FII and its Role in Capital Market

FII means Foreign Institutional Investors. When some investors who have same interest to invest in foreign company, they create the company and start to invest in foreign companies. In India, SEBI defines all these investors as foreign institutional investors.


Wikipedia states about FII

In countries like India, statutory agencies like SEBI have prescribed norms to register FIIs and also to regulate such investments flowing in through FIIs. In 2008, FIIs represented the largest institution investment category, with an estimated US$ 751.14 billion.

Role of FII in Indian Capital Market

• As on that date the net cumulative investments made by Flls are around USD 35.9 billion representing around 6.55% of India's market capitalization.
• Net Investments by Flls (Rs Cr.) 41416.45 in 2004-05 in Indian Companies.
• Yet, we intuitively know that the FIIs are important for the market. They typically start a market rally. Subsequently flows come from all classes of investors. At this stage, the market behaves like a self-organised system. No single class of investors drives the market — asset prices go up, driven by the collective momentum of all investors. Finally, the market enters the state of self-organised critically. This is when any negative information could have non-linear effect on the market. The FIIs play a major role during this phase too. link