FOREIGN PORTFOLIO INVESTMENT

Subject : Economics

Context : Foreign portfolio investment flows in December have crossed $6 billion and could well hit $7 billion before the month is over.

Concept :

While it’s the abundance of liquidity worldwide that is channelling funds into equities, India seems to be getting more than its fair share as Indian equities though valued at their most expensive ever but foreign portfolio investors continue to be buyers. .

Foreign Investments

Foreign investment, quite simply, is investing in a country other than your home one. It involves capital flowing from one country to another and foreigners having an ownership interest or a say in the business.
Foreign investment is generally seen as a catalyst for economic growth and can be undertaken by institutions, corporations, and individuals.
Investors interested in foreign investment generally take one of two paths: foreign portfolio investment or foreign direct investment.

Foreign Portfolio Investments

Foreign portfolio investment (FPI) refers to investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange.
This type of investment is at times viewed less favorably than direct investment because portfolio investments can be sold off quickly and are at times seen as short-term attempts to make money, rather than a long-term investment in the economy.
Portfolio investments typically have a shorter time frame for investment return than direct investments.
As securities are easily traded, the liquidity of portfolio investments makes them much easier to sell than direct investments. With any equity investment, foreign portfolio investors usually expect to quickly realize a profit on their investments.
Portfolio investments are more accessible for the average investor than direct investments because they require much less investment capital and research.
Examples of foreign portfolio investments include stocks, bonds, mutual funds, exchange traded funds, American depositary receipts (ADRs), and global depositary receipts (GDRs).

Foreign direct investment (FDI)

FDI involves establishing a direct business interest in a foreign country, such as buying or establishing a manufacturing business, building warehouses, or buying buildings.1
Foreign direct investment tends to involve establishing more of a substantial, long-term interest in the economy of a foreign country.
Due to the significantly higher level of investment required, foreign direct investment is usually undertaken by multinational companies, large institutions, or venture capital firms.
Foreign direct investment tends to be viewed more favorably since they are considered long-term investments, as well as investments in the well-being of the country itself.
Some common ones include establishing a subsidiary in another country, acquiring or merging with an existing foreign company, or starting a joint venture partnership with a foreign company.