The term FII refers to Foreign Institutional Investors. There are many FIIs in India that have invested their funds in various financial sectors and operated under the guidelines set by Reserve Bank of India and SEBI. The various sectors in which FII investments are made are:
- Banks
- Insurance companies / reinsurance companies
- Pension Funds
- Mutual Funds
- Endowment funds
- Asset management companies
- Nominee companies
- Institutional Portfolio managers
- Trustees
- Investment trust
- Power of Attorney Holders and many more
The current scenario
Most of them will pour their money in the existing stock markets and will stand to gain as and when the index will go up. Currently, around the world and including India, the stock market indices have performed extremely badly for the past 20 days. This has also led to a bearish pattern in the FII investment in India. In order to limit their losses in what seems to a bearish trend (when markets start losing), many of the FII in India are en-cashing their positions.
History of FII investment in India
Along with Brazil and China, India is one of the fastest growing economies in the world that has seen FII investments. Pending problems of balance of payment crisis that India faced in 1991, the liberalization of the economy was initiated. This also included opening the capital markets and allowing the FII investments. India recorded its highest GDP growth in 2007, when the growth rate was 9%. Since then India has registered high growth rates. According to an OECD (Organization for Economic Cooperation) report, the growth rates would be sustainable at 7.5% as the reforms become more widespread.
In past year, 2010 FII investment in India has grown by leaps and bounds. FII investment was a staggering US $ 30 billion net inflow. This is almost 50% of the worldwide FII investment that was made excluding China. The inflows have also been quite high even in the preceding months of 2011. Barring august when the FII are actually selling, the first six months saw the FII investments being done at large scale and amounted to more than US$ 3.8 billion.
Given this scenario, a number of FII’s India has also seen an astounding growth. The number of FII’s that are registered with SEBI as of July 2011 is 1730. In December, 2010 the number of FII’s that were registered were 1718.
Effect of the FII inflow on the Rupee
Reposing their faith in India companies, the FII have also increased their stakes. In the past year, 26 FII’s have increased their stakes. Currently the FII’s hold 25% of market value for the private sector companies, while their share in the Government sector is 7.7%. Due to the surge of the FII inflows in the first 6 months of 2011, the Indian Rupee has gained against the US Dollar. This development doesn’t hold well for the Indian exporters.
Conclusion
The Government has also pushed for many initiatives that will help the FII in India to invest more and in a better way. Various reforms are being currently implemented.
