CURRENT AFFAIRS
CURRENT AFFAIRS
Description
For the first time in four months, Foreign Institutional Investors (FIIs) emerged as net buyers in the Indian stock market in April 2025, bringing in Rupees 4,223 crore. This marks a positive shift in foreign investor sentiment toward Indian equities.
Understanding FIIs
FIIs are a specific category within the broader group of Foreign Portfolio Investors (FPIs). These entities typically include large-scale financial institutions such as mutual funds, hedge funds, insurance firms, and pension funds. They invest strategically and systematically in overseas financial markets, playing a vital role in providing long-term capital to developing economies like India.
Despite their benefits, sudden and large-scale FII outflows can disrupt financial stability in domestic markets, which is why such investments are closely monitored by regulators.
Regulatory Oversight Of FIIs In India
FIIs operate under a regulatory framework involving multiple authorities:
Foreign Exchange Management Act (FEMA), 1999
Securities and Exchange Board of India (SEBI) via the Foreign Portfolio Investors Regulations
Reserve Bank of India (RBI), which enforces sectoral limits on foreign investment
Investment Limits And Eligibility Criteria
FIIs are allowed to hold up to 10% equity in a single Indian company, though the combined holding by FIIs, NRIs, and PIOs is capped at 24% unless increased with shareholder approval.
Entities eligible for FII status now include not just traditional funds but also university endowments, charitable organizations, and trusts, provided they have operated for at least five years. Additionally, FIIs are permitted to invest in unlisted securities and can utilize proprietary capital for such investments.
Macroeconomic Factors Driving Renewed FII Inflows
A significant driver of renewed FII interest is the recent weakening of the U.S. Dollar Index, which has dropped from the 104–105 range to around 99–100. This shift has enhanced the competitiveness of the Indian rupee, making Indian assets more attractive to global investors.
Moreover, the Reserve Bank of India’s accommodative policy stance and a stable macroeconomic environment have bolstered confidence, particularly in sectors such as banking, financial services, and insurance (BFSI).
However, FIIs have scaled back investments in the IT sector due to fears of a potential economic slowdown in the U.S., which could impact technology company earnings.
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