A foreign Individual, a foreign pension fund or even a foreign trust can invest in initial public offerings (IPOs) or follow-on public offers (FPOs) of Indian companies.
The Government on Monday clarified that such ‘qualified foreign investors' (QFIs) will be allowed to invest in public offers. The clarification followed Sunday's announcement allowing QFIs direct entry into the Indian equity market.
A senior Finance Ministry official said, “QFIs can invest under the retail category in an IPO or FPO.” It means such an investor can make application up to an amount of Rs 2 lakh which is threshold for retail investor. The market regulator prescribes a minimum of 35 per cent of total shares offered under an issue for retail investors.
Meanwhile, Sunday's announcement failed to excite the stock market on the first trading day of 2012. The benchmark BSE Sensex index index witnessed a movement of 185 points before settling at 15,517.92 with a gain of just 63 points over its previous close.
Talking about voting rights for QFIs, the official said that the matter was “under discussion.” He hoped that details about such an issue will be part of the market regulator Securities and Exchange Board of India's (SEBI) notification on QFIs' investment in the equity market. The notification is expected to be out by January 15.
Meanwhile, Mr R Gopalan, Secretary, Department of Economic Affairs, said, “This (allowing QFI to invest directly) is a very significant step. We were looking at how to increase inflows in the market... the good thing is that unlike FII money, which is deemed to be hot money, people will put money in this for a longer period of time.”
He also said the government was looking at ways to dispense with the need for an income tax permanent account number (PAN) for foreign investors investing money in the equity market, as required under the existing ‘KnowYour Customer' (KYC) and regulatory norms.
“We are looking at the situation where they can dispense with PAN, but as of, now they will have to use PANs,” Mr Gopalan said.
Meanwhile, four out of eight applications for depository participant for QFI have been cleared. They are Kotak, HSBC, Citibank and Deutche Bank. QFIs can open demat accounts with these DPs.