Foreigners can now invest directly in Indian stocks

'New Year Gift' Expected To Boost Markets

New Delhi: The government on Sunday gave a New Year gift to the stock market by allowing qualified foreign investors (QFIs), including overseas individuals, to invest directly in it. So far, QFIs had been permitted to invest only in mutual fund schemes. 
    "As a next logical step, it has now been decided to allow QFIs to directly invest in the Indian equity market in order to widen the class of investors, attract more foreign funds and reduce market volatility and to deepen the Indian capital market," the finance ministry said in a statement. Detailed norms are expected to be issued by the Securities and Exchange Board of India (Sebi) over the next two weeks. 
    By allowing QFIs, the government is opening a new avenue for investment, earlier controlled by foreign institutional investors. Foreign nationals who wanted to invest in the Indian stock market came through the sub-account route. Non-resident Indians were, however, permitted to invest directly. 
    "In this arrangement, a large number of qualified foreign investors, in particular a large set of diversified individual foreign nationals, who are desirous of investing in the Indian equity market do not have direct access to the market. In the absence of the availability of a direct route, many QFIs find difficulties in investing in the Indian equity market," the finance ministry said. 
    The move comes at time when FIIs are withdrawing from the Indian equity market due to problems in their domestic markets. In addition, the country is seen to have lost some of its attractiveness due to a perception of policy paralysis. 
BIG BANG INITIATIVE 
Qualified Foreign Investors (QFIs) include individuals, groups or associations resident in a country compliant with anti-money laundering forums 
Move expected to attract more foreign funds, reduce market volatility, and deepen Indian capital market 
Comes at a time when FIIs have been pulling out of India 
QFIs will have to open demat and trading account with qualified depository participant. All deals will have to be through this route 
Detailed norms expected to be issued by Sebi over next 2 weeks A foreign individual can hold up to 5% in Indian co 
New Delhi: By permitting qualified foreign investors (QFIs) to invest directly in the stock market, the government wants to start the year with what some officials termed as a "big bang" decision. Besides, individuals, as opposed to institutional investors, are seen to be more stable and may not withdraw from the market immediately. 
    The government said QFIs would include individuals, groups or associations, residents in a foreign country that is compliant with anti-money laundering forums such as the Financial Action Task Force and is a signatory to IOSCO's multilateral memorandum of understanding. In order to trade, a QFI will have to open a demat and a trading account with a qualified depository participant, and all transactions will have to be routed through this path. The depository has to ensure that the QFIs meet all know-your-customer (KYC) and other regulatory requirements. The money will be routed through normal banking channel with convertible currencies such as the dollar transferred to a depository's rupee pool bank account. Once the funds are received, the depository can carry out the transaction. 
    Under the arrangement, the RBI will grant general permission to QFIs for investment under portfolio investment scheme (PIS) route that is similar to FIIs. To begin with, an individual QFI can hold up to 5% in a company, while all QFIs put together can have up to 10% stake. These limits are over and above those prescribed for FIIs and NRIs.