India's exceptional growth story and its booming economy have made the country a favourite destination with foreign institutional investors (FIIs). It has continued to attract investment despite the Satyam non-governance issue and the global economic contagion impact on Indian markets.
The INSTANEX FII INDEX in India launched by Instanex Capital Consultants Pvt. Ltd., Mumbai, tracks the price performance of the portfolio of listed Indian equity shares owned by FIIs. The Index comprises of the top 15 companies by value of FII holdings. Reviews are conducted quarterly and companies are deleted from the Index if they are not among the top 20 FII holdings. According to the Index, in March, FIIs have increased their investing activity and out of the 15 components, 13 showed the heightened interest of the FIIs.
According to Mr Gautam Chand, CEO of Instanex, said FIIs are the largest institutional investors in India with holdings valued at over US$ 751.14 billion as on December 31, 2008. "They … determine the direction of the market. They are also the most successful portfolio investors in India with 102 per cent appreciation since September 30, 2003.
According to the data given by the Securities and Exchange Board of India (SEBI), the FII investments in equities as on March 17, 2009 stood at US$ 50950.20 million and in debts, equalled US$ 6541.50 million at exchange rate of 1 USD = 40.34 INR. As per SEBI, number of registered FIIs stood at 1626 and number of registered sub-accounts stood at 4972 as on March 17, 2009.
As many as 330 FIIs have registered with SEBI since January 31, 2008, taking the total number of FIIs in India to 1,609 as on January 31 this year. Even the FII sub-accounts have gone up over 30 per cent to 4,938 compared with 3,795 in January last year. In fact, this year, 45 new FIIs have registered with SEBI, according to data given by the regulator. Majority of these FIIs are from the US and Europe. There are also FIIs based out of Mauritius. FIIs that have registered those from other countries include Canada, the UAE, Japan, Australia, Taiwan and Singapore. Some pension funds also feature in the list of the FIIs that have registered in 2009. Among them are Llyods TSB Pension Trust, Stagecoach Group Pension Scheme and Trustees of The Mine Workers Pension Scheme from UK. 30 new FIIs and 104 new sub-accounts had registered till February last week in 2009.
FII holdings in Indian markets reached US$ 88 billion in December 2008, according to the Bombay Stock Exchange Chairman, Mr Jagdish Capoor. Since then, foreign institutional investors (FIIs) have started looking at India as an attractively-valued market despite the Satyam scandal.
Some of the FIIs such as Citi and Macquarie have increased the weightage for India, while Credit Suisse has said that the Indian market can go up by 30-40 per cent in 2009. This weightage helps investors decide the markets to invest. Generally, FIIs decide their allocations for the year in January.
Debt instruments (government securities, commercial papers, and corporate bonds) attracted US$ 426.18 million in first 11 trading sessions of 2009 from FIIs. FIIs have been finding investment in debt a more attractive proposition than equity.
Seventy eight private equity players expected to raise US$ 24 billion in 2009 for investing in India—thrice that of last year—when 30 private equity players raised US$ 9.2 billion, according to a Preqin research report. This also includes real estate funds. Meanwhile, 117 Pan-Asian private equity (PE) players—with India as focus—aim to raise funds worth US$ 59 billion, says UK-based Preqin, an alternative assets research and consultancy group.
According to the Preqin report, PEs including Macquarie State Bank of India Infrastructure Fund with US$ 1,500 million, Trump Organization India Fund and Walton Street Capital India Fund I with US$ 1,000 million investment each in real estate sector are some recent notable examples.
According to C G Srividya, Partner, Specialist Advisory Services, Grant Thornton, "In 2008, PE investments in India was close to US$10 billion, but the total amount raised for 2008 would be 2-3 times of what has been invested. Besides, India is a growth story while everywhere else, there is recession."
Earlier, cash as a percentage of total assets under management (AUM) was just above 6 per cent in January 2008 and rose to 18 per cent in November 2008.
On March 16, 2009, 24 bidders were allocated investments of US$ 5.8 billion, the highest ever investment allocation by FIIs in India as compared to the net investment of FIIs in 2008 of US$ 2.39 billion. Since January 2009, FII's net investment in debt instrument has declined by US$ 125.4 million due to impact of the global slowdown. As per the Securities and Exchange Board of India (SEBI), US$ 8 billion was available for allocation to FIIs and their sub-accounts in an open bidding platform.
Standard Chartered Bank got the maximum bids of US$ 1.05 billion, followed by Barclays Bank US$ 998.81 million, Kotak Mahindra UK US$ 818.86 million and Deutsche Bank International Asia US$ 700.14 million, and JP Morgan Chase Bank, US$ 532.5 million. The bids have to be executed in the next 45 days. According to market experts, this bidding should kick off a sound FII investment trend in the near future, as the US markets continue to weaken and yields of Indian public sector units (PSU) and corporate debt papers remain attractive. FIIs will invest in attractive PSU bonds floated by quasi-government entities like Power Finance Corporation and Rural Electrification Corporation.
Investment banks (i-banks) are now looking at smaller venture capital deals in the US$ 2 million – US$ 7 million range. i-banks are now willing to work on lower margins. Venture capital firms say the number of deals they are getting from i-bankers currently has gone up significantly. According to Sachin Maheshwari, principal at Draper Fisher Jurvetson, only 2-3 out of 10 deals came from i-bankers earlier, but about 5-6 currently come through this route. Further, as per deal tracking firm, Venture Intelligence, there were 82 PE deals worth US$ 1.4 billion from October 2008-February 2009.
