Foreign Institutional Investment in Indian Economy

Foreign Institutional Investment in Indian Economy has been substantial of late. Positive vibes about the resurgent Indian economy has attracted a substantial amount of foreign institutional investors in India.

Mode of entry for Foreign Institutional Investment in the Indian Economy

There are two broad ways in which the foreign institutional investors may enter the Indian financial market – as an incorporated entity or an unincorporated Entity. Foreign investing firms entering as incorporated entities need to abide by certain rules. They need to enter as a company as per the Companies Act,1956.

The incorporation can occur either through joint ventures or as wholly owned subsidiaries .

Foreign equity investment in these companies can reach up to 100%. Investment is subject to the set equity caps as directed by the Foreign Direct Investment Policy of India.
As an Unincorporated Entity, a foreign investment company can operate through its Liaison Office, Branch Office or Project Office. Investment activities undertaken by these offices need to be under India’s Foreign Exchange Management Regulations,2000.

More on Foreign Institutional Investment in Indian Economy

A resurgent India with opportunities galore has attracted Foreign Institutional Investment in an increasing amount. Foreign institutional investors (FIIs) need to be enlisted with the Securities and Exchange Board of India (SEBI). The number of foreign institutional investors enlisted at the SEBI stood at 1,219 at the end of 2007. The comparable figure for the end of 2006 was lower than 1000. The enlisted FII sub accounts numbered 3,644.

2007 saw a lot of FII investments in the Indian economy. The figure reached an all time high of US$ 17.2 billion for the equity market . This pushed BSE and NSE a long way to attain record levels of 20,000 index points and 6,000 index points respectively. For 10 months in 2007, FIIs acted as net buyers. However, as soon as the repercussions of the crisis in the USA markets reached India the FIIs turned net sellers to negate that loss.

FCCBs , IPOs and QIPs accounted for 70% of the investments made by FIIs. The remaining were made through overseas offers, warrant conversion and preferential offers. Excellent macro economic performance of the Indian economy with commendable growth parameters have drawn more Foreign Institutional Investment in Indian Economy.

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Last Updated on : 5th July 2013