Importance of FII In Indian Capital Market

FII, Foreign Institutional Investor refer to outside companies investing in the financial markets of India. International institutional investors must register with Securities & Exchange Board of India (SEBI) to participate in the market. Foreign Investment refers to investments made by residents of a country in financial assets and production process of another country.

‘FII’ includes “Overseas pension funds, mutual funds, investment trust, asset management company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts, charitable societies etc.” FIIs can invest their own funds as well as invest on behalf of their overseas clients registered as such with SEBI. These client accounts that the FII manages are known as ‘sub-accounts’.

Importance of FII In Indian Capital Market

FIIs contribute to the foreign exchange inflow as the funds from multilateral finance institutions and FDI (Foreign direct investment) are inadequate. Advantages of FIIs are as follows.

• It lowers cost of capital, access to cheap global credit.

• It supplements domestic savings and investments.

• It leads to higher asset prices in the Indian market.

• And has also led to considerable amount of reforms in capital market and financial sector.

Equity Route

1. Securities in the primary and secondary market including shares which are unlisted, listed or to be listed on a recognized stock exchange in India.
2. Units of schemes floated by the Unit Trust of India and other domestic mutual funds, whether listed or not.
3. Warrants 

100% Debt Route

  

1. Debentures (Non Convertible Debentures, Partly Convertible Debentures)
2. Bonds
3. Dated government securities
4. Treasury Bills
5. Other Debt Market Instruments

(It should be noted that foreign companies and individuals are not be eligible to invest through the 100% debt route.)

Impact of FII on stock market

• They increase depth and breadth of the market.

• They play a major role in expanding securities business.

• Their policy on focusing on fundamentals of share has caused efficient pricing of share.


By Ruchita Gajjar– Research Associate – Concept Securities Private Limited