But much water has to pass for this to happen, say experts.
The government is “seriously contemplating” allowing foreign retail investors to directly participate in the Indian stock market, a finance ministry official said on Thursday.
Thomas Mathew, joint secretary (capital markets), said that foreign retail investor participation is being contemplated.
“The issue of allowing foreigners to buy shares of Indian companies directly is under serious consideration,” he told Newswire18, but did not give any timeline for implementing the move.
Experts said here has to be clarity on know-your-customer (KYC) norms as well as regulatory co-ordination with foreign jurisdictions before this can become a reality.
Motilal Oswal, chairman & managing director at Motilal Oswal Financial Services, said that it would be a very good move if cleared.
“One only needs to take care of KYC norms and anti-money laundering guidelines. If foreign investors can be allowed to invest in mutual funds, they may as well be allowed to invest in equities directly,” he said.
Pradeep Gupta, vice-chairman at Anand Rathi Financial Services, feels that a great deal of work is required before it becomes possible to implement such a scheme.
“One would need to formulate registration norms for these investors, know-your-customer regulations would have to be sorted out. Brokerages will also have to see what laws in various countries have to be followed if they want to market themselves to foreign retail investors,” he said.
Vinay Agrawal, executive director at Angel Broking, feels that this would provide an alternative to coming in through the foreign institutional investor (FII) route, but domestic brokerages would have to expand their presence to address them.
“This would provide investors greater flexibility to structure their investments than if they come in as part of a collective scheme launched by an institution. Indian brokerages may have to increase their points of presence if they want to tap the foreign retail investor,” he said.
Currently, mutual funds registered with the Securities and Exchange Board of India, are allowed to accept subscriptions from retail investors of foreign origin subject to know-your-customer norms.
They can collectively invest $10 billion (around `50,000 crore) in these schemes.
The government has taken other steps to attract foreign capital.
On Thursday, Mathew also said that the government is open to raising the external commercial borrowing limit beyond $30 billion (Rs1.5 lakh crore). India’s recent market performance may not encourage much participation.
Indian equities are down 30% in dollar terms from the beginning of the calendar year, as currency fluctuatuations added to a 20% drop in Indian markets.
Meanwhile, developed markets have done better. The Dow Jones Industrial Average, an equity market barometer for the United States, is up 2.83%.
The FTSE, its equivalent in the United Kingdom, is down 6.62% in dollar terms. Japan’s Nikkei is down 12.5% in dol
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