Who are Foreign Institutional Investors and why does India remain a preferred market for them?

Oct 11, 2019 | 1 month ago | Read Time: 3 minutes | By iKnowledge Team

Foreign Institutional Investors or rather Foreign Portfolio Investors (FPIs), as they are now known, are overseas companies registered in India with the intention to invest in Indian securities that are listed and traded in exchanges. They are regulated by the Securities and Exchange Board of India and operate in the country under the newly notified SEBI (Foreign Portfolio Investors) Regulations, 2014.  Earlier they were regulated by SEBI (FII) Regulations, 1995.

They are distinct from companies that invest in India under foreign direct investment rules.  FPIs are investment vehicles, hence the term ‘portfolio investments.’

There are certain restrictions for FPI investments in India, one of them being that a single FPI cannot invest more than 10% in the paid-up capital of an Indian company. If it has more than this threshold level, it will be treated as FDI.[1] The Reserve Bank of India constantly monitors investments by FPIs under its regulations for FDI.

There are a huge range of entities that operate as FPIs and these include hedge funds, pension funds, insurance companies, sovereign investment companies and wealth funds, endowments, charitable trusts and so on.

Why is India an attractive destination for FPIs?

India is an emerging market and among the best performing markets globally so far this year, according to reports[2] in the media, offering long term investment opportunities. While investors were selling off their holdings in most other emerging economies, foreign investors have been pumping money into Indian equities as data for the first four months of this calendar year shows that they were net buyers to the tune of $1.5 billion.

New issuance or Initial public offerings in the first six months of 2018 raised funds worth Rs 23,670 crore from the market. In many of these new issuances, FPI investments have been substantial. Data with NSDL shows that FPIs have invested more than Rs 17,000 crore in primary market issuances in the current year. This also includes Qualified Institutional Placements.[2]

One of the reasons that India is such an attractive destination is its steady GDP growth of 7%-plus. Despite the hiccups due to demonetisation in November 2016 and the introduction of Goods and Services Tax, economic growth has not faltered. GST has in fact simplified the tax structure and more of the unorganised economy has been brought under the tax net and the formal system. Further the government has been introducing various reforms in a bid to do away with controls and increase ease of doing business.

SEBI raised the investment limit in REITs and InvITs for strategic investors to 25% of the total size of the offer, while investment in such vehicles is now open to FPIs as well. In addition, it has allowed FPIs to operate in India through International Finance Service Centre without prior approvals or documentation. The RBI in its turn also allowed FPIs to invest more in government securities.

FPIs are now allowed to invest in non-convertible and redeemable preference shares on non-repatriable basis.

While rising crude oil prices and the attendant widening of the current account deficit is a cause of concern (FPIs have been net sellers for the  first six months of 2018), the fact remains that India, as an investment destination, has a better risk-reward profile compared to many other emerging economies similarly situated.[3]

GDP growth for India forecast at 7.4% for FY19[4] and the Asian Development Bank has pegged the growth in FY20 at 7.8% [5] on the back of rise in private consumption. India is one of the fastest growing economies in the world.

The turmoil in the global markets has been worsened by the ongoing trade war initiated by the United States with China. In such a scenario, India is a safe investment haven for global fund managers who are looking for stable markets and high growth economies. To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


Citations

[1] Union Budget, 2013-14

[2] https://www.ibef.org/economy/foreign-institutional-investors.aspx

[3] Business Standard, June 12, 2018

[4] Reserve Bank of India, June 2018

[5] ADB, April 2018


Calculate premium for your Term Plan

Prev
What is the cost of a typical two-year course at a European university?
Next
Tracing the evolution of your investment portfolio with age
GENDER
Date of Birth
DO YOU CONSUME TOBACCO?
Annual Income
Sum Assured
Select Cover Upto Age
Full Name
Mobile
Email ID
Your Monthly Premium for Aegon Life iTerm Insurance Plan

MOST READ

  • Oct 11, 2019
  • |
  • Read Time: 3 minutes

Section 80C, 80CCC & 80CCD Tax Deductions Explained

  • Oct 11, 2019
  • |
  • Read Time: 3 minutes

Tax Structure in India, Explained

RELATED ARTICLES