Starting off the New Year on a liberalisation note, the Government today announced its decision to allow Qualified Foreign Investors (QFIs) to directly invest in the Indian equity market.
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.
“In a major policy decision, the central government has decided to allow Qualified Foreign Investors (QFIs) to directly invest in the Indian equity market in order to widen the class of investors, attract more foreign funds and reduce market volatility and deepen the Indian capital market,” an official statement said today.
A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs do not include FIIs/sub accounts.
In August last year, the government allowed foreign investors to directly invest up to $13 billion in equity and debt schemes of mutual funds.
With regard to foreign portfolio investments, at present, only FIIs/sub-accounts and NRIs are allowed to directly invest in the Indian equity market.
Amid severe volatility in the capital market last year, Foreign Institutional Investor (FIIs) outflows amounted to more than Rs 2,700 crore. The situation had an impact on the rupee, which fell to an all-time low of to Rs 54.30 on December 15 and fluctuation in the domestic currency has put pressure on policymakers.
Market regulator SEBI and the Reserve Bank of India (RBI) are expected to issue relevant circulars to operationalise the scheme allowing QFIs to directly invest in Indian equities by January 15.
The RBI would grant general permission to QFIs for investment under the Portfolio Investment Scheme (PIS) route, similar to FIIs.
“The individual and aggregate investment limit for QFIs shall be 5 per cent and 10 per cent, respectively, of the paid-up capital of an Indian company,” the statement said.
These limits shall be over and above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India, it added.