Prelims Level
Mains Level
Prelims Syllabus : Economy Mains Syllabus : Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

In News:

  • Foreign investors pumped in Rs. 6,311 crores into the Indian capital markets, the highest inflow in a single day this month so far, exchange data showed.

Background:

  • According to the latest data from the BSE, foreign portfolio investors (FPIs) bought securities worth Rs. 10,437.99 crore and sold securities amounting to Rs. 4,126.98 crore, translating into a net inflow of Rs. 6,311 crores.
  • The data includes FPI trading activity on exchanges such as the BSE, the National Stock Exchange and the Metropolitan Stock Exchange of India in the capital market segment, according to the BSE.

Foreign Portfolio Investment:

  • The term FPI was defined to align the nomenclature of categorizing investments of foreign investors in line with international practice. FPI stands for those investors who hold a short-term view on the company, in contrast to Foreign Direct Investors (FDI).
  • FPIs generally participate through the stock markets and gets in and out of a particular stock at much faster frequencies. Short term view is associated often with lower stake in companies. Hence, globally FPIs are defined as those who hold less than 10% in a company.
  • In India, the hitherto existing closest possible definition to an FPI was Foreign Institutional Investor.

Features of FPI:

  • Portfolio Investment by any single investor or investor group cannot exceed 10% of the equity of an Indian company, beyond which it will now be treated as FDI.
  • FPIs are not allowed to invest in unlisted shares. In respect of those securities, where FPIs are not allowed to invest no fresh purchase shall be allowed as FPI. They can only sell their existing investments in such securities.
  • However, an exception has been made by permitting them to invest in unlisted non-convertible debentures/bonds issued by an Indian company in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant External Commercial Borrowings (ECB) guidelines;
  • FPIs are permitted to invest in Government Securities with a minimum residual maturity of one year. However, FPIs have been prohibited from investing in T-Bills. FPI can invest in privately placed bonds if it is listed within 15 day.
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