SEBI Relaxes Foreign Investment Rules
Jun. 26 – The Securities and Exchange Board of India (SEBI) has approved reforms to ease the registration and compliance process for foreigner investors this week in an attempt to further foster the flow of investment and direct funds into the Indian market.
These changes likely come as a result of the weakening of India’s stock markets and currency, best highlighted by foreign investors selling an estimated US$6 billion in debt and stocks this month alone.
In a bid to simplify the entry of foreign investors into India’s capital market, a new investor classification will be created termed Foreign Portfolio Investors. This new class will merge the existing categories of Foreign Institutional Investors, Sub-Accounts and Qualified Foreign Investors. However, if the investment exceeds 10 percent of the equity of a company, it will qualify as Foreign Direct Investment.
Furthermore, the rules regarding company share buybacks have changed. Companies now have to complete the share buyback process within 6 months, in addition to buying at least 50 percent of the proposed purchases (up from 25 percent).
This measure seeks to counter companies that hope to boost their shares by announcing buybacks without the intention of making the purchase. The companies that fail to comply with this new rule will suffer financial penalties, forfeiting 2.5 percent of the money they set aside for the share buyback.
Another notable change introduced is that start-ups and small to medium-sized enterprises can now be listed on the Indian Stock Exchange without any initial public offerings. Angel funds are also now allowed to invest in start-ups, reflecting India’s desire to attract and assist entrepreneurs operating in its market.
‘These [reforms] are definitely positive steps. We are likely to see more interest from foreign investors,’ said Suresh Swamy, a Mumbai-based Executive Director at PricewaterhouseCoopers.
While it is too soon to judge how quickly these reforms will revitalize the economy, there are clear signs that they are a step in the right direction. For a traditionally slow democratic bureaucracy, these reforms are a timely initiative by India that will help attract new foreign investors.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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