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The number of registered foreign institutional investors (FIIs), which grew at the rate of over 120 a year over the last decade, has dropped for a second year in a row.
There are 17 fewer FIIs at the end of 2013 than at the beginning of the year, according to data from the Securities and Exchange Board of India (Sebi). The growth in the number of sub-accounts was also the lowest on record, with 38 being added compared to an average of 900 every year in the last seven years for which data is available. Sub-accounts are foreign entities that can invest through FIIs, without registering as FIIs themselves.
Yogesh Chande, consultant at Economic Laws Practice, said the trend could be on account of the new regulations for foreign investors. “Players are perhaps gearing up for the new FPI (foreign portfolio investors) regime, which could have affected renewals under the FII framework,” he said, adding the registration process for FPIs has not yet begun.
The total number of FIIs dropped from 1,759 to 1,742, despite 2013 being the third-highest year ever in terms of FII inflows with foreign institutions having pumped in over Rs 1 lakh crore into Indian equities.
Anisha Damania, head of institutional equities at IDFC Securities, said the inflows have largely come from funds with broader mandates than those with a country-specific focus. He said the pressure on India-specific funds could also be a cause for the fall in registered FIIs. “A large amount of this money has come from regional and global funds. India funds have been under pressure, and have faced redemptions. They have been hit by the depreciation in the rupee and so their assets under management has also shrunk,” he said.
A falling rupee has also eroded the value of FII investments. The rupee has fallen 12.45 per cent since the end of last year.
The number of sub-accounts grew from 6,359 in 2012 to 6,397 in 2013, the lowest number added since 2007 the earliest year for which records are available.
Meanwhile, the regulator has been looking to make it easier to invest in FIIs. “Last week, Sebi eased the norms for FII registration and FIIs 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.
