The inflow of FIIs in the Indian economy has become one of the leading sources of capital flow, maintaining a healthy trend for the past couple of years. This book provides the genesis and growth of FIIs and their acceleration into the Indian Capital Market.

In September 1992, India opened its stock markets for foreign investors and from 1993 got significant amount of portfolio investment from foreigners in the form of Foreign Institutional Investors (FIIs) investment in equities. It has become one of the main sources of international portfolio investment in India for foreigners. Foreign corporations need to register themselves with Securities and Exchange Board of India (Sebi) for FIIs to trade in the Indian equity markets. At present, Sebi's definition of FIIs includes mutual funds, foreign pension funds, university/endowment/charitable funds, etc. It also includes asset management companies and other money managers operating on their behalf.

From the last two years, there is 50% increase in the number of FII investment in India. However, the experience of new entrants is in sharp contrast to that of their earlier counterparts. Not accustomed to the ways of Corporate India, it took the latter a couple of years to get over the initial shocks and become aware of the market realities. Though, the new entrants had an easier time for wealth creation in the market and were supported by strong fundamentals of India Inc., and a booming economy, FII investments in India are like our own investments in some small-cap company. The market capitalization of the largest US Company is far higher than that of our entire equity market.

Of course, every buying action of FIIs will push our prices up; this is one major reason why they will not be hasty sellers: Their selling action will push down prices, which does a palpable harm to their portfolios. Over the past 11 years they have been net sellers only in four out of total 126 months.¹ Globally, FII inflows are considered as hot money. They act in series and their buy and sell decisions represent multitude behavior. The tendency is to generally be wrong when everyone else is wrong rather than take the risk of being right when others are wrong.

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