RBI allows foreigners to directly invest in equities

The Reserve Bank of India (RBI) today allowed foreign individual investors, pension funds and trusts as Qualified Foreign Investors (QFIs) to directly invest in equities of up to 5% of paid up capital of the listed company.

On January 1, the government had announced that soon QFIs will be allowed to directly invest in the Indian equity market to widen the non-resident investor base in stock markets as well as to expand the set of non-resident portfolio investors.

A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs do not include FIIs/sub accounts.

"QFIs shall be permitted to invest through Sebi registered Depository Participants (DPs) only in equity shares of listed Indian companies...As well as in equity shares of Indian companies which are offered to public...," the RBI said in guidelines enabling QFIs investments in Indian companies.

They would also be permitted to acquire equity shares by way of rights shares, bonus shares or equity shares.

The RBI said the DP will purchase equity at the instruction of the respective QFIs within five working days failing which the funds would be immediately repatriated back to the QFI’s designated overseas bank account.

However, "only QFIs from jurisdictions which are FATF compliant and with which Sebi has signed MoUs under the IOSCO framework will be eligible to invest in equity shares under this scheme," the RBI added.

Besides, the DPs will ensure KYC (know-your-customer) norms of such investors.

The move comes against the backdrop of significant foreign capital outflows from the domestic equity market in recent times, which has resulted in rupee volatility.

As per the guidelines, the individual and aggregate investment limits for the QFIs would be 5% and 10% respectively of the paid up capital of an Indian company.

These limits would be over and above the FII and NRI investment ceilings prescribed under the Portfolio Investment Scheme for foreign investment in India, the RBI added.

Further, the central bank modified the time period for which funds can be kept in the single rupee pool bank account of the DP under the scheme for investment by QFIs in units of domestic Mutual Funds to five working days.

In August last year, the government allowed foreign investors to directly invest up to $13 billion in equity and debt schemes of mutual funds.

Amid severe volatility in the capital market last year, FIIs outflows amounted to over Rs 2,700 crore. The situation had an impact on the rupee, which fell to an all-time low of to Rs 54.30 on December 15.

The fluctuation in the domestic currency has put pressure on policymakers.