Increased Investments by FPI’s in the Indian Markets

An Overview of FPIs Comeback

The country is witnessing net inflows of foreign portfolio investment (FPI) due to strong fundamentals, a positive policy environment, and a faster-than-expected economic recovery. In April, FPIs became net sellers, but the tide has since flipped again.

As risk-on attitude improved with diminishing pandemic cases and anticipation of an early opening of the economy, overseas investors pumped in a net Rs. 13,424 crores so far in June. According to depositories, foreign portfolio investors (FPIs) invested Rs. 15,520 crores in equities between June 1 and 11.

The strong net inflows over the last two weeks can be ascribed to improving investor attitudes as the country’s coronavirus cases continue to decline and chances for an early economic reopening grow.

Further Key Takeaways

During the period under review, FPIs withdrew Rs. 2,096 crores from the debt segment. There was a total net inflow of Rs. 13,424 crores. This follows net withdrawals of Rs 2,666 crores and Rs 9,435 crores in May and April, respectively.

In terms of inflows in June, it looks that a cyclical rebound in the Indian economy is on the way following the progressive unlocking that is currently taking place, based on fourth-quarter corporate numbers.

The IT, financial, and energy industries were the focus of FPI activity. This week, the MSCI Emerging Markets Index has dropped 0.91 percent. FPI flows are expected to stay strong in the medium term, since India is on the verge of reviving its economy.

Low interest rates, improved export prospects, and a global economic recovery are an interesting mix for India’s economic rebirth. Vaccination is likely to increase in the future, with a further drop in pandemic cases, increased consumer expenditure, a healthy monsoon season, and a return to normalcy in the general situation.

What is Foreign Portfolio Investment?

Securities and other financial assets held by investors in another nation are referred to as foreign portfolio investment (FPI). It does not provide the investor actual ownership of the company’s assets and, due to market volatility, is relatively liquid. FPI is one of the most prevalent ways for investors to participate in the foreign economy, alongside foreign direct investment (FDI). For most economies, both FDI and FPI are key sources of funding. Stocks, bonds, mutual funds, and exchange-traded funds are all examples of FPI holdings.

What is the difference between FPI and FDI?

Investors in Foreign Portfolio Investment do not actively manage their investments or the firms that issue them. They don’t have direct access to the assets or businesses. FDI, on the other hand, involves investors purchasing a direct commercial interest in a foreign country. The investor’s purpose is to build a long-term revenue stream while also assisting the business in increasing earnings.

The FDI investor is in charge of their money and frequently manages the company in which they invest, assisting the investor in the development of the business while waiting for a return on their investment (ROI). When seeking to sell this interest, however, the investor faces less liquidity and more risk because their money is tied to one company. FPIs, on the other hand, have the ability to liquidate their assets more quickly.

In India, who regulates foreign portfolio investors (FPIs)?

FPIs are governed by the Securities and Exchange Board of India (SEBI). The Foreign Portfolio Investors Regulations were introduced by SEBI in 2019. FPIs must also follow the Income Tax Act of 1961 as well as the Foreign Exchange Management Act of 1999.

Criteria for Foreign Portfolio Investment Eligibility

To become an FPI, an individual must meet the following requirements:

1. The applicant must not be a non-resident Indian, according to the Income Tax Act of 1961.
2. You can’t be a citizen of a country that’s been named in a FATF public statement.
3. Should be able to invest in stocks and bonds outside of the country.
4. He or she must have MoA/AOA/Contract permission before investing in securities.
5. A certificate that entitles the holder to participate in the growth of the securities market.– If the bank is an applicant, it must be a member of the Bank for International Settlements through its central bank.