Trade Analytics

Foreign Institutional Investors

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Last updated: Jan, 2018

Introduction

Economies like India, which offer relatively higher growth than the developed economies, have gained favour among investors as attractive investment destinations for foreign institutional investors (FIIs). Investors are optimistic on India and sentiments are favourable following government’s announcement of a series of reform measures in recent months.

According to Ernst & Young's (EYs) Global Capital Confidence Barometer (CCB) - Technology report, India ranks third among the most attractive investment destinations for technology transactions in the world.

India is the third largest start-up base in the world with more than 4,750 technology start-ups, and about 1,400 new start-ups being founded in 2016, according to a report by Nasscom.

Market Size

India received net investments of US$ 17.412 million from FIIs between April-October 2017. FII’s net investments in Indian equities and debt have touched record highs in the past financial year, backed by expectations of an economic recovery, falling interest rates and improving earnings outlook. FIIs net investments in Indian equities and debt stood at US$ 7.46 billion in 2016-17 (upto April 14, 2017). Cumulative value of investments by FIIs during April 2000-December 2016 stood at US$ 183.69 billion.

India-focused offshore funds and exchange traded funds (ETFs) witnessed net inflows of $565 million in November and helped the overall tally to reach nearly $6.5 billion in 2017.

Equity mutual funds recorded the 17th straight month of net inflows with record Rs 20,362 crore (US$ 3.18 billion) inflows in August 2017 on account of rally in Indian stock markets. Equity funds received an inflow of Rs 2.86 trillion (US$44.6 billion) from November 2016 to October 2017.

The total market capitalization (M-cap) of all the companies listed on Bombay Stock Exchange (BSE) rose to a record high level of Rs 146 trillion (US$ 2.27 trillion) on November 19, 2017 backed by positive sentiment in the broader market.

India has emerged as one of the strongest performers in terms of deals related to mergers and acquisitions (M&A). M&A activity in India more than doubled year-on-year to reach US$ 61.26 billion in 2016-17.The business-to-business (B2B) startups in India raised around US$ 98 million across 30 deals in 2016, as against funding of US$ 16 million across 14 deals in 2015, according to data from start-up tracker Tracxn.

During 2017, India witnessed record private equity investments worth US$ 24.4 billion. Private equity (PE) investments in the logistics industry grew at 9 per cent to US$ 501.71 million during 2016-17 and are expected to grow at 8.6 per cent annually from 2015-2020 on the back of increased opportunities resulting from low entry barriers and Goods and Services Tax (GST).

