New foreign funds are queuing up for India licence despite FPI sell-off

New FPI registrations continue to surge

Indian equities continue to attract new Foreign Portfolio Investors (FPIs), even though existing offshore funds are trimming their positions to the Mumbai markets, data showed. During the month of October, when FPIs dumped shares worth Rs 94,017 crore in Indian markets, 67 new foreign funds entered Indian market, data compiled by Moneycontrol showed.

Indian benchmark Sensex lost more than 6 percent during October. Currently India has a total of 11,666 registered FPIs, compared to 11,143 as on December 31, 2023, and 10,975 as on December 31,2022.

Custodians say the pipeline of new FPI registrations is also looking positive with another 40-50 funds in the process of getting their India licences. A barrage of Initial Public Offerings(IPOs) in Indian markets, coupled with strong momentum in equities--- at least in the medium and long-term--- and good money-making opportunities in the derivatives segment are driving new foreign funds towards India, the people cited above added.

2024 has so far been a good year in terms of new FPI registrations as 523 new foreign funds have opened shop in India so far this year, compared to 168 during the whole 2023. In terms of new registrations, 2022 was the best year ever for Indian markets with 604 new FPI registrations.

The bulk of the new funds coming into India are currently private pooled funds of the global rich, which take exposure to both cash and derivative markets and trade on a short to medium term basis, said a senior official at a leading custodian bank. There is also significant interest amongst Non-Resident Indians (NRIs) to invest in Indian equities through the FPI route as Indian market regulators are making efforts to ease the entry process for them.

Indian market regulator, the Securities and Exchange Board of India (Sebi),  had eased the rules for NRI promoted FPIs in June this year. Until then, FPIs were not allowed to be majority owned by NRIs. However, now Sebi has allowed such NRI funds provided they come through IFSC, Gift City and adhere to certain conditions. Currently, there are 75 FPIs registered out of IFSC, Gift City.

Buzzing capital market is another key reason behind this surge in new FPI interest in India, say market participants. So far in 2024, 68 companies have floated IPOs to raise Rs 1.03 lakh crore from the markets, Prime Database showed. With at least half a dozen more IPOs lined up, 2024 for now is poised to be a record-breaking year in terms of IPO fund raising. The previous best was 2021, when 63 companies raised Rs 1.18 lakh crore from Indian markets.

However, Sebi’s plans to tighten the derivative market may lead to some slowdown in the new FPIs coming, say market participants. FPIs have been huge traders in the Indian futures and options market. However, frenzy among retail investors and falling bank savings prompted Indian market regulator to consider tightening the rules to cool of the market. Last month, Sebi introduced six new measures for derivative markets. This includes increasing contract sizes to Rs 15 lakh from Rs 5 lakh previously and  mandatory upfront payment of options premium, amongst others.