Foreign Institutional Investors in India

Abstract

Foreign institutional investors are likely to have similar characteristics to domestic institutional investors. Nonetheless, there are policy relevant implications of the choice between domestic and foreign institutional investors. Foreign institutional investors may be able to tap larger amounts of capital than domestic institutional investors. Involving foreign investors may also insure world standards in information disclosure and managerial accountability. On the other hand, involving foreign investors potentially will allow foreigners to reap the benefits from an appreciation in the value of the enterprises. Such a concern is particularly relevant if, for some economically sensible reason, the offering has to be made at a "low" price. Foreign institutional investors (FIIs) were net sellers from November 1997 through January 1998. The outflow, prompted by the economic and currency crisis in Asia and some volatility in the Indian rupee, was modest compared to the roughly $ 9 billion which has been invested in India by FIIs since 1992.