Context:
FPIs have net sold Indian equities worth about $5.73 billion, putting pressure on the rupee and domestic equity markets.
About Foreign Portfolio Investors (FPIs):
- Definition: As per SEBI (Foreign Portfolio Investors) Regulations, 2019, FPIs are foreign entities investing in financial assets without management control.
- 10% Rule: Holding below 10% of a listed company’s paid-up equity; beyond this it is treated as FDI.
- Nature: Highly liquid portfolio investment (“hot money”), often volatile.
- Categories of Investors:
- Category I: Government entities, central banks, sovereign wealth funds, multilateral agencies.
- Category II: individual foreign investors, Regulated funds, endowments, charities and corporate bodies.
Factors Affecting FPI Flows (India):
- Inflows Increase When: Strong GDP growth and corporate earnings, Indian interest rates higher than global rates, stable or appreciating rupee, stable fiscal deficit and current account deficit, predictable regulatory and tax environment, and favourable global market sentiment.
Outflows Increase When: Economic slowdown, rise in US/global interest rates, rupee depreciation, widening fiscal deficit or current account deficit, policy uncertainty or higher taxes, and global geopolitical or financial shocks.
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