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Now, buy more foreign-listed stocks

New rules propose to hike the Liberalised Remittance Scheme (LRS) limit to $125,000 from the current $75,000

Puneet Wadhwa  |  New Delhi 

World currencies via Shutterstock

If you are one of those who regularly invests, or wants to invest, in foreign–listed stocks, mutual funds or even real estate, the Reserve Bank of India’s (RBI’s) review of the Monetary Policy on Tuesday had some good for you.

Keeping in view the recent stability in the foreign exchange market, the RBI has hiked the Liberalised Remittance Scheme (LRS) limit to $125,000 without end use restrictions except for prohibited foreign exchange transactions such as margin trading, lottery and the likes while announcing the second bi–monthly Monetary Policy statement on Tuesday.

In order to contain the burgeoning current account deficit (CAD), the central bank had lowered the outward remittance limit to $75,000 in a financial year for any permitted current or capital account transaction, or a combination of both in 2013.

This remittance limit was allowed under the condition that the fund should not be used for acquisition of immovable property, directly or indirectly, outside India, reports suggest. Resident individuals, though, were permitted to use this limit for setting up joint ventures (JV) or wholly-owned subsidiaries outside India.

Analysts say that RBI’s measures of further enhancing the LRS limit will encourage more resident Indians to invest in foreign currency denominated assets.

Points out Ashwin Shetty, vice-president (Global Treasury), UAE Exchange: “The recent stability in the foreign exchange market has given the RBI the comfort to relax some of its earlier restrictions. Most Indians generally remit abroad for the purpose of funding stock and mutual fund investments, purchasing gifts, donations or medical expenses. This new development can be positive for individuals to diversify their assets and bring down risk in their portfolio of investments.”

However, Tirthankar Patnaik, director – institutional research, Religare Capital feels that though the RBI has revised and strengthened its monetary policy framework along with broadening and deepening the financial markets, the lack of any commentary on financial inclusion and restructuring and improving the banking system comes as a negative surprise, particularly in the wake of the recent Nayak Committee report.

“As regards the LRS limit, while there is still some way to reach $200,000, as was the case in July 2013 when it was reduced to $75,000, this does show some comfort on the rupee,” he adds.

On the other hand, Vidya Bala, head of Mutual Fund research at feels that the RBI’s confidence in the rupee seems a bit out of syllabus which is reflected in allowing higher remittance as well as allowing additional exposure in the domestic currency derivative market by foreign investors.

First Published: Tue, June 03 2014. 15:16 IST