Hike in FDI: Stock exchanges disappointed with decision

Officials were expecting the govt to raise investment cap in stock exchanges from 5% per investor to 15%

Stock exchange officials were not happy with the government's decision on liberalising foreign direct investment (FDI) limits in a number of sectors, as they were also expecting the government to raise the investment cap in stock exchanges from five per cent per investor to 15 per cent. "On the face of it, the move to allow FDI through automatic route is certainly a positive. But the question is whether this would trigger a rush. It looks unlikely because of the lower individual cap," said an exchange source.

Currently, the Securities and Exchange Board of India rules say only a stock exchange, depository, bank, insurer or a public financial institution is allowed to hold up to 15 per cent of exchanges' paid-up equity.

The spokesman for NCDEX, the country's number two commodity futures exchange, said, "Putting foreign investment under the automatic route is a welcome move because, of late, several overseas investors have shown interest in India's commodity sector, looking at the growth opportunities in the sector."

At present, exchanges have to go to the Foreign Investment Promotion Board to get approval for FDI. In commodity exchanges, the FDI limit is 26 per cent while for foreign institutional investors (FIIs), it is 23 per cent.

Another expert tracking foreign investment in this space said, "While Tuesday's announcement is not clear on FIIs' investment, it seems the overall cap of 49 per cent FDI stands. It is, however, presumed that for an increase in FII investment within the 49 per cent cap, approval would be under the automatic route."