Foreign Institutional Investors Stakes Capped at 10 Percent Equity

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Apr. 16 – Foreign institutional investors (FIIs) wanting to invest in India will be limited to no more than 10 percent equity stake following the rules set out for portfolio investors.

The new rule will apply even if the foreign institutional investors are investing through the foreign direct investment route according to the Department of Industrial Policy and Promotion (DIPP). “FDI route is long term and more stable form of investment and this policy will restrict the free flow of FDI into the country,” Punit Shah, KPMG financial services tax practice leader told The Economic Times.

FIIs are allowed to invest in Indian companies via the the portfolio investment route or secondary market purchases and foreign direct investment route. The portfolio route for FIIs dictates that  individually FIIs can acquire up to 10 percent equity in an Indian company with the aggregate FII limit pegged at 24 percent, although the cap can be raised if board approval is given in sectors where 100 percent FDI is allowed.

The DIPP now clarifies that FIIs will need to follow the restrictions stated on the portfolio route even if the FIIs go through the FDI route. “It is more restrictive as 10 percent limit is lesser than FDI caps in most sectors. This also brings the issue of composite foreign investment caps to the fore that the finance ministry has been pitching for,” adds Shah.