New Delhi: India may allow individual investors based overseas to directly buy stocks for the first time, easing a rule that restricts investment to mutual funds, a Finance Ministry official with direct knowledge of the matter said.
Some government officials see no need to differentiate between India-focused mutual funds and foreign retail investors, the official said, declining to be identified because the review of the rule is confidential. The Finance Ministry may set a limit on the amount individuals can invest, the official said.
The Securities and Exchange Board of India, the capital markets regulator, sees no let-up in institutional investment from overseas that has driven the Sensitive Index to near an all-time high, Chairman C.B. Bhave said on Thursday.
The rule change may add to the $92 billion (Dh337.8 billion) foreign funds have poured into local stocks since they were allowed into the country in 1993, with almost a quarter invested this year.
"It indicates continued liberalisation of the stock market and represents another step in internationalising of India's financial markets," said Dariusz Kowalczyk, Hong Kong-based chief economist for Credit Agricole CIB. "It's favourable for local equities and the move would broaden the pool of funds they can access to expand business."
Greater access
Prime Minister Manmohan Singh is allowing greater foreign participation in financial markets as he seeks capital to build roads and power plants in a nation ranked below Ivory Coast and Sri Lanka for the quality of infrastructure by the World Economic Forum's Global Competitiveness Index.
Last month, he increased the overseas investment cap for government and corporate bonds by $5 billion each to a total of $30 billion.
Policymakers in Asia's third-biggest economy have been traditionally wary of a surge in capital inflows because possible panic withdrawals by foreigners have the potential to cause financial instability, said D.H. Pai Panandiker, president of RPG Foundation, an economic research group in New Delhi.
"The move shows the fear is ebbing," Panandiker said. "There's confidence there won't be much of outflows even in the worst of times."
Purchases of Indian shares by funds based overseas reached a record $22 billion this year as the economy weathered a global recession triggered by the 2008 credit crisis.
The purchases are unlikely to reverse, SEBI's Bhave said in an interview with Bloomberg UTV in Mumbai.
"We have no reason to believe, at least if we go by historical evidence, that there will be a sudden reversal," he said. For overseas investors "it's important that there is supply of enough paper," otherwise asset prices may surge.
A planned share sale this month by Coal India, the world's biggest producer, will add to the $17 billion raised by the nation's companies this year.
Gross domestic product, estimated at $1.3 trillion, is likely to expand 9.7 per cent this year, the International Monetary Fund said last week.
