Foreign Institutional Investors In India

FIIForeign capital flows have come to be acknowledged as one of the significant sources of funds for economies that would like to raise at a rate higher than what their domestic savers can support. The Investment by FIIs have been registering a stable growth since the opening of the Indian capital markets in September 1992.

That this trend has come to stay is evident from the fact that the FIIs investment in equity and debt markets amounted to Rs.130 billion in the first quarter of calendar 2004, nearly 447% higher than Rs.24 billion in the corresponding period of calendar 2003. Equity Investments by FII’s amount to Rs.112 billion between January and March 2004 as Compared with Rs.16.9 billion in the corresponding period last year. The equity investment by FIIs in the first quarter of calendar 2004 are close to 50% of the whole equity investments worth Rs.244 billion made in the year 2003. In 1991 India was again hit by a very serious political and economic crisis compared to that of 1966. Foreign exchange reserves decreased to a level which is sufficient for only two weeks of imports and India faced a debt crisis.

Then India Introduced a New Economic policy guided by the IMF and the World Bank. The main features of the New Economic policy consisted of stabilization with deregulation, privatization,liberalization and globalization. Though the FIIs flows to India have been almost positive, they have also been negative during the periods of external shock or a domestic political uncertainty.

For example, the literature survey elaborates that the FIIs flows turned negative in September 2001 following the 9/11 terrorist attacks. Another example was nuclear tests in May 1998. With the help of FIIs Investment the foreign Exchanges reserves increased rapidly.

Oil price is one of the main factors affecting Indian economy as well as Indian stock markets. The price of oil going forward, we cannot control the rupee depreciation. We can observe the last few years some kind of stable equilibrium between the rupee and the dollar has been achieved and, while there clearly will be some volatility, dramatic changes in the exchange reserves are unlikely. The probability of an exchange rate shock exacerbating the impact of high oil prices is relatively low and India is not exposed to price risks to a greater extent than the world economy.

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