Foreign investor cap in bourses may be raised

Single entity ceiling could be increased from the present 5% to 15%, on finance ministry's suggestion

In a move that could increase the stake of foreign investors in Indian stock exchanges, the government is considering a threefold increase in the single-investor investment ceiling.

Currently,a foreign portfolio investor (FPI) investment in an exchange is capped at five per cent.

The finance ministry has written to the regulatory authorities to increase the ceiling to 15 per cent, said sources. The proposal is said to have in-principle approval from the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI).

The move would bring the FPI investment limit in line with those for financial institutions such as insurance companies and banks.

NEW POLICY IN THE WORKS

• Single foreign investor limit in exchanges to be revised from 5% to 15%
• Sebi and RBI have given in-principle approval to the proposal
• Government to amend foreign investment policy
• BSE has 8 foreign shareholders holding 31% stake
• NSE has close to 20 foreign shareholders holding 36% stake

The government allowed the foreign investors to invest in stock exchanges in 2006, with an overall cap of 49 per cent. This latter cap is likely to be unchanged. BSE and the National Stock Exchange (NSE), the two large nationwide bourses, are likely to benefit from the increase in limits. BSE has eight foreign investors, which cumulatively own about 31 per cent in it. The shareholding of Deutsche Boerse Group and Singapore Exchange Ltd are a little below the five per cent ceiling.

NSE has about 20 foreign shareholders, holding around 36 per cent. Cyprus’ Gagil and Goldman Sachs own five per cent each; Citi Group has around two per cent.

“The finance ministry has received representations stating that the present limit of five per cent is a deterrent in attracting long-term anchor and strategic foreign investors in stock exchanges. Following which, the ministry has sought comments from both Sebi and RBI,” said a person privy to the matter.

A higher foreign investor limit will not only encourage more investment in Indian bourses but help in exchange of technology and products, said exchange officials.

“A five per cent limit on the shareholding of any single investor or investor group is too small to encourage them to take sufficient interest in growth of the exchange,” said an official associated with one, asking not to be named.

The regulator and the government are also mulling a change in the shareholding of clearing corporations, which could also see individual foreign investors’ cap being increased to 15 per cent. Some sections of the market believe that allowing a single FPI to own 15 per cent in a exchange could be detrimental to having a diversified shareholding.

The Bimal Jalan committee, in the previous review of ownership and governance of stock exchanges in 2010, had debated whether there was a need to revise the cap. It was in favour of having an anchor investor, such as a bank or financial institution, which would own up to 24 per cent.