Govt allows Qualified Foreign Investors to directly invest in Indian equity market

The New Year has kicked off with a major economic reform initiative that will allow foreign individuals to directly buy and sell shares of Indian companies in the country’s stock markets.

The government has decided to allow Qualified Foreign Investors, to directly invest in the Indian equity market. 

A Finance Ministry statement issued in New Delhi said, this has been done to widen the class of investors, attract more foreign funds and reduce market volatility and deepen the capital market.

A qualified foreign investor is a foreign individual who trades in local equities through legitimate channels after making all necessary disclosures.

At present, India only allows foreign individuals to trade in local equities through indirect routes such as mutual funds. Under the new norms, a foreign individual will be able to transact in Indian stock markets by simply opening a demat account through a Securities and Exchange Board of India-authorised intermediary.

The move comes against the backdrop of significant foreign capital outflows from the domestic equity market in recent times, which has resulted in rupee volatility.

Bigger dollar inflows will also help stem the rupee’s slide that has shed 16% during the year and hit an all-time low of 54.30 RUPEES to a Dollar last month.

A weak rupee has made most imported goods such as crude oil costlier, fanning inflation.

Opening the door wider for foreign cash comes at a time when the government is battling charges of policy inaction in a slowing economy hit by industrial slowdown, rising interest rates and increasing inflation. The new norms will be notified by 15th of this month.