Foreign Institutional Investors
Foreign Portfolio Investors/Foreign Institutional Investors (FPIs/FIIs) have been a major driver of India's financial markets, investing Rs. 50,089 crore (US$ 7.06 billion) in the calendar year 2021. The country has attracted FIIs/FPIs due to its well-developed primary and secondary markets. The Securities and Exchange Board of India (SEBI) regulates foreign institutional investors' (FIIs/FPIs) investments in India, while the Reserve Bank of India sets a limit on such investments (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 the Bombay Stock Exchange (BSE) rose to a record level of Rs. 264.06 trillion (US$ 3.42 trillion) in 2021-22, from Rs. 204.31 trillion (US$ 2.76 trillion) in 2020-21.
Some of the recent and significant FII/FPI developments are as follows:
- As per the depositories data, foreign portfolio investors (FPIs) invested Rs. 3,202 crores (US$ 428.03 million) in India during the first week of January 2022.
- According to the Department for Promotion of Industry and Internal Trade (DPIIT), the FDI equity inflow in India stood at US$ 572.80 billion between April 2000-December 2021.
- FDI equity inflow in India stood at US$ 12.021 billion between October-December 2021. The foreign direct investment inflows stood at US$ 43.17 billion in FY22 (until December 2021). According to a UN report, India received US$ 64 billion FDIs (foreign direct investments) in 2020, the fifth-largest recipient of inflows in the world.
- India’s National stock exchange (NSE) had the eighth largest market capitalization in the world with a total market value of US$3.337 trillion in FY22.
- In December 2020, Embassy Office Parks REIT ('Embassy REIT'), India's first listed REIT and one of Asia's largest by area, announced that through an institutional placement of units, it has successfully completed a unit capital raise of Rs. 36.8 billion (US$ 501 million).
- In the calendar year of 2021, India’s stock rally made investors rich by Rs. 72 lakh crore (US$ 962.22 billion) with the Sensex crossing the 50,000 mark for the first time ever reaching a lifetime high of 61,765.59 on October 18th 2021.
- In April 2022, Domestic Institutional Investors (DIIs) were the net buyers in the Indian equity market and accounted for Rs. 29,869.52 crores (US$ 3.86 billion).
- Foreign investors invested >Rs. 1.4 trillion (US$ 19 billion) in the Indian stock market in 2020.
- In 2021, ~ 63 initial public offerings (IPOs) (including Brookfield REIT,PowerGrid Infrastructure Investment Trust, Nykaa and Zomato) have raised Rs. 1.19 trillion (US$ 15.89 billion).
- In April 2021, Amazon India launched US$ 250 million the ‘Amazon Smbhav Venture Fund’ (the venture fund) for Indian start-ups and entrepreneurs to boost technology innovations in areas of digitisation, agriculture and healthcare.
Some of the recent government initiatives and regulations in the FII space are as follows:
- By January 2022, the Union Cabinet is planning to allow 20% FDI for LIC’s IPO.
- In October 2021, The Government allowed 100% Foreign Direct Investments (FDI) in the Telecom sector.
- In August 2021, the Securities and Exchange Board of India (SEBI) introduced the idea of 'accredited investors in the Indian securities market to explore a new channel for raising funds.
- In August 2021, SEBI mandated the use of blockchain or distributed ledger technology (DLT) to monitor the bond’s status or other listed debt securities.
- In June 2021, the Securities and Exchange Board of India (SEBI) announced the revised overseas investment limit for mutual funds (MFs) to US$ 1 billion from the previous US$ 600 million.
- 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.
- Employee provident fund organisation (EPFO) investments in the equity market were worth Rs. 1.23 lakh crore (US$ 16.4 billion) till November 2021.
India has the potential to attract US$ 160 billion of FDI by 2025 according to Commerce & Industry Minister, Mr. Piyush Goyal on November 16th 2021. With 90 unicorns, India's startup ecosystem raised US$ 42 billion in 2021, making it the third-largest unicorn hub in the world. This trend is anticipated to continue. Softbank was India's largest foreign investor, funding nearly 10% of all unicorns.
By 2024, India is expected to exceed the UK and the Middle East as the global fifth-largest stock market. The growth is expected to be driven by the pipeline for future public listings. As of Sept. 2021, start-ups in India have raised US$ 10 billion through IPOs, significant growth over the last three years. This growth is further expected to go north and drive India’s aggregate stock market value to >US$ 5 trillion by 2024 from the current US$ 3.5 trillion.
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 has 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-growing 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.