Investments

  • Venture capital (VC)-backed firms in India raised a record US$ 9.6 billion of fresh capital between January-September 2017, which is more than twice the amount of capital raised during the same period in the previous year.
  • Omkar Realtors and Developers Pvt Ltd raised Rs 125 crore (US$ 19.52 million) in debt from KKR India Asset Finance Pvt Ltd, which will be used towards construction of two residential projects in Mumbai.
  • Digital lending company, Kissht, received investment worth US$ 10 million in a funding round led by Fosun RZ Capital, which will be used for expanding among online and offline merchants, improving its data science capabilities and venturing into additional product categories.
  • Mswipe Technologies Pvt Ltd, which manufactures point of sale (PoS) machines for merchants, has raised US$ 10 million in a series D funding round led by B Capital Group and DSG Consumer Partners.
  • Blackstone Group LP, the largest alternative asset manager in the world, is set to enter India's distressed asset space by investing US$ 150 million in International Asset Reconstruction Co Pvt Ltd (IARC) to acquire a large minority stake, which will gradually be increased to a majority stake over a couple of years.
  • South Korea's Mirae Asset group is planning to expand its Indian operations and enter the real estate sector in the country and will invest US$ 500 million in commercial leased properties.
  • Softbank Vision Fund is planning to invest US$ 2 billion in Indian e-commerce major, Flipkart, half of which will go to Tiger Global Management, which is looking to sell part of its Flipkart stake, while the remaining funds would be invested in Flipkart's operations to help its battle against Amazon.
  • Indian online pharmacy and healthcare services company, 1mg Technologies, has raised US$ 15 million in a series C funding round from existing investor HBM Healthcare Investments AG for launching new predictive healthcare and corporate wellness products.
  • Indian ride hailing app, Ola, is in talks with Chinese conglomerate Tencent and may receive funding of US$ 400 million, thereby taking its valuation to above US$ 4 billion, according to a report by The Economic Times.
  • Indian budget hotels chain, FabHotels, has raised US$ 25 million from Goldman Sachs and existing investor Accel Partners in a Series B funding round, which will be focused on tripling the technology team and doubling the number of rooms from the current 5,000.
  • Microsoft Corp might invest US$ 50-100 million in ANI Technologies Pvt Ltd, the parent company of Ola Cabs, in a bid to increase the market share of its Azure cloud platform in India.
  • RentoMojo, an Indian furniture and consumer durables startup, has raised funding of US$ 10 million from Bain Capital Ventures and Renaud Laplanche, which will be used to scale up the operations and widen its product catalogue.
  • Temasek, an investment company owned by the Government of Singapore, have invested a record US$ 10 billion till date in the Indian economy after 12 years of its operations.
  • UrbanClap, an Indian home services start-up, has raised US$ 21 million in a series C funding round led by Vy Capital, an internet investment fund. The company will use the funds for expansion to more cities, investment in technology and addition of vendors.
  • DMI Finance Pvt Ltd, a Delhi-based non-banking financial company (NBFC), is planning to raise a fund of up to Rs 1,000 crore (US$ 155.11 million), which will be focused on special opportunities situations in the real estate sector and distressed assets space.
  • Private equity (PE) investments in India's automobile components sector grew 607 per cent year-on-year to US$ 90.2 million in January-May 2017.
  • Tata Capital Ltd and International Finance Corporation (IFC) have invested Rs 200 crore (US$ 31.05 million) in their joint venture (JV), Tata Cleantech Capital Ltd (TCCL), to increase its loan book for investing in renewable energy projects.
  • Indian pharmaceutical company, Cadila Healthcare Ltd, is planning to raise Rs 1,000 crore (US$ 154.72 million) via a qualified institutional placement (QIP) of shares within the next two-three months.
  • Toronto-based Canada Pension Plan Investment Board (CPPIB) made investments worth Rs 9,120 crore (US$ 1.41 billion) in India during FY 2016-17, taking their total investment in India to Rs 22,560 crore (US$ 3.49 billion).
  • The Union Cabinet has approved raising of bonds worth Rs 2,360 crore (US$ 363.87 million) by the Indian Renewable Energy Development Agency (IREDA), which will be used in various renewable energy projects in FY 2017-18.
  • JK Paper Ltd, one of India's leading paper manufacturing company, plans to raise around US$ 50 million from World Bank’s investment arm, International Finance Corporation (IFC), which will be used towards improving its productivity and restructuring its balance sheet.
  • Goldman Sachs, a US-based investment bank, is planning to invest about US$ 1 billion in India in the next three to four years via its private equity arm, stated Mr Ankur Sahu, co-head of merchant banking division (Asia-Pacific), Goldman Sachs.
  • World Bank's private sector investment subsidiary, International Finance Corporation (IFC), is likely to invest about US$ 100 million in non-convertible debentures (NCDs) issued by Mahindra and Mahindra Financial Services Ltd, thereby supporting the company's lending to the farm sector in India.
  • International Finance Corporation (IFC) will invest US$ 200 million in Housing Development Finance Corporation Ltd (HDFC) via five-year non-convertible debentures (NCDs) or masala bonds which will be used by HDFC to provide loans for affordable housing projects across India.
  • Private equity (PE) investment firm, Actis LLP, is planning to invest about US$ 500 million in Solenergi Power Pvt Ltd, its second renewable energy platform in India.
  • Flipkart, India's largest e-commerce marketplace has raised US$ 1 billion in a funding round led by Chinese internet giant, Tencent and Microsoft.
  • Paytm’s e-commerce unit raised US$ 200 million in a funding round led by Chinese e-commerce giant, Alibaba and existing investor, SAIF Partners.
  • Caisse de Dépôt et Placement du Québec (CDPQ), Canada’s second largest pension fund, plans to invest around US$ 155 million to acquire a minority stake in TVS Logistics Services Limited, a privately held subsidiary of the TVS Group.

Government Initiatives

  • The Government of India's reforms like demonetisation and the Goods and Services Tax (GST) have restored the confidence of investors in the Indian markets, stated Mr Bill Maldonado, Asia-Pacific and Global Chief Investment Officer (CIO), Equities at HSBC Global Asset Management.
  • Reserve Bank of India (RBI) has made an upward revision in Foreign Portfolio Investors' (FPIs) holdings limits in government securities by Rs 11,200 crore (US$ 1.74 billion) to Rs 3,01,500 crore (US$ 46.76 billion) for 2017-18.
  • The Securities and Exchange Board of India (SEBI) has relaxed norms for registered FPIs in India, allowing them to operate through the International Financial Services Centre (IFSC) without any additional documentation or prior approval process.
  • SEBI has allowed FPIs to invest in units of Real Estate Investment Trusts (REITs), infrastructure investment trusts (InvITs), category III Alternative Investment Funds (AIFs), and also permitted them to acquire corporate bonds under default.
  • The RBI has also allowed a number of foreign investors to invest, on repatriation basis, in non-convertible/redeemable preference shares or debentures issued by Indian companies listed on established stock exchanges in India. The investment should be within the overall limit of US$ 51 billion allocated for corporate debt. Long-term investors registered with SEBI will also be deemed as eligible investors.
  • The People’s Bank of China (PBoC) has invested US$ 500 million in Indian bonds for the first time since the Indian government eased restrictions on foreign investors.

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 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.

A PricewaterhouseCoopers India report based on a survey of 40 PE firm partners has projected that the country has the potential to get PE funding of US$ 40 billion by 2025. Future PE investments would be driven by India’s consumption story, realistic valuations, competitive businesses, growing private entrepreneurship, among other factors, as per the report.

Exchange Rate Used: INR 1 = US$ 0.0156 as on December 29, 2017