What is Foreign Portfolio Investment?
Foreign Portfolio Investment (FPI) refers to investments made by foreign individuals, institutions, or funds in the financial assets of another country, including stocks, bonds, and mutual funds. In India, FPIs are a major source of capital inflow into the stock market. SEBI regulates FPI activity through the FPI Regulations, 2019, which categorise investors into different risk-based classes.
SEBI Registration and Compliance
Foreign investors must register with SEBI through a Designated Depository Participant (DDP) to invest in Indian securities. FPIs are classified into Category I (sovereign wealth funds, central banks) and Category II (regulated entities like banks, insurance companies, pension funds, and others). Compliance requirements include KYC documentation, periodic reporting of holdings, and adherence to investment limits set by SEBI (typically 10% per company for individual FPIs).
Impact on Indian Markets
FPI flows significantly influence Indian market trends. Net FPI buying typically drives market rallies, while sustained FPI selling can lead to corrections. India tracks FPI and FII (Foreign Institutional Investor) data daily through exchange reports. Key factors driving FPI flows include global interest rates, rupee valuation, Indian GDP growth, corporate earnings, and geopolitical stability. The total FPI investment in Indian equities runs into several lakh crore rupees.