India has amended its Foreign Exchange Management Act rules to simplify foreign investment in listed stocks. The changes aim to attract capital inflows, support the rupee, and reverse recent capital outflows.
These regulatory changes are designed to boost foreign capital inflows into India, potentially strengthening the rupee and supporting the stability of its financial markets. The move signals a proactive approach by the government to attract investment during periods of global economic uncertainty.
The Indian government has notified new rules aimed at making it easier for individuals and entities residing outside India to invest in the country's stock market. These amendments to the Foreign Exchange Management Act (FEMA) rules allow persons resident outside India (PROIs) to invest through the portfolio investment scheme, previously restricted to Non-Resident Indians and Overseas Citizens of India.
The new regulations, effective immediately, permit an individual PROI to invest up to 10% in any listed company, an increase from the previous 5% limit. Furthermore, the overall investment cap for all such individuals has been raised to 24%, up from 10%. These measures are part of a broader government strategy to counter capital outflows and support the Indian rupee, which has seen some weakening amid geopolitical tensions.
However, investments that would result in the ownership or control of a listed company being transferred to entities or citizens of countries sharing a land border with India, or where the beneficial owner is from such a nation, will require prior government approval. This aligns with India's foreign direct investment (FDI) policy.
An individual PROI exceeding the 10% investment limit must divest the excess holdings within five trading days of the breach. Failure to do so will result in the entire investment being reclassified as FDI, preventing further portfolio investments in that company. The Securities and Exchange Board of India and the Reserve Bank of India will provide guidance on these divestment and reclassification processes.