“Role of Foreign Institutional Investor in
Developing Domestic Firms”.
Foreign Institutional Investors(also known as FIIs) are the investors/lenders specifically large hedge funds, mutual funds, venture capitals which invests in foreign country other than in which it runs its operation. Recently there has been a surge of FIIs investing in less developed countries. Advanced economies( like:USA, UK) has been experiencing little/stagnant economic growth. The investors around the world are looking for the economies which can generate the utmost return on their capital. This is an added advantage to the developing state(like:Nepal, India). Nepal can attract big institutional venture capital to fuel its economic growth. The country with the most lucrative policies will attract lump sum of investments. So, for country like Nepal it could be backbone for development of infrastructure, technology and resource .
Why FIIs?
FII not only bring capital onto the country they also bring years of experience in technology, research and development and innovations. First, lets understand how a country waves the path from a developing to developed country. It’s all start with advancement in agriculture, followed by manufacturing.The classic example: Brazil has been struggling because they have been through both of them but still nowhere near on the likes of advanced economy. Brazil has been showing signs of stagnant, even though the country has robust agricultural process and manufacturing facilities with relatively cheap labor. What did they lack? :They lack FIIs and innovation. FIIs steers innovation and technological development. FIIs also helps to create liquidity in the market. Before COVID-19 crisis, Nepal was facing liquidity crunch in the banking system, which could have been easily solved if the policies favored foreign investment. Also, foreign investment ensures long term capital for the business/emerging startups. It is also believed that they assist to preserve and maintain good governance in the organization and ensures access to wider pool of resources. Institution investors prefer equity rather than debt which removes interest burden from the business and can focus on the long term sustainability.
Most of the investors, investing in Indian financial market( stock market) look into the FIIs numbers before making investment decisions. India received $14.47 billion in 2019 from FIIs, according to Mint. Bull and Bear markets also can be predicted by analyzing FIIs number. Existence of FIIs improves the outlook of stock market.
Trade deficits has been a headache for developed countries. Recent trade sanction to China and EU from Trump was to minimize trade deficits. But for a country like Nepal, it's an humongous task having trade deficit of almost 11.2 billion USD in 2018/2019 and increasing to counter trade deficit. Instead, Nepal should focus more on FII and FDI(foreign direct investment). Nepal Investment summit of 2019 has been a major hit for the country as it attracted almost $30 billion USD of investment interest. Foreign Investors are willing to invest in Nepal but, the process is too complicated for them. Though the government is working on different amendments/reforms for foreign investors , the pace has been really slow. Not only FDI, Nepal should open path for investment in stock market which would be a win-win scenario for both investor and Nepal. The only way our corrupt politician transform Nepal into Asia's Switzerland is through FIIs and FDIs.