INCREASED FOREIGN PORTFOLIO INVESTMENTS

INCREASED FOREIGN PORTFOLIO INVESTMENTS

 

Context

  • Despite high valuations, foreign portfolio investors (FPIs) have turned bullish on Indian markets and pumped in thousands crore in February, after the Union Budget presentation on 1st February

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Reasons for Inflow

  • Increased Liquidity – Stock market is responding to the Budget 2021-22 that has infused liquidity (money supply in market) in the Indian economy and been pro-growth with privatisation gaining ground.
  • Several reforms aimed at protecting shareholder rights and improving the ease of doing business have also been a contributing factor.
  • Post Covid Recovery – India, with a recovering economy, is moving back to a higher nominal growth trajectory versus the western world (which continues to struggle with the second wave of Covid and related lockdowns) and looks as a credible destination for growth seeking developed world investors.

BACK TO BASICS (Source – Mrunal.org)

  • It is a foreign entity registered at SEBI, and who buys upto 10% in equity / shares of an Indian Company.
  • Originally, these were called Foreign Institutional Investor (and Qualified Foreign Investors (QFIs), but in 2013 SEBI merged them all into a single category- FPI, based on the recommendations of K.M. Chandrasekhar committee.
  • FPI’s primary objective is make money from buying and selling of shares through the capital market / share market. They even help the SEBI-non-registered foreign investors by issuing them Participatory notes (P-Notes)
  • FPIs are not involved in the actual operations / production / management / business policy making of a company (unlike Walmart is for Flipkart).
  • If FPI investor is hopeful to get better returns in the other countries’ share/bond market, he may quickly sell his Indian securities and run away. The flight of such money is called ‘hot money’. It results s into weakening of Indian Rupee and falling of Sensex

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