China may be closing in on top-10 FPI spot in India, shows RTI data

Close to breaking into top 10 countries by inflows

China is moving towards being one of the top 10 countries in terms of foreign portfolio investor (FPI) inflows into India. Its foreign portfolio investments have been rising in India, reveal the numbers obtained through an application Business Standard filed under the Right To Information (RTI) Act with the stock markets regulator.

The quarterly data since the beginning of the pandemic shows it held up during the early days of 2020 when talks of restrictions were doing the rounds. It has since gone up and was at Rs 80,684 crore as of June this year, according to the latest data provided by the Securities and Exchange Board of India. 

This is less than Rs 20,000 crore away from the 10th largest FPI country (Netherlands) — at Rs 99,140 crore in the same period.

The government had placed restrictions on foreign direct investment of ‘an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country’ in a notification in April 2020.  

The move, which came in light of geopolitical tensions involving China, was also reportedly followed by increased scrutiny of FPI flows.  

Foreign direct investment is investment through capital instruments in an unlisted Indian company, or in 10 per cent or more of paid-up equity capital on a fully diluted basis of a listed Indian company.

Less than 10 per cent is considered foreign portfolio investment, according to a 2020 note from the Department for Promotion of Industry and Internal Trade. The uptick is not just because markets have been rising since China’s share in FPI assets also exhibits an increase. It went up from 1.4 per cent of total FPI assets in December 2019 to 1.8 per cent as of June this year.

Many large countries invest through other jurisdictions for tax or compliance reasons, according to an expert who helps foreign investors structure their investments. This would mean that FPIs coming in directly through China would not be the only source of Chinese money. Some may also come through other jurisdictions, as is the case with many major investing countries.  

Other jurisdictions like the Cayman Islands and Hong Kong would also have FPIs investing Chinese money, according to the expert. It is also unusual that there has been no increase in the number of Chinese FPIs for so long, notwithstanding the lack of official restrictions, he observed.

“There is no bar,” he said.

The total number of China-based FPIs has remained at 16 since December 2019, said the regulator in response to the RTI.

The total number of registered FPIs has risen by 1,895 (or 14.6 per cent) since December 2019. There are 10,895 registered FPIs as on date, according to the depository data.

An analysis reveals the names of 16 investors who are China-based. They include 15 who fall under Category I.  This is a category of foreign investors who act as the arms of foreign governments or multilateral agencies. They include an arm of the China-led Asian Infrastructure Investment Bank, Best Investment Corporation and seven related entities, China AMC Global Selective Equities Fund, CIFM Asia-Pacific Advantage Fund, Flourish Investment Corporation, Manulife Teda India Opportunities Equity Fund (QDII), National Social Security Fund (NSSF), and the People’s Bank of China. There was also Wei Chieh Li, which is a Category II FPI.

A Category II FPI is typically broad-based in nature and includes mutual funds and pension schemes.

There may be limited effects on China investments through the FPI route if guidelines are followed and they are holding minority stake in widely held public companies, suggested Dhiraj Sachdev, managing partner and chief investment officer at investment firm ROHA Asset Managers.

China’s continued investments into India may well reflect its relative attractiveness in a slowing world, he added.  

“Growth rates are unmatched in India,” he said.