India’s central bank is set to double to 10 per cent 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.
Foreign portfolio investors (FPIs), pressured by poor earnings, high valuations and prospects of US tariffs, have pulled more than $28 billion out of Indian stocks since September’s record high in the benchmark NSE Nifty 50.
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.
“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.
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.
The plans envisage allowing all foreign individual investors to invest a maximum of 10 per cent in a listed company, the document showed.
That is up from the 5 per cent holding in an Indian company allowed to overseas Indian citizens by special rules under the Foreign Exchange Management Act (FEMA).
“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.
“We are broadening this to include all individual foreign investors.”
The central bank, the Reserve Bank of India (RBI), will also raise to 24 per cent the combined holding limit for all overseas individual investors in an Indian listed company, from 10 per cent now, the officials added.
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.
MONITORING CHALLENGES
While the government and the RBI favour the move, the market regulator has flagged some challenges in monitoring compliance with foreign investment limits.
It has warned that a single foreign investor holding of 10 per cent, combined with associates, could exceed 34 per cent, triggering takeover rules.
“Without effective monitoring across different frameworks, such takeovers may go undetected,” Sebi cautioned the RBI in a letter last month.
Indian rules compel an investor who acquires more than 25 per cent of a company to make an open offer for shares held by retail investors.
The government and regulators are now weighing these concerns before finalising the reforms.
“We are working to rationalise the rules to prevent the possibility of such arbitrage across regulations by the foreign investors,” the second official said.
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