Govt mulls direct share acquisition by foreign retail

19 November 2011: The government is “seriously contemplating” allowing foreign retail investors to directly participate in the Indian stock market.

The issue of allowing foreigners to buy shares of Indian companies directly is under serious consideration. Experts said here has to be clarity on know-your-customer (KYC) norms as well as regulatory co-ordination with foreign jurisdictions before this can become a reality. One only needs to take care of KYC norms and anti-money laundering guidelines. If foreign investors can be allowed to invest in mutual funds, they may as well be allowed to invest in equities directly. One will need to formulate registration norms for these investors, know-your-customer regulations would have to be sorted out. Brokerages will also have to see what laws in various countries have to be followed if they want to market themselves to foreign retail investors. This will provide an alternative to coming in through the foreign institutional investor (FII) route, but domestic brokerages would have to expand their presence to address them. This will provide investors greater flexibility to structure their investments than if they come in as part of a collective scheme launched by an institution. Indian brokerages may have to increase their points of presence if they want to tap the foreign retail investor. Currently, mutual funds registered with the Securities and Exchange Board of India, are allowed to accept subscriptions from retail investors of foreign origin subject to know-your-customer norms. They can collectively invest $10 billion (approx Rs 50,000 crore) in these schemes. The government has taken other steps to attract foreign capital.

Source: Times of India