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Foreign Institutional Investments - FIIs - An overview

India's outstanding growth story and its booming economy have made the country a favorite destination with foreign institutional investors (FIIs). It has sustained to attract investment despite the Satyam non-governance issue and the global economic infectivity impact on Indian markets.

The INSTANEX FII INDEX in India launched by Instanex Capital Consultants Pvt. Ltd., Mumbai, tracks the price presentation of the portfolio of listed Indian equity shares owned by FIIs. The Index comprises of the top 15 companies by significance of FII holdings. Reviews are conducted quarterly and companies are deleted from the Index if they are not amongst the top 20 FII holdings. According to the Index, in March, FIIs have increased their investing activity and out of the 15 components, 13 showed the discriminating interest of the FIIs.

According to the data certain by the Securities and Exchange Board of India (SEBI), the FII investments in equities as on March 17, 2009 stood at US$ 50950.20 million and in debts, equaled US$ 6541.50 million at exchange rate of 1 USD = 40.34 INR. As per SEBI, number of register FIIs stand at 1626 and number of registered sub-accounts stood at 4972 as on March 17, 2009.

As various as 330 FIIs have registered with SEBI ever since January 31, 2008, taking the total number of FIIs in India to 1,609 as on January 31 this year. Yet the FII sub-accounts have gone up over 30 per cent to 4,938 compared with 3,795 in January last year. In reality, this year, 45 new FIIs have registered with SEBI, according to statistics given by the regulator. Preponderance of these FIIs are from the US and Europe. In addition to this there are also FIIs based out of Mauritius. Registered FIIs includes from those from other countries include Canada, the UAE, Japan, Australia, Taiwan and Singapore. Various pension funds also feature in the list of the FIIs that have registered in 2009. Amongst them are Llyods TSB Pension Trust, Stagecoach Group Pension Scheme and Trustees of The Mine Workers Pension Scheme from UK. 30 new FIIs and 104 new sub-accounts had registered until February last week in 2009.

FII holdings in Indian markets almost hit a point to US$ 88 billion on December 2008. Ever since then, foreign institutional investors (FIIs) have started looking at India as an attractively-valued market in spite of the Satyam scandal. Some of the FIIs such as Citi and Macquarie have amplified the weightage for India. This weightage helps investors come to a decision about the markets to invest. Normally, FIIs decide their allocations for the year in January.

Debt instruments (government securities, commercial papers, and corporate bonds) paying attention up to US$ 426.18 million in first 11 trading sessions of 2009 from FIIs. FIIs have been discovering investment in debt a more attractive proposition than equity.78 private equity players anticipated to raise US$ 24 billion in 2009 for investing in India—thrice that of last year—when 30 private equity players raised US$ 9.2 billion. It also includes real estate funds. In the intervening time, 117 Pan-Asian private equity (PE) players—with India as focus—aim to raise funds worth US$ 59 billion.

PEs together with Macquarie State Bank of India Infrastructure Fund with US$ 1,500 million, Trump Organization India Fund and Walton Street Capital India Fund I with US$ 1,000 million investment each in real estate sector are some recent notable examples.

In 2008, PE investments in India was secure to US$10 billion, but the total amount raised for 2008 would be 2-3 times of what has been invested. Above and beyond, India is a growth story while everywhere else, there is recession.Previously, cash as a percentage of total assets under management (AUM) was just above 6 % in January 2008 and rose to 18 per cent in November 2008.

On March 16, 2009, 24 bidders were allocated investments of US$ 5.8 billion, the maximum ever investment allocation by FIIs in India as compared to the net investment of FIIs in 2008 of US$ 2.39 billion. From the time of January 2009, FII's net investment in debt instrument has declined by US$ 125.4 million due to impact of the global slowdown. As per the Securities and Exchange Board of India (SEBI), US$ 8 billion was accessible for allocation to FIIs and their sub-accounts in an open bidding platform.

Standard Chartered Bank got the highest bids of US$ 1.05 billion, followed by Barclays Bank US$ 998.81 million, Kotak Mahindra UK US$ 818.86 million and Deutsche Bank International Asia US$ 700.14 million, and JP Morgan Chase Bank, US$ 532.5 million. The bids had to be executed in the next 45 days. This bidding should beginning a sound FII investment trend in the near future, as the US markets continue to weaken and yields of Indian public sector units (PSU) and corporate debt papers remain eye-catching. FIIs will invest in eye-catching PSU bonds floated by quasi-government entities like Power Finance Corporation and Rural Electrification Corporation.

Investment banks (i-banks) are now looking at minor venture capital deals in the US$ 2 million – US$ 7 million range. I-banks are now willing to work on poorer margins. Venture capital firms say the number of deals they are getting from i-bankers currently has gone up considerably.

The mutual fund industry consists of 35 fund houses. To a certain extent unlike in 2007 and 2008, when real estate and IT and ITES sectors enjoyed most of the concentration, 2009 is witnessing a broad-basing of sectors on the PE radar. Investments in sectors such as healthcare, education, consumer goods and infrastructure are expected to be more attractive, given their relatively strong domestic demand, even as export-oriented businesses look blow of recession in US and Europe. Funds are also progressively buying more stakes in agro-based companies.

Mutual fund houses have been disposable sellers in February 2009. Nevertheless, they were bullish on some select market heavyweights such as HDFC, Reliance Industries (RIL), Larsen and Toubro (L&T) and Infosys during the month. The funds are looking up once again at this time.

Previously, as per data available with the Bombay Stock Exchange, on December 4, 2008, FIIs invested US$ 61.83 million in equities screening confidence in the Indian stock market. At the same time, the up gradation of India's sovereign ratings combined with the enhancement in the macro-economic situation and growth fundamentals has led to a significant increase in FII investments in the debt market. Total investment in the country's debt market till November 2008 summed up to US$ 6.38 billion as against US$ 2.80 billion by the end of November 2007.

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