Nov 04 2008
Reigning Indian FII regime may be replaced
Over the last several years India has seen a slow but markedly steady change in its liberalization policies targeted towards the inbound investments especially the FDI or the Foreign Direct Investment making its way towards the country. With the entire world being gripped in the clutches of a huge financial debacle India too has wisely decided to approach it with caution and uttermost preparedness. There is nothing strange or unexpected if the Indian government presently finds itself in a state where it is under immense pressure to introduce means and measures to attract foreign inflow and therefore has gone ahead and made certain important announcements towards achieving the same. External commercial borrowings (ECB) and foreign currency exchangeable bonds (FCEB) are some of the topics being covered in these announcements.
In accordance to the prevalent traditional FII regime all foreign institutional investors or FII’s after abiding to certain fixed parameters could invest in Indian shares and certain permitted securities which were being actively traded on the Indian stock exchanges. The FII needed to be registered with SEBI and carry out these investment related trade through means of a registered stock broker. Bringing change to this law there have been recent reports that soon even foreign companies albeit the FII’s too might be permitted to carry out investment in India by buying shares on the stock exchanges. Clearly these investments will not be of strategic importance but surely will provide the company to pick up a stake in any listed Indian company. These changes are aimed towards portfolio investments initially and does not involve strategic investments
Carrying out a clear distinction between a portfolio investment and a strategic investment will surely be a big hurdle to start with. Also it has been speculated that if this rule does in fact come into force then it might enable the foreign company wanting to invest in India to simply increase its stake in a joint venture deal by buying the shares of that particular company straight from the stock market. There are further indications that the Indian government might move a step further and bring into place the framework of a Qualified Foreign Investor in place of an FII which might just allow an individual foreign investor to carry out investment in the Indian stock market.