Mof To Monitor Fii Investment Limits

The government has decided that the finance ministry will monitor on a day-to-day basis, the composite ceiling by foreign institutional investors (FIIs) in domestic companies.

The decision has cleared a major hurdle in allowing limited fungibility for American Depository Receipts\Global Depository Receipts, a step announced in the budget this year to make Indian capital markets more attractive to FIIs.

The issue of monitoring had become contentious between the finance ministry and the Reserve Bank of India with both trying to pass the buck of monitoring FIIs on a day-to-day basis.

The Securities and Exchange Board of India has already said that it cannot take on the role as it is not the sanctioning authority for permitting ADR\GDR issues.

Fungibility implies a share holder can freely move between the ADR\GDR and local shares. But this also implies that the volume of shares of domestic companies issuing ADR\GDR can fluctuate in domestic markets.

Moreover, it will in turn also have an impact on the level of foreign institutional investment in domestic companies.

The composite limit for such investment has been set at 49 per cent of the total investment in such companies while the individual ceiling in a company is 10 per cent, according to this year