The number of registration of foreign institutional investors (FIIs) has slowed down this fiscal compared to previous years. The addition in the number of sub accounts has also witnessed a decline.
According to Sebi data, from April 2009 to February 2010, there was an addition of only 82 FIIs over the previous fiscal. Compare this with 307 that were added in FY09 over the previous fiscal. The number of sub-accounts added from April 2009 to February 2010 was 463 compared with 1003 in FY09 and 1042 in FY08 over the corresponding previous fiscals.
One reason behind the trend could be that FIIs are finding other emerging markets more attractive. “India has given good returns in the last one year. But it has been lagging some emerging markets such as Korea, Taiwan, Brazil and Russia in the last six months,” said Andrew Holland, CEO – equities, Ambit Capital.
Introduction of stricter norms by market regulator Sebi could be another deterrent for FIIs entering India, say experts. For instance, in December 2009, Sebi banned UK-based Barclays Bank from issuing participatory notes after it was found violating client identity disclosure requirements.
More recently, it had asked entities seeking FII or sub-account registration to disclose whether they are a multi-class share vehicle (MCV) or a segregated portfolio company and if they maintain segregated or common portfolio for different class of shares. An MCV is a structure where investors in each class have separate contractual agreement with regard to their liabilities. The move is aimed at preventing money laundering and round tripping, besides identifying the ultimate beneficiary to whom the securities of Indian firms are issued.
Experts say besides the US, a number of FIIs came from countries such as Japan, South Korea and Australia in FY10. Most of them were those with long-term investment horizon such as pension funds. Largely, hedge funds have been staying away.
In FY10, FIIs were net buyers of equities worth $23.3 billion while they sold equities worth $11.9 billion in FY09. In calendar year 2010, they have so far bought equities worth $6.1 billion.
FIIs hold a portfolio of close to $ 180 billion in the Indian equity markets with an average portfolio size of $ 106 million (Rs 470 crore).
