India May Allow Overseas Individuals To Buy Stocks Directly

Finance Ministry is planning to allow overseas individuals to directly buy stocks in India for the first time ever, easing the current rule that restricts investment to mutual funds.

This move would allow foreign individual investors to access the market directly rather than through the institutional route. Also, this could be favourable for local equities and will broaden the pool of funds they can access to expand business.

Currently, only non-resident Indians (NRIs) are allowed to invest in mutual fund schemes, while foreign retail investors participate in Indian equities through sub-accounts of foreign institutional investors (FIIs).

However, the government may fix a cap on the amount foreign retail individuals can invest.

Finance minister Pranab Mukherjee has said that there is no need for the government to restrict FII’s and foreign direct investment as the India Rupee grew to a two-year high raising concerns that the country will restrict capital to check currency gains.

Since FIIs were allowed into India in 1993, till date they have invested $92 Bn into local stocks. The mutual fund industry expects more inflows as the Indian stocks have good appetite for foreign funds. FIIs have invested more than $21 Bn into the market this year.

According to Milind Barve, MD of HDFC Mutual Fund, “This move is welcome but it will be difficult to market the MF schemes in foreign countries as the companies will have to be registered and should comply with the local regulations.”