Financial sector regulators may allow insurance companies and pension funds to invest in Indian Depository Receipts (IDRs) ? a move that would boost issuance of this instrument. The Securities and Exchange Board of India (Sebi) has asked insurance regulator Irda and the interim pension regulator PFRDA to permit these funds to invest in IDRs.
?Sebi has recently held consultations with Irda and PFRDA for allowing insurance companies and pension funds to participate in the IDR market,? official sources told FE.
The markets regulator is in the process of unveiling norms relating to two-way fungibility of IDRs, which are issued by foreign companies to investors in India. IDRs allow Indian investors to own stakes in foreign companies whose shares are listed abroad.
These companies are allowed to issue depository receipts in India with overseas shares as underlying.
Standard Chartered, whose shares trade on the London Stock Exchange, is currently the only company that has an IDR listed on the Indian stock exchanges.
Two-way fungibility of IDRs, which the former finance minister Pranab Mukherjee proposed to allow in the Budget in February, will permit conversion of IDRs into shares and vice-versa. Sebi is finalising the guidelines to implement two-way fungibility, official sources said.
The IDR of Standard Chartered closed down 1.22% at R100.85 at the NSE on Monday.
Currently, the government does not allow insurance policy holders and pensioners money to be invested in overseas financial instruments.
In order to protect investors’ money, Section 27-C of the Insurance Act bars investment of insurance funds outside India. Irda prohibits Indian insurers from investing in IDRs as it would amount to indirect investment made outside the country. Similarly, pension sector regulations do not permit investing pension funds outside.
In a recent report, Edelweiss Securities said that two-way fungibility and supportive regulations would encourage other foreign companies, such as Vodafone, HSBC and Citi, to take the IDR route to tap Indian market. In their consultations with Sebi, market participants have favoured 100% fungibility, as this would, over time, eliminate any arbitrage for conversion.