India encourages foreign investment in stock markets

4th January 2012

Currently only institutions can invest in India, not individuals though of course individuals can invest in funds that then invest.

The Telegraph quotes a government spokesman saying the move is designed "to widen the class of investors, attract more foreign funds, and reduce market volatility and to deepen the Indian capital market".

A single foreign individual will now be able to buy 5 per cent of an Indian firm's shares. However total shares owned directly by foreign nationals cannot exceed 10 per cent.

The Indian-based Economic Times reports the views of another official – Thomas Mathew – that retail investors will be longer term and therefore reduce volatility.

In the Independent Tom Bawden suggests that India hopes the move will underpin the stock market which has seen huge outflows in the last few months of £245million.

Some pundits believe the move could eventually see a large amount invested in India but perhaps not yet.

The paper quotes Samiran Chakraborty, head of research at Standard Chartered in India, saying: "The new role is an extension of the gradual process of the liberalisation of India's capital markets. But the big question is, how much money will actually come through this channel? Technically, there is huge potential, but it's a question of timing. India looks quite challenging at the moment, and that might deter foreign investors, at least in the short term."


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