FIIs

FIIs, or foreign institutional investors, is a term used to describe non-resident institutions that invest in a country's financial markets. In the Indian context, FIIs include foreign banks, asset management companies, pension funds, sovereign wealth funds, and other large investors. They typically invest in Indian equities, debt instruments, and derivatives, often through local custodians and intermediaries. FIIs can provide substantial liquidity and contribute to price discovery, but their capital flows can also add to market volatility during periods of global or domestic stress.

Regulation and framework in India have evolved over time. FIIs are overseen by the Securities and Exchange Board of India (SEBI) and, for certain aspects of capital flows, by the Reserve Bank of India (RBI). Investments by FIIs are generally subject to registration requirements and to instrument-specific and sector-specific caps, with flows routed through approved intermediaries and sub-accounts. In 2014, SEBI introduced the Foreign Portfolio Investors (FPIs) regime to consolidate and standardize foreign investment in Indian securities, effectively replacing the FII framework; the term FII remains in common use to describe foreign participation in Indian markets, but FPIs are the formal regulatory category.

Market role and impact are central to discussions of FIIs. They have historically been a major source of capital for Indian equities and bonds, influencing liquidity, valuations, and currency dynamics. FII/FPI flows are monitored by regulators and exchanges and are sensitive to global risk appetite, interest rate trends, and domestic policy developments. Critics and policymakers alike consider the potential for abrupt withdrawals during crises, prompting macroprudential and regulatory measures to manage volatility while maintaining access to international capital.