FPI definition

Financial asset.. investment in equity debt etc.

Difference b/w FPI and FDI

FII v FPI

Rupee r.ship

RBI steps to control it

Under the SEBI FPI Regulations, 2014, Foreign Institutional Investors (FIIs), sub accounts and Qualified
Foreign Investors (QFIs) were merged into a single category, referred to as FPIs. Regulation 21 of the FPI
Regulations provides a list of securities in which FPIs are permitted to access and invest. This path breaking
Regulation ushers significant and positive changes in accessing the Indian Capital Markets by foreign investors.

In 1992, the Indian government allowed the foreign investors to invest in the financial

markets of the country.
Regulated by SEBI, the FPI regime is a route for foreign investment in India.
The FPI regime came as a harmonised route of foreign investment in India, merging the two
existing modes of investment, that is, Foreign Institutional Investor ('FII') and Qualified
Foreign Investor ('QFI')

Reason for high fpi in india

the FPI investment is not only for India but for other emerging markets too. It first started with
developed markets, which were outperforming initially. In the last three months, emerging
markets like India have outperformed others. This is more to do with the risk-all strategy of
FIIs,” Vinod Nair, Head of Research, Geojit Financial Services, told Financial Express
Online. Momentum has increased for these investments because they see growth potential
in markets like India with the re-opening of the economy
US Stimulus: Further, the high scale printing of the US dollar is another motivation to drive
the migration of foreign investors towards EMs like India. “The United States is printing
money on a continuous basis and that is why money is flowing into India or probably the
world markets,” Vishal Wagh, Head of Research Bonanza Portfolio had told Financial
Express Online. The United States Federal Reserve has printed nearly $3 billion in a little
over 3 months to offset the economic fallout of the coronavirus pandemic
Valuation: Current valuations are also considered to be one of the factors attracting FPI
investors towards India. “Liquidity has driven the rally globally and in India. Additionally, it is
important to note that if we take the weight of Reliance Industries away from NIFTY 50, the
nifty levels will be much lower, and valuations are attractive. Finally, the results so far have
been above expectations as consensus view was that 1QFY21 will be a washout,” Arjun
Yash Mahajan, Head – Institutional Business at Reliance Securities, told Financial Express
Online
Global investors are preferring to invest in emerging markets more than developed markets as the potential
upside is much higher in emerging markets
Categories of FPI (for investments into India)

Earlier, FPI was divided into three categories, on the basis of their risk profile.

– Category I or low-risk: This kind of FPI includes government/government-related

establishments like central banks and international agencies among others. An
example could be a sovereign wealth fund or an SWF which is a fund owned by the
state or its divisions. 

– Category II or moderate-risk: This includes mutual funds, insurance firms, banks,

and pension funds among others. 

– Category III or high-risk: This type of foreign portfolio investment includes all other
FPIs that don’t fall into the first two categories. They could include charitable
organisations such as trusts or societies, endowments or trusts among others. 

However, as per a new notification in the second half of 2019, SEBI has sought to
reclassify the categories and simplify norms. Accordingly, FPIs would come under
two categories. All those entities or funds that were earlier registered as Category III
are now Category II, accordingly, and the Category I is a mix of the earlier Category I
and II.

What are the benefits or foreign portfolio investment?

– Foreign portfolio investments boost demand for stock of companies and help them
when it comes to raising capital at low costs. 

– The presence of FPI would mean a significant rise in the depth of the secondary
market. 

– From the investor’s perspective, it helps an investor add more diversity to their
investments and benefit from such a diversification. 

– Investors can also gain the benefit of exchange rate changes. 

– Overseas markets provide investors a chance to a bigger market that may also
sometimes not be as competitive as their home market. This means they benefit
from the lower competition in a foreign country. 

– A huge advantage of FPI is that it is liquid, ensuring that the investor is empowered
and can move fast when there are good opportunities. 

However, on certain occasions, FPI may come with some disadvantages. 

– To the country receiving FPI, ie, the host, the unpredictability of such investments
would mean a constant shift between markets over short periods. This gives rise to
some amount of volatility. 
– A sudden withdrawal of FPI could make an impact on the exchange rate. FPI may
be risky at certain occasions, ie, when there is political instability in a country. 

In conclusion

Foreign portfolio investments are investments made by those interested in

diversifying their portfolios by investing in shares, bonds, mutual funds or other
assets/securities in a foreign country. Typically, growing economies with a lot of
scope for growth see greater FPIs. FPI is significant because it drives the stock
markets and boosts the liquidity of capital markets of the host country. Now that you
know what is FPI, you could consider investing in a foreign economy and make your
investments more diverse and benefit from international credit and exchange rates