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7. Foreign Investments in India

Introduction
From 1992, foreign institutional investors (FIIs) have been allowed to invest in all securities traded on the primary and
secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed
on the stock exchanges in in India and in schemes floated by domestic mutual funds. Foreign Institutional Investors (FIIs)
registered with SEBI are eligible to purchase shares and convertible debentures issued by Indian companies under the
portfolio investment scheme (PIS). In the Budget 2011-I2, the Government of India, for the first time, permitted qualified
foreign investors (QFIs), who meet the KYC norms, to directly invest in Indian equity mutual fund (MF) schemes and
in MF debt schemes that invest in infrastructure. It was for the first time that this new class of investors was allowed to
directly participate in the Indian capital market. In January 2012, the Government expanded this scheme to allow QFIs
to directly invest in Indian equity markets. In the budget 2012-13, Government announced its intention to permit QFIs
to invest in corporate bonds in India. This chapter discusses the investments and purchases of FIIs and private equity.

Foreign Institutional Investors (FIIs)

The monthly trend in FII investments in 20112012 (depicted in Table 7-1) shows that the net FII investments were
negative for certain months such as May 2011, August 2011, September 2011 and November 2011. In February 2012,
the net investment of ` 352,280 million (US $ 7,164) by FIIs was the highest monthly net investment in 2011-12. The
total net investment by FIIs in 2011-12 stood at US $ 18,923 million, and it dried up in the first half of 2012-13 at
US $ 8,020 million.
Table 7-1: Trends in FII Investment
Period

Gross Purchases
(` mn)

Gross Sales
(` mn)

Net Investment
(` mn)

2000-01

740,506

641,164

99,342

2,159

13,396

2001-02

499,199

411,650

87,549

1,846

15,242

2002-03

470,601

443,710

26,891

562

15,804

2003-04

1,448,575

990,940

457,635

9,949

25,754

2004-05

2,169,530

1,710,730

458,800

10,173

35,927

2005-06

3,449,780

3,055,120

394,660

9,334

45,261

2006-07

5,205,090

4,896,680

308,410

6,709

51,967

2007-08

9,480,196

8,389,304

1,090,892

16,040

68,006

-458,110

-11,356

56,650

2008-09

6,145,810

6,603,920

Net Investment
(US $ mn)

Cumulative Net
Investment
(US $ mn)

Contd.

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Contd.
Period

Gross Purchases
(` mn)

Gross Sales
(` mn)

2009-10

8,464,400

7,037,810

2010-11

9,925,990

Apr-11

Net Investment
(US $ mn)

Cumulative Net
Investment
(US $ mn)

1,426,580

30,253

89,333

8,461,610

1,464,380

32,226

121,561

767,320

695,360

71,960

1,616

123,175

May-11

770,460

813,220

-42,760

-948

122,227

Jun-11

806,240

757,410

48,830

1,083

123,310

Jul-11

772,180

665,660

106,530

2,399

125,709

Aug-11

695,900

774,930

-79,030

-1,766

123,943

Sep-11

648,680

667,350

-18,660

-342

123,600

Oct-11

644,110

613,320

30,790

634

124,235

Nov-11

622,960

655,590

-32,630

-586

123,649

Dec-11

920,200

701,470

218,730

4,195

127,844

Jan-12

765,480

502,200

263,280

5,087

132,930

Feb-12

1,036,340

684,060

352,280

7,164

140,095

Mar-12

762,980

745,050

17,930

387

140,482

9,212,850

8,275,620

937,250

18,923

140,482

Apr-12

504,250

553,220

-48,970

-927

139,555

May-12

598,000

565,780

32,220

597

140,152

Jun-12

634,750

622,950

11,800

209

140,361

Jul-12

675,200

538,560

136,640

2,463

142,824

Aug-12

599,510

488,820

110,690

1,996

144,820

Sep-12

829,694

630,857

198,840

3,682

148,502

3,841,397

3,400,172

441,234

8,020

148,502

2011-12

Apr-Sep '12

Net Investment
(` mn)

Source: SEBI

Number of Foreign Institutional Investors (FIIs)

The net addition in the SEBI-registered FIIs failed to keep up the momentum that was seen in 20072008 and
20082009, where 322 and 316 FIIs, respectively, were added. There was a net addition of 43 SEBI-registered FIIs in
20112012, which took their total number to 1,765 at the end of March 2012, compared to that of 1,722 at the end of
March 2011 (Chart 7-1).

