The Ministry of Finance (MoF), Government of India has decided that foreign individuals, pension funds and certain other entities which meet a qualification criteria, called Qualified Financial Investors (QFIs) can now invest directly in the equity markets.
Presently, only Non-resident Indians (NRIs) and Foreign Institutional Investors (FIIs) are entitled to invest in the stock markets. QFIs can invest indirectly through Mutual Funds.
The MoF expects that this will widen the class of investors, attract more foreign funds, reduce volatility and add more depth to the capital markets.
The key features of the policy will be
– The Reserve Bank of India (RBI) shall give general permission to QFIs to invest under the Portfolio Investment Scheme (PIS) in a similar manner to FIIs.
– Individual and aggregate QFI investment shall be capped at 5% and 10% respectively of the Indian company’s paid-up capital, but this shall exclude NRI and FII investments.
The SEBI and the RBI is expected to come up with detailed circulars in relation to the same which shall be notified by January 15, 2011.
We hope that this policy decision shall not go the same way as FDI in Retail, although the political reaction for the present seems to be extremely muted