Hat Tip: Shivam Bose
Disclosure:I am market making in the shares of Bombay Stock Exchange
In a move that could increase the stake of foreign investors in Indian stock exchanges, the government is considering a three-fold increase in the single-investor investment ceiling.
Currently,a foreign portfolio investor (FPI) investment in an exchange is capped at 5%.
The finance ministry has written to the regulatory authorities to increase the ceiling to 15%, said sources. The proposal is said to have in-principle approval from the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI).
The move would bring the FPI investment limit in line with those for financial institutions such as insurance companies and banks.
The government allowed the foreign investors to invest in stock exchanges in 2006, with an overall cap of 49%. This latter cap is likely to be unchanged.
BSE and the National Stock Exchange (NSE), the two large nationwide bourses, are likely to benefit from the increase in limits. BSE has eight foreign investors, which cumulatively own about 31% in it. The shareholding of Deutsche Boerse Group and Singapore Exchange Ltd are a little below the 5% ceiling.
NSE has about 20 foreign shareholders, holding around 36%. Cyprus’ Gagil and Goldman Sachs own 5% each; Citi Group has around 2%.
“The finance ministry has received representations stating that the present limit of five% is a deterrent in attracting long-term anchor and strategic foreign investors in stock exchanges. Following which, the ministry has sought comments from both Sebi and RBI,” said a person privy to the matter.
A higher foreign investor limit will not only encourage more investment in Indian bourses but help in exchange of technology and products, said exchange officials.
“A five% limit on the shareholding of any single investor or investor group is too small to encourage them to take sufficient interest in growth of the exchange,” said an official associated with one, asking not to be named.-from BS