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Chart 71: Number of FIIs and Net Investments

Source: SEBI

Foreign Institutional InvestmentsEquity and Debt

In 20112012; the net FII investments in equity fell by 60.3 percent from last year to ` 437,380 million. (Table 7-2)
The net investments by FIIs in the debt segment grew by 37.6 percent in 20112012 with a staggering all-time high of
` 217,750 million, compared to ` 363,190 in 20102011. During AprilSeptember, 2012, the FIIs made net investments
worth ` 57,428 million in debt while net investments of ` 383,806 million were made in equity in the first half of
20122013.
Table 7-2: Net Investments by FIIs in Equity and Debt
Year

FIIs
Net Investment
in Equity
(` mn)

Net Investment
in Debt (` mn)

Net Investment
in Equity
(US $ mn)

Net Investment
in Debt
(US $ mn)

2001-02

80,670

6,850

1,653

140.37

2002-03

25,280

600

532

12.63

2003-04

399,590

58,050

9,209

1,338

2004-05

441,230

17,590

10,085

402

2005-06

488,010

-73,340

12,209

-1,835

2006-07

252,370

56,070

5,790

1,286

2007-08

534,038

127,753

13,361

3,196

2008-09

-477,070

18,950

-9,363

372

2009-10

1,102,200

324,380

24,417

7,186

Contd.

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Contd.
Year

FIIs
Net Investment
in Equity
(` mn)

2010-11

Net Investment
in Debt (` mn)

Net Investment
in Equity
(US $ mn)

Net Investment
in Debt
(US $ mn)

1,101,207

363,190

24,663

8,134

Apr-11

72,130

-170

1,410

-3

May-11

-66,140

23,380

-1,293

457

Jun-11

45,720

3,110

894

61

Jul-11

80,300

26,230

1,570

513

Aug-11

-108,340

29,310

-2,118

573

Sep-11

-1,580

-17,070

-31

-334

Oct-11

16,770

14,010

328

274

Nov-11

-41,980

9,350

-821

183

Dec-11

980

217,750

19

4,257

Jan-12

103,580

159,710

2,025

3,122

Feb-12

252,120

100,160

4,928

1,958

Mar-12

83,810

-65,890

1,638

-1,288

2011-12

437,380

499,880

8,550

9,772

Apr-12

-11,091

-37,875

-203

-694

May-12

-3,471

35,691

-64

654

Jun-12

-5,013

16,818

-92

308

Jul-12

102,727

33,917

1,881

621

Aug-12

108,039

2,652

1,979

49

Sep-12

192,615

6,225

3,528

114

Apr-Sep '12

383,806

57,428

7,029

1,052

Source: SEBI

FII Turnover Equity and Derivatives

Equity Market
The gross turnover of FIIs in the equity market segment on the Indian stock exchanges (the NSE and the BSE) accounted
for ` 12,324,747 million in 20112012, which marked a year-on-year fall of 14 percent. The total turnover of the FIIs in
the equity market constituted 17.7 percent of the total turnover on the BSE and the NSE in 20112012, an improvement
from 15.3 percent recorded in 20102011 (Table 7-3 and Chart 7-2).

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Table 7-3: Gross Turnover of FIIs in Equity Market Segment of NSE and BSE
Year

Buy Value Buy Value Sell Value Sell Value

(` mn)
(US $ mn)
(` mn)
(US $ mn)

Gross
Turnover of
FIIs
(` mn)

Gross
Total
Total
Turnover
Turnover
Turnover
of FIIs on Exchanges
on
(US $ mn)
(` mn)
Exchanges
(US $ mn)

Percent
of FII
turnover
to total
turnover
on
Exchanges

2006-07

4,550,232

104,387 4,595,466

105,425

9,145,698

209,812

57,946,240 1,329,347

15.8

2007-08

8,329,655

208,398 8,705,790

217,808

17,035,445

390,811

102,515,340 2,564,807

16.6

2008-09

5,396,976

105,927 6,129,276

120,300

11,526,252

226,227

77,037,880 1,512,029

15.0

2009-10

6,568,931

145,524 6,181,265

136,935

12,750,197

282,459

110,336,640 2,444,321

11.6

2010-11

7,715,649

172,803 6,614,442

148,140

14,330,091

320,943

93,648,740 2,097,396

15.3

2011-12

6,269,806

122,561 6,054,941

118,361

12,324,747

240,922

69,558,313 1,359,716

17.7

Apr-Sep '12

2,878,897

52,727 2,555,099

46,797

5,433,995

99,524

30,669,358

17.7

561,710

Source: NSE

Derivative Market
The FII gross turnover in the F&O Segment of the NSE in 20112012 was ` 90,607,826 million, which was 14.5
percent of the turnover of the derivatives market (` 313,492,317 million) at the NSE. The share of the FIIs gross turnover
increased to 16.2 percent of the derivatives turnover on the NSE during the first half of 20122013 (Table 7-4 and
Chart 7-2).
Chart 72: Percentage of FII Turnover in Equity and
Derivative Segments of Stock Exchanges

Source: NSE

Offshore Derivative Instruments (ODIs)

Offshore derivative instruments include participatory notes, equity-linked notes, capped return notes, investment notes,
and similar instruments issued by FIIs/sub-accounts outside India against their underlying investments in India, that are
listed or are proposed to be listed on any stock exchange in India.

