The term foreign institutional investment denotes all those investors or investment companies that are not located within the territory of the country in which they are investing. These are actually the outsiders in the financial markets of the particular company. Foreign institutional investment is a common term in the financial sector of India.
The type of institutions that are involved in the foreign institutional investment are as follows:
The economies like India, which are growing very rapidly, are becoming hot favorite investment destinations for the foreign institutional investors. These markets have the potential to grow in the near future .
This is the prime reason behind the growing interests of the foreign investors. The promise of rapid growth of the investable fund is tempting the investors and so they are coming in huge numbers to these countries.
The money, which is coming through the foreign institutional investment is referred as ‘hot money’ because the money can be taken out from the market at anytime by these investors.
The foreign investment market was not so developed in the past. But once the globalization took the whole world in its grip, the diversified global market became united. Because of this the investment sector became very strong and at the same time allowed the foreigners to enter the national financial market.
At the same time the developing countries understood the value of foreign investment and allowed the foreign direct investment and foreign institutional investment in their financial markets. Although the foreign direct investments are long term investments but the foreign institutional investments are unpredictable. The Securities and Exchange Board of India looks after the foriegn institutional investments in India. SEBI has imposed several rules and regulations on these investments.
Some important facts about the foreign institutional investment:
The number of registered foreign institutional investors on June 2007 has reached 1042 from 813 in 2006
US $6 billion has been invested in equities by these investors
The total amount of these investments in the Indian financial market till June 2007 has been estimated at US $53.06 billion
The foreign institutional investors are preferring the construction sector, banking sector and the IT companies for the investments
Most active foreign institutional investors in India are HSBC, Merrill Lynch, Citigroup, CLSA