India’s central bank is set to double to 10% a cap on investment by individual foreign investors in listed companies, as it aims to boost capital inflows, according to two senior government officials and documents reviewed by Reuters.<\/p>\n
Foreign portfolio investors (FPIs), pressured by poor earnings, high valuations and prospects of U.S. tariffs, have pulled more than $28 billion out of Indian stocks since September’s record high in the benchmark NSE Nifty 50.<\/p>\n
To boost foreign investment, India is widening to all foreign investors benefits it had until now restricted to overseas Indians, while also raising applicable investment limits, the officials said.<\/p>\n
“It is felt that these proposals may be implemented as early as possible,” the central bank told the government in a letter last week, pointing to disruption in capital inflows among recent developments in the external sector.<\/p>\n
Emails seeking comment from the finance ministry, the central bank, and the market regulator, the Securities and Exchange Board of India (SEBI), did not get any response.<\/p>\n
The plans envisage allowing all foreign individual investors to invest a maximum of 10% in a listed company, the document showed.<\/p>\n
That is up from the 5% holding in an Indian company allowed to overseas Indian citizens by special rules under the Foreign Exchange Management Act (FEMA).<\/p>\n
“Current foreign exchange management rules only mention non-resident Indians (NRIs) and overseas citizens of India (OCIs) under Schedule III,” the second government official said, speaking on condition of anonymity.<\/p>\n
“We are broadening this to include all individual foreign investors.”<\/p>\n
The central bank, the Reserve Bank of India (RBI), will also raise to 24% the combined holding limit for all overseas individual investors in an Indian listed company, from 10% now, the officials added.<\/p>\n
The plan to hike foreign investor limits in Indian listed firms is in the final stages of discussion between the government, the RBI, and SEBI, the officials said.<\/p>\n
MONITORING CHALLENGES<\/p>\n
While the government and the RBI favour the move, the market regulator has flagged some challenges in monitoring compliance with foreign investment limits.<\/p>\n
It has warned that a single foreign investor holding of 10%, combined with associates, could exceed 34%, triggering takeover rules.<\/p>\n
“Without effective monitoring across different frameworks, such takeovers may go undetected,” SEBI cautioned the RBI in a letter last month.<\/p>\n
Indian rules compel an investor who acquires more than 25% of a company to make an open offer for shares held by retail investors.<\/p>\n
The government and regulators are now weighing these concerns before finalising the reforms.<\/p>\n
“We are working to rationalise the rules to prevent the possibility of such arbitrage across regulations by the foreign investors,” the second official said.<\/p>\n
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)<\/i><\/p>\n
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