General Awareness

April 04, 2017 @ 01:15 PM

April 04, 2017 @ 01:15 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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How does a FII inflow impact Indian market?

MBA Aspirants are expected to know the current trends of country’s economy. Often FII inflow is indicated as one of the crucial market impact. This general awareness article on FII will help you to understand the scenario.
Read:  How does a FII inflow impact Indian market?
FII stands for Foreign Institutional Investors. FIIs are investors in the form of organizations or big firms that invest in countries apart from the country where the organization’s headquarters are based. These organizations or firms generally include big banks, mutual funds etc. The FIIs play a major role on the economy of any country. Foreign organizations were not allowed to invest in India until 1991.
Today, in India, over 1450 Foreign Institutional Investors are registered with the market regulator SEBI. When investors are from all classes, the market performance begins to expand. FIIs also act as a catalyst which boosts the growth of the financial market under a self-organized system. FIIs in India are largely constituted by the foreign mutual funds. 
There are three advantages to the FIIs investing in the mutual funds. Firstly, Foreign Institutional Investors themselves are a huge asset considering the exchange rates of Indian Rupee with several other nations. Second advantage is that one can diversify his or her portfolio with a larger asset basket. 
Constant assistance is provided by a fund manager who can fetch information from his or her analysts and brokers helps to broaden your horizons in terms of portfolio. Third advantage is that, because SEBI has a tight and strict regulatory framework, the governance structure will be very tighter and stronger.
Consider a FII from the United States of America. The funds corpus that they have is close to $1.5 trillion. The market regulator in the United States of America allows its citizens to invest outside their country. Suppose that they invest a 10% of their funds corpus in other nations where there is emerging market. This is a huge investment that will contribute and make a very big difference to our nation’s economy apart from benefitting the other investors too.
Having investors from all over the globe is a big asset to India. Most countries view the Indian market as the most prominent emerging markets when compared to the markets of many other nations. There has been a tremendous growth in the economy of India after allowing the Foreign Institutional Investors invest in the Indian market. 
Fund flow is nothing but, FIIs investing their money in our country’s markets. Fund flows in India for the last 7 to 8 years has been considerable huge. It is estimated that approximately, a minimum of $25 billion is invested by the Foreign Institutional Investors in the Indian market. 
In general, a global fund manager has to look at a various things. This includes the interest rate in the home country and in the competing emerging markets. Considering how the emerging markets elsewhere are making progress, a global fund manager has to evaluate the rates in India. 
Other driving factors for growth of the economy are the government, economy and other macro factors. All fund flows cannot be a growth to the economy of the nation, either. There will be inflow of funds that can determine a raise in the economy. 
Some funds don’t raise the economy of a nation. In totality, the local mutual funds, local investors are driving little efforts in contributing to the nation’s economical growth. It is the Foreign Institutional Investors that is contributing a major portion to the economy of India.
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