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47,880,785

58,338,152

68,934,646

114,061,171

178,302,194

94,989,891

2007-08

2008-09

2009-10

2010-11

2011-12

Apr-Sep'12

24,584,747

45,715,596

31,853,782

17,519,697

10,165,351

12,633,510

6,484,665

Amount
(` mn)

Buy Side

6,360,392

Amount
(` mn)

9,680,224

67,561,143 17,252,480

55,464,681

46,078,979 12,401,616

19,659,868

No. of
contracts

450,270

93,014,556 24,113,078

893,642 174,737,062 44,892,230

713,411 108,896,036 30,518,144

388,119

199,516

316,075

148,765

Amount
(US $ mn)

Sell Side

Note: The data for FII turnover is only the data of NSE which is reported to SEBI.
Source: NSE

20,215,981

No. of
contracts

2006-07

Year

Table 7-4: FII Turnover in F&O Segment of NSE

441,631

877,547

683,497

382,199

189,995

310,273

145,914

Amount
(US $ mn)

188,004,447

353,039,256

222,957,207

136,495,789

113,802,833

93,959,764

39,875,849

Gross No.
of contracts
traded

48,697,825

90,607,826

62,371,926

34,772,177

19,845,575

25,035,126

12,845,058

Amount
(` mn)

891,902

1,771,189

1,396,908

770,319

389,511

626,348

294,679

Amount
(US $ mn)

Gross Turnover of FIIs

300,901,333

626,994,635

584,964,421

353,273,294

220,209,643

261,809,559

147,124,840

F&O
Turnover on
NSE
(` mn)

16.2

14.5

10.7

9.8

9.0

9.6

8.7

Percent
of FII
turnover to
total
F&O
turnover
on NSE

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Participatory notes are the most common type of ODIs. The PNs are instruments used by foreign funds that are not
registered in the country for trading in the domestic market. They are a derivative instrument issued against an underlying
security that permits the holder to share in the capital appreciation and income from the underlying security.
As of March 2012, the total value of PNs with underlying Indian securities as a percentage of assets under custody
of FIIs has further deteriorated to 15 percent from 15.8 percent in March 2011 and 16.1 percent in March 2010.
(Table 7-5).
Table 7-5: Total Value of Participatory Notes compared to Assets Under Management of FIIs
Month

*Total Value of
PNotes on Equity
and Debt with
Underlying Indian
securities (A)
(` mn)

*Total Value
of PNotes with
Underlying Indian
securities
(US $ mn)

#Assets Under
Custody of FIIs (B)
(` mn)

#Assets Under
Custody of FIIs
(US $ mn)

A as percent of B

Mar-06

1,548,630

35,284

4,536,360

113,494

34.1

Mar-07

2,428,390

55,329

5,470,100

125,490

44.4

Mar-08

2,508,520

57,155

7,367,530

184,326

34.0

Mar-09

694,450

15,823

3,919,540

76,929

17.7

Mar-10

1,450,370

33,046

9,008,690

199,572

16.1

Mar-11

1,750,970

39,895

11,065,500

247,828

15.8

Apr-11

1,664,440

37,923

11,067,180

216,340

15.0

May-11

2,111,990

48,120

10,819,960

211,507

19.5

Jun-11

1,532,910

34,926

10,863,880

212,366

14.1

Jul-11

1,504,140

34,271

10,770,960

210,549

14.0

Aug-11

1,522,880

34,698

9,858,930

192,721

15.4

Sep-11

1,752,910

39,939

9,791,640

191,406

17.9

Oct-11

1,800,020

41,012

10,255,300

200,469

17.6

Nov-11

1,790,350

40,792

9,380,980

183,378

19.1

Dec-11

1,387,110

31,604

9,179,300

179,436

15.1

Jan-12

1,576,970

35,930

10,431,300

203,910

15.1

Feb-12

1,831,510

41,730

11,156,480

218,085

16.4

Mar-12

1,658,320

37,784

11,073,990

216,473

15.0

Apr-12

1,300,120

29,622

10,939,550

200,358

11.9

May-12

1,288,950

29,368

10,405,470

190,576

12.4

Jun-12

1,298,510

29,586

10,903,590

199,699

11.9

Jul-12

1,295,860

29,525

10,964,920

200,823

11.8

Aug-12

1,417,100

32,288

11,138,940

204,010

12.7

Sep-12

1,466,000

33,402

12,191,630

223,290

12.0

* Figures compiled based on reports submitted by PNote issuing FIIs.

