Will FPIs take Indian Markets to New Highs?

Foreign portfolio investment (FPI)

Foreign portfolio investment (FPI) keeps the developing countries market buoyant but these countries do come at a receiving end when they run away from these markets when dollar starts appreciating.. Foreign portfolio investment is an important tool for developing economies to grow. It's also a risky method of financing given the inherent volatility in the markets, but it can be beneficial in many ways.

What is foreign portfolio investment (FPI)?

Foreign portfolio investment (FPI) is a financial investment made by a foreign investor in the Indian stock market. The FPI investor does not have an office or business in India and is only making an investment through his/her overseas brokerage firm.

Foreign portfolio investors can be classified into two categories:

Direct investments – These are made directly by the individual foreign investor. He/she has a physical presence in India and operates as an independent entity within it. This includes individuals who are resident outside India but have decided to set up operations here, or those who already operate on a large scale in another country but would like to expand their operations into India

Who can make FPI investments?

• If you're a citizen of India and/or have attained the age of majority, then you can make FPI investments.
• Any person who has attained the age of majority (18 years) is eligible to hold an FPI account.
• An individual cannot hold more than one FPI account at any point in time. However, an individual may apply for multiple accounts simultaneously if he or she wishes to.

Types of FPI investments

• There are a variety of types of FPI investments, including:
• Equity investments
• Debt investments
• Derivatives (such as options and futures contracts)
• Currency - Gold - Commodities

Investment limits

• Debt instruments
• Equity instruments. The FPI can invest in equity instruments such as stocks, bonds, mutual funds and exchange traded funds (ETFs) only up to its total investment limit for debt investments. The FPI has no limit on the amount of equity investments it can make in debt instruments like debentures or government securities.

The adjacent screenshot suggests that FPI will come in hordes as they have a tendency of fear of missing out (FOMO) and buy at tops and take the market to new highs.

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What are the risks involved in FPI?

• Risks of investing in the stock market

• Risks of investing in the bond market

• Risks of investing in the currency market

• Risk of investing in derivatives and commodities

FPIs will bring more liquidity to the market.

FPI investors will bring more liquidity to the market.

FPIs will help in increasing the capital base of companies.

FPIs will help in increasing the share prices of companies.

The number of buyers in the market would increase due to FPI inflows and thus, there will be more competition for stocks which may result in higher prices for these stocks as well as better valuations for them at the same time

Conclusion

Foreign portfolio investment (FPI) is a way for businesses to gain access to foreign capital. FPI can be used by companies in different industries including manufacturing, technology, and retail. In order to make these investments, businesses need to follow certain rules set out by regulators such as the Securities and Exchange Commission (SEC).