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Who is a foreign institutional investor (FII)?
 

  • FIIs are entities incorporated or established outside India who are allowed to invest in Indian capital market.
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  • FIIs include asset management companies, pension funds, mutual funds, investment trusts as nominee companies, incorporated / institutional portfolio managers or their power of attorney holders, university Funds, endowment Foundations, charitable trusts and charitable societies.
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  • FIIs are also allowed to invest on behalf of their sub accounts (underlying fund on whose behalf FIIs invest). Entities eligible to be registered as sub accounts are partnership firms, private company, public company, investment trusts and individuals.
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Regulation and Investment limit of FII
 

  • FIIs are required to be registered with SEBI in order to invest in Indian capital market.
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  • SEBI acts as the nodal point in the registration of FIIs. The RBI has granted general permission to SEBI registered FIIs to invest in India under the Portfolio Investment Scheme (PIS).
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  • FIIs can invest in equity (primary and secondary market), dated government bonds, corporate bonds, mutual funds, derivate traded on a recognized stock exchange subject to investment limits.
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  • Investment limit for all FIIs and their sub-accounts taken together is 24 % of the paid up capital of the Indian Company.
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  • FIIs investment limit in government securities including T-bill is USD 25bn and in corporate bonds is USD 51bn.
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  • RBI monitors the investment position of FIIs in listed Indian companies on a daily basis.
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Factors influencing FII investments
 

  • FIIs investments in India are influenced by factors like rupee movement, policy reforms, investment regulations, interest rates, liquidity and macro-economic conditions.
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  • FIIs track the MSCI indices (MSCI emerging market index).
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  • India’s weighting in MSCI emerging market index is around 6.4%.
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Trends in FII flows
 

  • Charts below shows FII flows in equity and debt and registered FII numbers with total investment (equity +debt) from financial year 1993 to 2013.
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Trends in FII Flows

 

  • From above charts, it’s seen that FII flows to debt market have only increased in recent years.
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  • Majority of FII flows are into equity market.
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  • Except for 1999 and 2009, India has had positive FII investment.
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  • There was net addition of 2 SEBI registered FII in 2013 totaling to 1767 compared to net addition of 43 SEBI registered FII in 2012 (total 1765).

 

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