The Cabinet will soon approve a proposal to raise the individual cap on foreign investment, in both stock as well as commodity exchanges, from 5% to 15%, sources told FE.
While the immediate beneficiaries of the move could be prospective investors in the Bombay Stock Exchange (BSE), slated to go public with an Initial Public Offering (IPO) later this year or in early 2017, commodity exchanges will also get a fresh leg-up. For instance, Blackstone GPV Capital Partners, the biggest foreign investor in MCX with a 4.79% stake, can raise its holding in the exchange should it so desire. The move will also encourage large global commodity exchanges, who were earlier shy of investing in India due to the low cap for a single foreign entity, to explore the possibilities more seriously now.
In the Budget for 2016-17, finance minister Arun Jaitley had said the individual investment limit for foreign entities in Indian stock exchanges would be enhanced to 15%, on a par with that for domestic institutions. However, it was unclear at the time if the cap would also be raised for commodity exchanges.
Senior officials with the ministries of industry and finance said since all associations (commodity exchanges) under the Forward Contracts (Regulation) Act, 1952 are now “deemed to be recognised as stock exchanges under the Securities Contracts (Regulation) Act, 1956”, the proposed hike in individual ceiling of foreign investment in stock exchanges will also apply to commodity bourses, even though it was not explicitly mentioned in the Budget.
Late last year, the government repealed the FCRA and suitably amended rules to enable the merger of erstwhile Forward Markets Commission, which was the regulator for the commodity markets, with the Securities and Exchange Board of India (Sebi). “A Cabinet note will soon be circulated for the hike in the investment limit for a foreign entity and a decision is expected in a month’s time,” an official said. Currently, foreign investors together can hold up to 49% in any stock or commodity exchange.
Commodity analysts said when NYSE Euronext was looking to tap the promise of a growing Indian commodity futures market in 2007-08 through its affiliate Euronext NV, it had to be content with just about 5% in MCX due to such a cap. Later, of course, the global financial group offloaded the shares (in 2013-14) after the R5,600-crore settlement crisis at the National Spot Exchange (NSEL), a sister concern of MCX, flared up.
As of March 31, foreign investors together held a total of 15.29% in MCX, according to data available with the BSE. In NCDEX, foreign investors hold 5.92%, with InterContinental Exchange and Goldman Sachs Investments (Mauritius) having 2.96% each.
Foreign investors hold nearly 30% in the BSE. The major foreign investors are Deutsche Boerse AG (4.75%), Singapore Exchange Limited (4.75%), Caldwell India Holdings Inc (3.74%), Atticus Mauritius Ltd (3.74%) and Acacia Banyan Partners Limited (3.74). Foreign portfolio investors (FPI) hold about 9% including GKFF Ventures (4.6%) and Quantum (M) Limited (3.7%) in the exchange. The public holding is 51.7% while trading members own 48.3%.
While BSE has been looking at a listing for a long time, a lack of clarity on listing rules for stock exchanges has delayed its plan. While the exchange has no plans to issue fresh shares to raise capital, as it has sound financials, the listing could see some existing shareholders–including foreign investors–selling a part of their stake. Similarly, some other global investors or exchanges could also buy into the exchange once the individual limit is enhanced to 15%. The BSE management had earlier indicated it is in talks with potential investors to pick up stakes in the bourse.