INDIA BUSINESS WORLD - MAY 11th - MAY 31st - 2008
SEBI GIVES FOREIGNERS EASIER ACCESS TO THE INDIAN STOCK MARKET
ABLOATED oil import bill, weakening rupee, and huge FII outflows ($3 billion so far this year) have forced the government to give foreign individuals and corporates easier access to the Indian stock market.
Listed foreign companies with an asset base of not less than $2 billion and a profitability record, and foreign individuals with a minimum net worth of $50 million can now trade in local stocks. They can operate as sub-accounts, where FIIs registered in India manage the investments. Sections in the market, however, feel that the $2-billion floor may be a little too high.
The changes introduced by capital market regulator Sebi would also enable more overseas entities to invest as sub-accounts of FIIs, foreign portfolio managers take exposure to collective investment schemes like art funds, and FIIs to issue participatory notes (PNs) to entities like some hedge funds. PNs are derivative instruments issued by FIIs to overseas investors who have no access to the Indian market.
Till now, sub-accounts, on whose behalf investments are made in India by FIIs, had to be primarily broadbased. This meant sub-accounts had to have at least 20 investors, and no one could hold over 10% stake. Now, a sub-account investor can have as much as 49% stake, which would make it possible for just three investors to form a sub-account—two with 49% stake each and one with 2%.
Significantly, the new regulations will also allow NRIs to set up their own advisory companies and get the funds registered as FIIs with Sebi. Here, the NRI acts as the fund manager while the investors are foreign nationals and corporates. Sebi has received several applications from such entities.
The changes reflect a softening of Sebi’s stance since its clampdown on PNs in October. Sebi had not only barred issuance/renewal of PNs where the underlying investments are stock options and futures, it had also put a cap on total PN issuance by an FII.
|
