Galvanised into action by growing criticism of “policy paralysis”, the government kicked off 2012 with a major reforms initiative that will allow foreign individuals to directly buy and sell shares of Indian companies in the country’s stock markets.
The move is aimed at attracting more foreign capital to the Indian bourses that slumped nearly 25% last year, severely eroding investors’ wealth after overseas funds withdrew a net $380 million (Rs 1,976 crore) in 2011 compared to record inflows of $29 billion (Rs 1,50,800 crore) in 2010.
Bigger dollar inflows will also help stem the rupee’s slide that has shed 16% during the year and hit an all-time low of Rs 54.30 to a dollar last month.
A weak rupee has made most imported goods such as crude oil costlier, fanning inflation.
“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,” the finance ministry said Sunday.A QFI is a foreign individual who trades in local equities through legitimate channels after making all necessary disclosures.
The new norms will be notified by January 15.
At present, India only allows foreign individuals to trade in local equities through indirect routes such as mutual funds.
Under the new norms, a foreign individual will be able to transact in Indian stock markets by simply opening a demat account through a Securities and Exchange Board of India-authorised intermediary.
Opening the door wider for foreign cash comes at a time when the government is battling charges of policy inaction in a slowing economy hit by industrial slowdown, rising interest rates and galloping inflation.