Foreign investors in India?s stock and commodity exchanges will soon be able to raise their stakes, as the government plans to raise the cap on FDI by any single investor from the present 5%. However, the overall cap on FDI for these bourses would remain 49%.
Once the cap for individual investors is raised, India?s underdeveloped exchange business could receive a fillip, leading to more meaningful competition between the bourses resulting in efficiency of operations and better investor services. The move, sources said, could also pave the way for more exchanges being set up in the country.
Millions of potential investors are yet to enter the equity market, as the present system does not entice them enough, even as Indian stock exchanges have trading volumes benchmarked against the biggest bourses in the world.
The proposal, if implemented, would also enable many institutional investors in exchanges to exit. Official sources said that the finance ministry, in a note to the department of industrial policy & promotion (DIPP), has already indicated that it prefers to raise the ceiling for individual FDI investors in exchanges to 10%.
Foreign players, who are unhappy with the current cap, would start investing more in existing exchanges as well, helping them upgrade technologies and expand product baskets. The government will have to consult RBI and Sebi, who frame policies for these exchanges, before it takes a decision.
Deutsche B?rse, Singapore Exchange, Acacia Banyan Partners, Atticus Mauritius, Caldwell Asset Management Inc and Dubai Financial have invested in the county?s largest stock exchange, the BSE. Similarly, NYSE Euronext, Citigroup, Merrill Lynch and Passport India have done so in MCX.
Meanwhile, the Competition Commission of India has also written to the finance ministry to allow foreign companies to hold more than 5% each in exchanges. Foreign investors that hold more than this in commodity exchanges have been asked to bring down their stakes by March 31. However, this exercise would be moot if the government relaxes policy.
If the government does indeed hike the individual cap, commodity exchanges will still have to inform DIPP, the department of consumer affairs, Foreign Investment Promotion Board, Forward Markets Commission and markets regulator Sebi of their foreign investment composition regularly.