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Context:

Foreign Institutional Investors (FIIs) have become net buyers of Indian equities for the first time in four months, injecting ₹4,223 crore in April 2025.

About Foreign Institutional Investors (FIIs)

They are large organizations, such as mutual funds, pension funds, hedge funds, insurance companies, or investment banks, based outside India that invest money in Indian financial markets. These markets include stock exchanges (like the Bombay Stock Exchange or National Stock Exchange), bonds, and other securities.

Unlike individual investors, FIIs manage huge sums of money on behalf of their clients and invest in countries with high growth potential, like India.

For example, a U.S.-based mutual fund might buy shares of an Indian company listed on the NSE. This fund acts as an FII, bringing foreign money into the Indian economy.

How Do FIIs Operate in India?

Registration with SEBI: The Securities and Exchange Board of India (SEBI) regulates FIIs. Every FII must register with SEBI to trade in Indian markets. This ensures transparency and protects the economy.

Investment Limits: SEBI and the Reserve Bank of India (RBI) set caps on how much FIIs can invest. For example, FIIs can hold up to 24% of an Indian company’s paid-up capital, but each FII can own only up to 10%. These limits prevent excessive foreign control.

Portfolio Investment Scheme: FIIs invest through this scheme, buying shares, bonds, or debentures on Indian stock exchanges. They cannot directly control the companies they invest in, unlike Foreign Direct Investment (FDI).

Types of Investments: FIIs invest in:

1. Equity shares (stocks).
2. Debt securities (bonds, debentures).
3. Government securities, including Sovereign Green Bonds for eco-friendly projects.
4. Derivatives (financial contracts based on stock prices).

Who Qualifies as an FII?

Not every foreign entity can be an FII. SEBI allows the following organizations to register:

• Pension funds
• Mutual funds
• Insurance companies
• Investment banks
• Sovereign wealth funds (government-owned funds)
• Foreign central banks
• Charitable trusts, endowments, or university funds with a five-year track record.

Recent Developments

FIIs have demonstrated a shift in their investment approach toward Indian markets in April 2025. After being net sellers for seven months in fiscal 2025, their return as net buyers signals a potential change in global investment sentiment toward Indian equities.

Sectoral Investment Shifts

The FII investment patterns reveal different sectoral preferences:

• Increased Exposure => Banking, Financial Services, and Insurance (BFSI) sector, likely due to the RBI's accommodative monetary policy stance.
• Reduced Exposure => Information Technology (IT) sector, reflecting concerns about potential U.S. recession impacting earnings of Indian IT companies with significant U.S. exposure.

The increase in FII inflows comes against a complex global backdrop:

• Ongoing volatility in global markets following President Trump's tariff announcements.
• U.S. Treasury Secretary Scott Bessent's indication that India may be among the first countries to secure a trade deal with the U.S.
• Potential recession concerns in the U.S. affecting sectoral investment choices.

Outlook and Implications

• Market Stability => Renewed FII interest may provide support to Indian equity markets in the near term.
• Sectoral Rotation => BFSI sectors may outperform while IT may face headwinds.
• Currency Outlook => Rupee is likely to maintain relative strength against the dollar in the short term.
• U.S.-India Relations => Progress toward a potential trade deal could boost investor confidence.
• Policy Implications => The RBI's approach to monetary policy will remain a key driver for foreign investment flows.

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Source: 

THE HINDU