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FIIs taking FDI route face stake cap in local co
16 April 2010: Foreign institutional investors or FIIs will have to follow the rules applicable to portfolio investors even if they are investing through the foreign direct investment route, limiting their ability to acquire big stakes in companies.
The new rule released by the Department of Industrial Policy and Promotion (DIPP) has clarified that an individual FII will not be allowed to pick up more than 10 per cent equity in an Indian company even if it is coming as a foreign direct investor.
FIIs can invest in Indian companies through both the portfolio investment route or secondary market purchases and foreign direct investment route. But the policy makes a distinction between portfolio investments by FIIs and foreign direct investment.
Under the portfolio route FIIs can individually acquire up to 10 per cent equity in an Indian company though the aggregate FII limit is pegged at 24 per cent. The limit can, however, be raised after securing board’s approval in sectors where 100 per cent FDI is allowed.
The DIPP has now clarified that the same rule will apply if FIIs come through the FDI route. They can not pick up more than 10 per cent stake in a company even if their investments are treated as FDI and that such investment should not be more than 24 per cent of the total equity.
Under the earlier policy, an individual FII investing through the FDI scheme route could pick up up to 100% in such a sector. This will impact investments through preferential route or private placements to foreign investors. FIIs will not be able to pick up substantial equity in Indian companies through preferential allotment.
Source: Economic Times