Foreign investors may bet big on Indian stocks after regulatory clarity emerges
Mumbai: India's move to allow foreign individuals to invest directly in listed companies is expected to eventually widen the pool of overseas capital on Dalal
Mumbai: India's move to allow foreign individuals to invest directly in listed companies is expected to eventually widen the pool of overseas capital on Dalal Street, though inflows are likely to remain a trickle initially as banks, regulators and market intermediaries work through operational, tax and compliance complexities.The RBI on Monday allowed all foreign individual investors to invest in listed Indian companies with immediate effect. The measure is expected to reduce dependence on foreign portfolio investors (FPIs), bring in new opportunities for brokers and create more sophisticated trading patterns over time, said industry participants."Structurally, this is a long-term positive for India as it opens up another tap for liquidity in terms of not only overseas individuals, but also family offices, HNIs, people of Indian origin, entrepreneurs and more," said Dhiraj Relli, managing director and chief executive officer at HDFC Securities.Currently, foreign individuals bet on Indian markets through pooled investment vehicles managed by foreign institutions, alternative investment funds, mainly Category III.
Non-resident Indians (NRIs) and overseas citizens of India (OCIs) are allowed to invest directly in stocks here.The government and authorities are pushing through the opening up of a new avenue of capital at a time when foreign portfolio investors (FPIs) have been pulling money out of Indian equities, adding to pressure on the rupee.131783628"Anecdotally, there has been feedback that India is less accessible than other developed markets, despite its strong regulatory framework," said Relli. "The regulators and the government have used the ongoing currency weakness to ensure that one more structural reform is undertaken." But, there is unlikely to be a flood of flows through the new route soon.Nehal Sampat, partner, Price Waterhouse & Co, said that while it may not necessarily be an immediate 'game changer', any such change tends to make it easier for offshore investors to access Indian capital markets and helps in the longer run.However, despite the regulatory opening, investing in India is seen as cumbersome for foreign individuals in the near term, requiring extensive documentation, banking formalities and tax compliance."Foreign individuals need to open Indian bank accounts, which requires quite a lot of paperwork including verified identity documents, address proofs, and tax compliance forms.
Banks need attested copies of all documents, which can be time-consuming for someone living abroad," said Shweta Rajani, associate director, Anand Rathi Wealth."The biggest challenge is that unlike NRIs who have established systems, foreign nationals are entering uncharted territory with banks still figuring out operational procedures, and currency conversion, tax reporting, and compliance add further complexity."Market participants expect brokers, exchanges, depositories, custodians and banks to play a key role in developing the ecosystem for foreign individual investors, while also benefiting from the additional business generated by the new investor category."Such investors would need advice and also the ability to trade, which brings brokers and infra providers into the picture, like exchanges, depositories, custodians, banks," Relli said.Rajani said financial firms may introduce services tailored to overseas investors, while technology platforms could simplify account opening and trading. She also said that demand for tax and compliance advice is likely to rise as investors navigate Indian regulations.Taxation is another area where foreign individuals could seek clarity."Under the tax law, the gains earned by FPIs from sale of listed shares are expressly regarded and taxed as 'capital gains'.
The BriefWire