FPIs invest Rs 15,352 cr in Indian equities

FDI

Foreign Direct Investment (FDI) is the investment made by a person or a company in one country into businesses located in another country.
Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets.
FDI has three major components: equity capital, reinvested earnings and intra-company loans.

Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
Reinvested earnings comprise the direct investor’s share of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested.
Intra-company loans refer to short- or long-term borrowing and lending of funds between direct investors (parent enterprises) and affiliate enterprises.

FDI is considered as a major source of non-debt financial resource for economic development.
The key to FDI is the element of control. Control represents the intent to actively manage and influence a foreign firm’s operations. This is the major differentiating factor between FDI and a passive foreign portfolio investment.

FPI

Foreign Portfolio Investment (FPI) means investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange.
FPI is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an economy.

Why is FDI preferred?

FDI is considered a more stable form of foreign capital infusion as it brings in a certain expenditure that can’t be pulled out overnight.
It creates jobs and can potentially aid economic growth.
FPI, on the other hand, can come and go easily. Sudden withdrawal can create liquidity problems in the securities market and hit the foreign exchange rate of the country.

Why in News?

Foreign portfolio investors (FPIs) have made a net inflow of Rs 15,352 crore in equities this month, driven by the government’s commitment to ongoing reforms, low US Federal rates, and strong domestic demand.

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