FOREIGN PORTFOLIO
INVESTMENT - ECONOMY
News: Foreign portfolio investors
stepped up selling in the run-up to elections
What's in the news?
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Foreign portfolio investors (FPIs) seemed to have
some indication about the outcome of Lok Sabha elections as their selling in
stocks intensified since January this year.
Key takeaways:
●
With China
beckoning them again as an alternative
investment destination, foreign
players pulled out around Rs 125,000 crore from the cash market (excluding
IPO investments) since January this year.
●
However, domestic
institutional investors, led by mutual funds and insurance companies,
bought stocks worth Rs 300,000 crore during the five-month period, aiding
benchmark indices to hit new peaks.
Foreign Portfolio
Investment (FPI):
●
Investing in assets and securities outside of one’s
nation is known as foreign portfolio investment or FPI.
●
Stocks, bonds, exchange-traded funds (ETFs), and mutual funds are a few examples of these investments. This makes the way for an
investor to participate in a foreign economy through this.
●
Portfolio investments are sometimes seen less favourably than direct
investments since they may be quickly sold off and are thus seen as a short-term attempt to gain money rather than a long-term investment
in the economy.
Benefits:
1. Diversification:
●
Reducing the risk associated with investing in a
single country or region.
2. Higher Returns:
●
Can tap into the growth potential of foreign
economies and take advantage of favourable market conditions.
3. Liquidity:
●
Portfolio assets can be bought and sold more
easily, allowing investors to react quickly to market changes.
4. Economic Development:
●
Contributes to the economic development of
recipient countries by attracting foreign capital, stimulating investment,
fostering competition.
Challenges:
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Political and Economic Risks
●
Liquidity Constraints
●
Market Volatility
●
Currency Risk
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Regulatory Changes
●
Legal and Compliance
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Lack of Information.
|
Foreign Direct
Investment |
Foreign Portfolio
Investment |
|
●
Foreign Direct Investment (FDI) is an investment
made by a foreign company or an individual in a foreign country with the
intention of establishing a long-term
business interest. ●
The investor acquires a controlling interest in a
foreign company by purchasing at least
10% of the company's shares.
|
●
Foreign Portfolio Investment (FPI) is an investment made by foreign investors in foreign securities, such
as stocks, bonds, and other financial assets. ●
Unlike FDI, FPI does not involve the acquisition of a controlling interest in the
company. ●
FPI is a short-term
investment, with investors buying and selling securities based on
short-term market trends. |