2011 was not a very Happy year for investors in Indian Stock Markets – Indian as well as international investors lost money to the tune of lakh’s of crore rupees. Benchmark Index lost over 20% from the start of the year.
This year though, Government is taking steps to turn around – The new year has started on a happy note for Indian Stock Markets with Central Government allowing Qualified Foreign Investors (QFIs) to directly invest in Indian equity market. This will help Indian stock markets to widen the class of investors, attract more foreign funds, and reduce market volatility.
It is a great sign that Government is bringing in reforms to open up Indian capital markets – Till now, Foreign Institutional Investors (FII’s) were only allowed to invest in mutual funds . Though, this is a significant news, somehow investors don’t seem to have taken it in a very positive way – At the point of writing this, Sensex as well as Nifty are both trading marginally in red.
Here are salient features of the new Scheme:
- RBI would grant general permission to Qualified Foreign Investors (QFIs) for investment under Portfolio Investment Scheme (PIS) route similar to FIIs.
- The individual investment limit for QFIs shall be 5% and 10% respectively of the paid up capital of Indian company. These limits shall be over and above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India.
- QFIs will be allowed to invest only through SEBI registered Qualified Depository Participant (DP). A QFI can open only one demat account and a trading account with any of the qualified DP.
- DP shall ensure that QFIs meet all KYC (Know your Customer) and other regulatory requirements, as per the relevant regulations issued by SEBI from time to time. QFIs shall remit money through normal banking channel in any permitted currency (freely convertible) directly to the single rupee pool bank account of the DP maintained with a designated AD category – I bank. Upon receipt of instructions from QFI, DP shall carry out the transactions (purchase/sale of equity).
- DP shall be responsible for deduction of applicable tax at source out of the redemption proceeds before making redemption payments to QFIs.
With most of the stock Analysts and experts being under-weight on Indian equities currently, we may not see much participation from QFI’s. However, when the tide turns, I am sure this new reform will help bring more money into Indian capital markets.
Would love to hear your views on this.[Suggested Reading – Dear FM, are reforms only for foreigners or Indians, too? by R. Jagannathan]