Recent Financial Crisis and the Role of Foreign Institutional Investors in India - with Reference to NSE

Abstract

One of the outstanding features of globalization in the financial services industry is the increased access provided to non-local investors in several major stock markets of the world. Increasingly, stock markets from emerging markets permit institutional investors to trade in their domestic markets. In India between late 1990 and the middle of 1991 , the economy faced severe balance of payment difficulties, coming close to defaulting on its external payment obligations. In January 1991, the Government negotiated with the International Monetary Fund (IMF) for loans. As a result, India was forced to follow the New Economic Policy. Among various reforms, the capital account liberalization process was started, and as a part of this, the Indian stock market was opened to Foreign Institutional Investors on 14th September 1992, initially with a lot of restrictions. The regulation on them were liberalized and minimized later and this became a turning point for the Indian stock market. The Government of India announced the policy of the government to permit the FIi investment in the Indian capital market. In order to make investment in India equity market, they wanted to register with the Security Exchange Board of India (SEBI) as foreign institutional investors (Flis). It is possible for foreigners to trade in Indian securities market without registering as Foreign Institutional investors, but such cases require approval from Reserve Bank of India or the Foreign Institutional Promotion Board.