There has been a lot of media attention on the inflows and outflows of FIIs. These seem to drive some set of investors into buy and sell frenzies. This article evaluates the impact of FII Flows in Indian Equities.
Structure of Capital Markets
Capital markets of any country are the sum total of all buy and sell actions of all its participants. There are 3 broad categories of participants in the markets.
- Retail investors
- Domestic Institutional Investors
- Foreign Institutional Investors
Foreign Institutional Investors (FIIs) also called Foreign Portfolio Investors (FPIs) form a significant investor category on the Indian markets. FII ownership forms 18.5% of the overall market cap (as of June 2022). Foreign investors’ investment in India is, as a part of their overall Emerging Market (EM) portfolio.
FII Flows in Indian Equities and other Emerging Markets
Emerging markets are generally developing countries with high growth rates. The growth rates of developed economies is generally subdued due to the nature of their mature economies. They seek and get higher returns from their investments in EMs. BRIC countries – Brazil, Russia, India, China are examples of emerging market economies.
The FII investment trends depend on a lot of factors, but primarily:
- the global economy,
- economic outlook of the country of the institutional investor and
- economic outlook of the market where the investment is targeted
Continue reading this on the Jama Wealth Insights blog – FII Flows In India