FPIs) in Indian capital markets have reached net Rs 10,312 crore (US$ 1.48 billion) investments in June 2019. FPIs invested Rs 1,937.54 crore (US$ 277.23 million) into debt segment during August 1-9,2019.
- In September 2018, Embassy Office Parks filed the papers for India’s first Real Estate Investment Trusts (REIT). In September 2019, Embassy Office Parks announced plans to expand its portfolio in Hyderabad and Chennai and list nation’s second REIT in 2020-21.
- In May 2019, SEBI proposed reducing the overall time taken for rights issue from 55-58 days to around 31 days. This will make the application and allotment process more efficient.
- In September 2018, SEBI has reduced the time to list shares on stock exchange after initial public offerings to three days from previous six days.
- A report filed by a panel appointed by the Securities and Exchange Board of India (SEBI) on December 04, 2018 has proposed direct overseas listing of Indian companies and other regulatory changes.
- In September 2018, the Securities and Exchange Board of India (Sebi) relaxed the Know-Your-Client (KYC) requirement for Foreign Portfolio Investors (FPIs).
- In September 2018, SEBI allowed Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) to start commodity derivate segments.
- SEBI has also allowed foreign entities to participate in the commodity derivatives segment of Indian stock exchanges, to help them hedge their exposures. It has also proposed to allow Non Resident Indians (NRIs) to invest through FPI route after meeting specific KYC norms.
- In August 2018, SEBI reduced the timeline for public issue of debt securities from 12 days to six days.
- Foreign Portfolio Investors are also allowed to invest up to 25 per cent in Category III Alternative Investment Funds (AIF) in India. Different types of funds such as hedge funds, Private Investment in Public Equity (PIPE) funds, etc. are operating in India as Category III AIFs.
- Investments by FPIs have also been allowed in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs).
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.
Mr Mark Machin, Chief Executive Officer, Canada Pension Plan Investment Board (CPPIB), has expressed confidence in the Indian equity market and stated that the country is one of the best investment destination based on its demographic growth, increased productivity, and long-term economic growth potential.
"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.
Conversion rate used as on October 2019, Re 1 = US$ 0.01407