Foreign Portfolio Investors or FPIs, are more popularly also called Foreign Institutional Investors or FIIs. These days the term has changed a little to call them FPIs.
These are registered foreign funds, who park their money in the stock markets in India. They could invest through various means in the capital market, that is in the debt or the equity segment.
So far it is believed that FPIs, own around 24 per cent of Indian equities. There are approximately around 1500 registered institutions in India. Most of them come through the Mauritius route to avail of tax benefits that may be applicable to them.
Foreign Portfolio Investors have been heavy buyers in in Indian equities in the last few years. In fact, these set of investors had invested a record of nearly $44 billion in 2014-15. A large chunk of this was in debt securities.
Today, these FPIs drive the stock market investment in India.
FPI investment and the US Fed hike rate
Foreign Portfolio Investors tend to chase returns and in the last 2-3 years, they have made good money. The problem for the Indian markets right now, is that if interest rates in the US rise, they may sell Indian stocks, to chase higher yields in the US.
This can lead to a significant sell-off in the Indian markets. This is because FPIs have invested heavily in the Indian markets. Investors are awaiting to see what the US Fed does with interest rates in its next policy meet of Dec 16-17.