Five reasons why foreigners can directly invest in Indian stocks
The decision will be effective 15 January 2012. Earlier, foreign individuals could buy into Indian companies indirectly.
India is encouraging rich foreign individual investors to buy and sell shares in our stock markets. The government is now looking to this category of investors to bring in more foreign capital. The decision will be effective 15 January 2012. Earlier, foreign individuals could buy into Indian companies indirectly. They could either buy units of a local or a foreign mutual fund or ask a brokerage firm to use its own proprietary account to trade for them.
Here are five things you need to know:
* The government has created a new category of company ownership called the Qualified Financial Investors (QFI). Foreign individuals can now own up to 5 per cent of an Indian company’s equity. Overall, this category of investors can own maximum 10 per cent in a company. This means a company cannot have more than 10 per cent owned by different foreign individuals.
* Falling exports and shrinking industrial output is making India a bigger importer than an exporter. The rupee continues to fall against major currencies and there is a need to stem the fall.
* The presence of a new category of investors would spread ownership of shares in a company. This is likely to reduce volatility in share prices.
* The stock market so far has not shown much excitement about the announcement. Many influential foreign brokerage firms have suggested to their clients to cut exposure to Indian shares. Going forward, they see a sharp slowdown in the economic growth and a fall in the corporate profitability. It must be noted that the same influential brokerage firms service rich global individual investors too.
* The move is among many steps taken recently to boost the rupee. Earlier, RBI encouraged non-resident Indians to save more in their foreign currency accounts by letting banks fix interest rates. As a result, major banks have raised rates on non-resident external savings and fixed accounts to 9 per cent from less than 4 per cent earlier. The central bank also eased restrictions on FII flows into corporate and government bonds.