Govt upbeat on foreign investment in stock markets

The Union finance ministry is upbeat on foreign investment inflow after the rule change allowing direct entry to qualified foreign investors (QFIs) in the Indian stock market.

Thomas Mathew, joint secretary, capital markets, said the January 1 announcement had resulted in large-scale interest.

"Enquiries have come regarding the regulations from a broad spectrum. Some big fund managers and influential families from the Middle East have evinced interest," he said.

Finance ministry has also received requests for clarifying whether investors from Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates would be able to invest through this route in the Indian market.

It has been pointed out that clarifications in this regard would allow residents from some of these countries to immediately start looking towards India as a preferred ivestment destination and others to take measures for complying with the international norms required for this purpose.

QFIs includes individuals, groups or associations of a foreign country compliant with the Financial Action Task Force, a global body to boost national and international policies to counter terror funding and money laundering. These countries will also have to be signatories of the International Organisation of Securities Commissions, a federation of bodies which regulate the world's securities and futures market. On apprehension about this mode being utilised for wrongdoing, he noted all the investment would have to cross stringent international and Indian norms. Once the regulations were out, depository participants (DPs) would start registering, said Mathew.

The direct entry of QFIs has been allowed to widen the class of investors, attract more foreign funds and reduce market volatility. QFIs have been already permitted direct access to mutual fund (MF) schemes. Presently, only foreign institutional investors, sub-accounts and non-resident Indians are allowed to directly invest in the Indian equity market.

After allowing QFIs direct access to MF schemes, direct entry to stock markets was seen as a logical next step.

QFIs will include individuals, groups or assocaitions residing in a foreign country which is complaint with global safeguard norms.

The individual and aggregate investment limit for QFIs has been fixed at five per cent and 10 per cent, respectively, of the paid-up capital of the Indian company. They will be allowed to invest through DPs registered with the Securities and Exchange Board of India (Sebi).

A QFI shall open only one demat account and a trading account with any qualified DP. The latter is to ensure QFIs meet all the regulatory requirements. Sebi and the Reserve Bank of India are expected to issue the relevant circulars within this week.