Number of registered FIIs drop for second year in a row

Shutting of India-specific funds may be to blame, say experts

The number of registered Foreign Institutional Investors (FIIs) has dropped for the second year in a row, with 17 fewer FIIs at the end of 2013 than there were at the beginning of the year.

Redemption pressure on funds which invest solely in India equities in addition to the coming of a new regulatory regime, may have contributed to the decline in numbers suggested experts.

The number of registered FIIs had declined by eight in 2012. This has fallen by an additional 17 in 2013, according to data from the Securities and Exchange Board of India.

Yogesh Chande, Consultant, Economic Laws Practice said that the trend could be on account of the new regulations for foreign investors i.e. FPI.

"Players are perhaps gearing up for the new FPI regime which could have affected renewals under the FII framework. Though the registration process for FPIs has not yet begun, the Committee on “Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments”, has provided sufficient clarity by also recommending that, all existing entities registered with SEBI as FII, sub-account, and QFIs, shall be deemed to be FPIs.” he said.

The regulator recently approved the SEBI (Foreign Portfolio Investors) Regulations, 2013 a new set of rules for foreign investors.

The total number of FIIs dropped from 1759 to 1742 over the last twelve months. This despite 2013 being the third-highest year ever in terms of FII inflows. FIIs have pumped in over Rs.1 lakh crore into Indian equities over the course of the year.

Anisha Damania, head of institutional equities at IDFC Securities said that the inflows have largely come from funds with broader mandates rather than those with a country-specific focus.

“A large amount of this money has come from regional and global funds. India funds have been under pressure, and facing redemptions. They have been hit by the depreciation in the rupee and so their assets under management has also shrunk,” he said.

The regulator has been looking to make it easier to invest in FIIs.

“In fact, last week SEBI eased the norms for FII registration and FII now seeking registration in India would not be considered to have an "opaque" structure, if it is required by its regulator or under any law to ring fence its assets and liabilities from other funds/sub-funds," said Chande.