India may allow individual investors based overseas to directly buy stocks for the first time, easing a rule that restricts investments to mutual funds, said a finance ministry official with direct knowledge of the matter. Some government officials see no need to differentiate between India-focused mutual funds and foreign retail investors, the official said, declining to be identified because the review of the rule is confidential. The finance ministry may set a limit on the amount individuals can invest, said the official.
Capital market regulator Sebi sees no let up in institutional investment from overseas that has driven the BSE’s Sensex to near an all-time high, chairman CB Bhave said on Thursday. The rule change may add to the $92 billion foreign funds that have poured into local stocks since they were allowed into the country in 1993, with almost a quarter invested this year.
“It indicates continued liberalisation of the stock market and represents another step in internationalising India’s financial markets,” said Dariusz Kowalczyk, Hong Kong-based chief economist for Credit Agricole CIB. “It’s favourable for local equities and the move would broaden the pool of funds they can access to expand business.” Policymakers in Asia’s third-largest economy have been traditionally wary of a surge in capital inflows because possible panic withdrawals by foreign investors have the potential to cause financial instability, said DH Pai Panandiker, president of RPG Foundation, an economic research group.
“The move shows the fear is ebbing,” said Mr Panandiker. “There’s confidence there won’t be much of outflows even in worst of times.”
Purchases of Indian shares by funds based overseas reached a record $22 billion this year as the economy weathered a global recession triggered by the 2008 credit crisis.
The purchases are unlikely to reverse, said Mr Bhave in an interview with Bloomberg on Thursday in Mumbai.
“We have no reason to believe, at least if we go by historical evidence, that there will be a sudden reversal,” he said. For overseas investors , “it’s important that there is supply of enough paper,” otherwise asset prices may surge.
A planned share sale this month by Coal India , the world’s largest producer, will add to the Rs 75,300 crore ($17 billion) raised by the nation’s companies this year.
Gross domestic product, estimated at $1.3 trillion, is likely to expand 9.7% this year, the International Monetary Fund said this week, raising an earlier forecast of 9.4% growth. The Sensex has risen 26% from a May 25 low, while the rupee has strengthened 7.5% in the same period with rising inflows.
The government doesn’t need to restrict foreign institutional investment and foreign direct investment at this time, finance minister Pranab Mukherjee , said on Thursday in Washington after the rupee’s surge to a two-year high spurred concerns India will curb capital and stem the currency’s gains.
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