# Figures compiled based on reports submitted by custodians.
Source: SEBI

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Share of FIIs in NSE-Listed Companies

The FII ownership of shares in the various sectors of NSE-listed companies is depicted in Table 7-6. At the end of March
2012, FIIs held the highest stake of 15.9 percent in the banking sector, followed by FMCG and finance (9.4 percent and
8.4 percent, respectively). The total percentage of shares held by FIIs across different sectors was 6 percent of the total
shares of the companies listed on the NSE as at the end of March 2012.
Table 7-6: FII Share in Different Sectors of Companies Listed on NSE

Sectors
Banks

(in percent)
Mar-12
15.9

Engineering

5.1

Finance

8.4

FMCG

9.4

Information Technology

7.3

Infrastructure

5.9

Manufacturing

4.8

Media & Entertainment

5.8

Petrochemicals

4.5

Pharmaceuticals

6.2

Services

5.4

Telecommunication

5.7

Miscellaneous

6.1

Total stake of FIIs in all the Sectors

6.0

Source : NSE

Private Equity (PE) Investments in India

Growth in PE deals in India
The PE investments gained momentum in the late nineties with the growth of Indian IT companies and with the
simultaneous global dot-com boom. Following the global IT boom, the Indian IT sector was viewed as a prominent
funding opportunity, and consequently, saw a lot of venture capital coming into the country.
According to the Grant Thornton Report, 2011, there were 373 PE deals worth US $ 5 billion (Chart 7-3) in 2012.
However, in value terms, the PE deals showed a year-on-year decline of 18.1 percent. According to Emerging Market
Private Equity Association (EMPEA), in India, the PE investment as a percent to GDP fell to 0.3 percent in 2011 from
0.4 percent in 2010.

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Chart 73: Private Equity Deals in India

Source: Grant Thornton, 2011

PE Fundraising / Investments in BRIC Countries

According to the data reported by the Emerging Markets Private Equity Association (EMPEA) in August 2012, among
the BRIC economies, China and Brazil were seen to be the most preferred destination for private equity players in 2011
compared to last year when India was a preferred destination. In 2011, fundraising by private equity in China and Brazil
was US $ 16,619 million and US $ 7,079 million, respectively. However, Russia saw a decline in the PE fundraising
by around 83.5 percent in 2010. Other than India, all countries saw a significant spurt in the PE fundraising in 2010
(Table 7-7)
Table 7-7: Private Equity Fund Raising in BRIC Countries
Year

(in US $ mn)

Brazil

Russia

India

China

2001

323

375

259

152

2002

270

100

142

105

2003

230

175

236

213

2004

480

200

706

311

2005

158

1,254

2,741

2,243

2006

2,098

222

2,884

4,279

2007

2,510

1,790

4,569

3,890

2008

3,589

880

7,710

14,461

2009

401

455

3,999

6,617

2010

1,078

75

3,268

7,509

2011

7,079

135

2,737

16,616

675

82

1,225

3,977

2012 (Jan - Jun)

Source: Emerging Market Private Equity Association (EMPEA), August 2012

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In 2011, China saw an increase of 14.6 percent in PE investments, followed by Russia where PE investments rose by
4.2 percent. In contrast to the fundraising scenario in Brazil, the PE investments fell by 46.5 percent, while India saw a
minor fall of 0.8 percent in investments. (Table 78).
Table 7-8: Private Equity Investments in BRIC Countries
Year

(in US $ mn)

Brazil

Russia

India

China

2001

281

77

320

1,575

2002

261

127

40

126

2003

321

113

456

1,667

2004

120

240

1,272

1,389

2005

474

240

1,377

2,991

2006

1,342

402

5,687

8,200

2007

5,285

805

9,905

9,458

2008

3,020

2,647

7,483

8,994

2009

989

217

4,011

6,288

2010

4,604

1,516

6,222

9,190

2011

2,461

1,579

6,172

10,529

2012 (Jan - Jun)

1,271

639

1,571

3,962

Source: Emerging Markets Private Equity Association (EMPEA), August 2012

NRI Investments
The NRI turnover data at the NSE is depicted in Table 7-9. The NRI turnover at the cash market of the NSE registered a
year-on-year decline of 8.3 percent in 2011-2012,and stood at ` 97,386 million. In the derivatives market of the NSE, the
total NRI turnover stood at ` 159,005 million in 2011-2012, a year-on-year growth of 43.2 percent over 20102011.
Table 7-9 : NRI Turnover at NSE
Year

Cash Market Gross

Turnover
(` mn)

Cash Market Gross

Turnover
(US $ mn)

Derivatives Market
Gross Turnover
(` mn)

2007-08

85,443

2,138

39,464

987

2008-09

50,161

985

30,190

593

2009-10

103,546

2,294

42,646

945

2010-11

106,180

2,378

111,052

2,487

2011-12

97,386

1,904

159,005

3,108

Source: NSE

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Derivatives Market
Gross Turnover
(US $ mn)