Foreign Institutional Investors

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Last updated: Oct, 2018

Introduction

Foreign Portfolio/Institutional Investors (FPI/FII) have been one of the biggest drivers of India’s financial markets and have invested around Rs 12.51 trillion (US$ 171.81 billion) in India between FY02-18. 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
  • Trusts
  • Asset management Companies
  • Endowments, University Funds, etc.

The total market capitalization (M-cap) of all the companies listed on Bombay Stock Exchange (BSE) rose to a record high level of Rs 142.25 trillion (US$ 1.95 trillion) in 2017-18.
 

2.2.1 – Recent Developments/Investments

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

  • In 2018-19 (up to September 28, 2018), FIIs have pulled Rs 74,757 crore (US$ 10.27 billion) from the Indian financial markets.
  • In September 2018, Macquarie India raised its one year Nifty target to 12,000.
  • In September 2018, Morgan Stanley raised its BSE-30 target to 42,000 by September 2019.
  • In September 2018, Embassy Office Parks filed the papers for India’s first Real Estate Investment Trusts (REIT).
  • Category III Alternative Investment Funds (AIFs) invested Rs 24,228 crore (US$ 3.32 billion) in the country.

2.3 – Government/Regulatory Initiatives

  • 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).

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.

Exchange Rate Used: INR 1 = US$ 0.0137 as on September 25, 2018