Indian Markets have been one of the most attractive investment places for the FII's.

India being a developing nation attracts the foreign flows looking at the growth potential in the Indian Economy. The FII's contribute a major chunk of volumes on the Indian bourses and this in turn impacts the market moves. In case of recession in the world economies, the foreign investors look for saver bets and India with a rising GDP where other nations GDP / Growth is shrinking has always offered greater investment avenues. Indian Markets have been the clear outperformers vis-a-vis the global markets in the past years.

Introduction to Foreign Institutional Investors (FIIs)

Since 1990-91, the Government of India embarked on liberalization and economic reforms with a view of bringing about rapid and substantial economic growth and move towards globalization of the economy. As a part of the reforms process, the Government under its New Industrial Policy revamped its foreign investment policy recognizing the growing importance of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalization of the Indian economy. Simultaneously, the Government, for the first time, permitted portfolio investments from abroad by foreign institutional investors in the Indian capital market. The entry of FIIs seems to be a follow up of the recommendation of the Narsimhan Committee Report on Financial System. While recommending their entry, the Committee, however did not elaborate on the objectives of the suggested policy. The committee only suggested that the capital market should be gradually opened up to foreign portfolio investments. From September 14, 1992 with suitable restrictions, Foreign Institutional Investors were permitted to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India. While presenting the Budget for 1992-93, the then Finance Minister Dr. Manmohan Singh had announced a proposal to allow reputed foreign investors, such as Pension Funds etc., to invest in Indian capital market.

Foreign Institutional Investment As defined by the European Union Foreign Institutional Investment is an investment in a foreign stock market by the specialized financial intermediaries managing savings collectively on behalf of investors, especially small investors, towards specific objectives in term of risk, return and maturity of claims. SEBIs Definition of FIIs presently includes foreign pension funds, mutual funds, charitable/endowment/university funds, asset management companies and other money managers operating on their behalf in a foreign stock market. Foreign institutional investment is liquid nature investment, which is motivated by international portfolio diversification benefits for individuals and institutional investors in industrial country. Currently, the following entities are eligible to invest under FII route:

Currently, entities eligible to invest under the FII route are as follows:

As FII: Overseas pension funds, mutual funds, investment trust, asset management company, nominee company, bank, institutional portfolio manager, university funds, endowments, foundations, charitable trusts, charitable societies, a trustee or power of attorney holder incorporated or established outside India proposing to make proprietary investments or with no single investor holding more than 10 per cent of the shares or units of the fund.

As Sub-accounts: The sub account is generally the underlying fund on whose behalf the FII invests. The following entities are eligible to be registered as sub-accounts, viz. partnership firms, private company, public company, pension fund, investment trust, and individuals. A domestic portfolio manager or a domestic asset management company shall also be eligible to be registered as FII to manage the funds of sub-accounts.

FIIs registered with SEBI fall under the following categories: Regular FIIs- those who are required to invest not less than 70 % of their investment in equity-related instruments and 30 % in non-equity instruments. 100 % debt-fund FIIs- those who are permitted to invest only in debt instruments.

Who can be registered as an FII?

The applicant should be any of the following categories: 1. Pension funds 2. Mutual funds 3. Investment trust 4. Insurance or reinsurance companies 5. Endowment funds 6. University funds 7. Foundations or charitable trusts or charitable societies who propose to invest on their own behalf and a) Asset management companies b) Nominee companies c) Institutional portfolio managers d) Trustees e) Power of attorney holders f) Bank Who propose to invest their proprietary funds or on behalf of broad based funds or on of foreign corporate and individuals.

Prohibitions on Investments: Foreign Institutional Investors are not permitted to invest in equity issued by an Asset Reconstruction Company. They are also not allowed to invest in any company which is engaged or proposes to engage in the following activities:

Business of chit fund Nidhi Company Agricultural or plantation activities

Real estate business or construction of farm houses (real estate business does not include development of townships, construction of residential/commercial premises, roads or bridges)

FII Activity for previous years Year Gross Purchase Gross Sale 270,034.00 613,770.80 633,017.10 540,814.70 774,594.30 743,392.00 439,084.10 238,840.90 146,706.80 63,953.50 42,849.80 Net Investment 42,263.30 -2,714.20 133,266.80 83,424.20 -52,987.40 71,486.30 36,540.20 47,181.90 38,965.80 30,459.00 3,629.60

2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

312,297.50 611,055.60 766,283.20 624,239.70 721,607.00 814,877.90 475,624.90 286,021.40 185,672.00 94,412.00 46,479.10

Number of registered FIIs

According to the latest data available with SEBI, there are 1,728 registered FIIs and 5,726 subaccounts. FIIs are entities established or incorporated outside India who propose to make investment in India while sub-account includes those foreign corporates, foreign individuals, and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII.