If you are a stock market investor, then you must be knowing the risk of investing into equity markets. Everyday across the media you must be hearing news of either FIIs pulling out money or FIIs pouring in money in Indian markets. We know FIIs stand for Foreign Institutional Investors and they control the market in terms of taking it high or low by their money power. But as layman we understand less about these Foreign Investors. Let’s try to understand these Foreign Investors in simple terms and what they do in India.
- In the year 1992, Government of India under the leadership of Prime Minister Mr. P.V. Narasimha Rao allowed foreign investors to invest in Indian equity markets. This step was taken to attract foreign direct investment for growing Indian economy. This was a drastic step for massive growth of Indian economy.
- Further, government allowed foreign investors in Indian debt markets in 1995 & in 1997 in government securities.
- Since then Government of India and the state governments has been taking many steps & promotional activities for attracting foreign investments. Foreign Investment Promotion Board (FIPB) which is a part of Department of Economic Affairs-Ministry of Finance looks after processing of FDI proposals and making recommendations for Government approval.
- Foreign Portfolio Investors (FPIs) are foreign entities who invest in different financial assets (stocks, mutual funds, corporate/government bonds, government securities, debentures and other avenues). FPIs are governed by the stock market regulator SEBI.
- These FPIs are bifurcated into Foreign Institutional Investors (FIIs) & Qualified Foreign Investors (QFIs).
| Foreign Institutional Investors (FIIs) | Qualified Foreign Investors (QFI) |
| These are foreign institutional investors who wants to invest in financial markets outside their home country. | QFI was introduced in year 2002. They can be an individual, group, or association. QFIs can invest in India without sub-account with FIIs and just by opening their DMAT A/C. |
| Governments Central Banks Pension Funds Hedge Funds Mutual Funds Wealth Funds Insurance Companies Re-insurance Companies Investment Banks | Individuals Families Charitable Trusts Body corporates Brokers Advisors |
What happens when FPIs move their money ?
- when FPIs invest they bring a lot of money to stock market and the market goes up heavily.
- on the contrary, when they sell and pull out money, stock market goes down drastically.
- FPIs keep buying, selling, readjusting portfolios and also look for other markets for maximising their returns. Some FPIs have long term goals and some will have short term. They follow their strategy and keep inventing. But that does not mean they exit Indian markets fully. Indian markets are stable, promising ones as they are consumption markets with vast population & FPIs prefer to invest for better returns.
- You need not worry due to FPIs fund movements as they will keep their churning funds and markets will recover after the falls. Rather you should focus on your investment object and strategy.