Recently, the Indian stock market witnessed ups and downs in major indices. FIIs played a major role behind this volatility. The moot question is whether the stock market is safe in the hands of FIIs. This article focuses on issues related to FII inflows into the Indian stock market.
In response to the recommendations of the Narasimham Committee report on the Financial System, during September 1992, the Government of India decided to open up the country's stock markets to direct participation by the Foreign Institutional Investors (FIIs). In simple terms, FII means `an entity established or incorporated outside India and is proposing to invest in India.'1 They were allowed to participate as Pension Funds, Mutual Funds, Insurance Companies, Banks, University Funds, Endowments, Foundations, Charitable trusts/Charitable Societies, Asset Management Companies, Investment Trusts, Incorporated/Institutional Portfolio Managers or their power of attorney holders. Besides investing on their own behalf, they can also invest on behalf of foreign corporates, foreign individuals and institutions, funds or portfolios established or incorporated outside India, in which case they are called sub-accounts. The Securities and Exchange Board of India (Sebi), as the regulatory authority, will register and permit FIIs based on their track record, professional competence, financial soundness and experience, general reputation of fairness and integrity, and duly verifying whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with Sebi. |
