RBI allows foreign individuals to buy Indian listed shares directly under amended rules

Foreign investors may bet big on Indian stocks after regulatory clarity emerges

Mumbai: India's move to allow foreign individuals to invest directly in listed companies is expected to eventually widen the pool of overseas capital on Dalal Street, though inflows are likely to remain a trickle initially as banks, regulators and market intermediaries work through operational, tax and compliance complexities.The RBI on Monday allowed all foreign individual investors to invest in listed Indian companies with immediate effect. The measure is expected to reduce dependence on foreign portfolio investors (FPIs), bring in new opportunities for brokers and create more sophisticated trading patterns over time, said industry participants."Structurally, this is a long-term positive for India as it opens up another tap for liquidity in terms of not only overseas individuals, but also family offices, HNIs, people of Indian origin, entrepreneurs and more," said Dhiraj Relli, managing director and chief executive officer at HDFC Securities.Currently, foreign individuals bet on Indian markets through pooled investment vehicles managed by foreign institutions, alternative investment funds, mainly Category III. Non-resident Indians (NRIs) and overseas citizens of India (OCIs) are allowed to invest directly in stocks here.The government and authorities are pushing through the opening up of a new avenue of capital at a time when foreign portfolio investors (FPIs) have been pulling money out of Indian equities, adding to pressure on the rupee.131783628"Anecdotally, there has been feedback that India is less accessible than other developed markets, despite its strong regulatory framework," said Relli. "The regulators and the government have used the ongoing currency weakness to ensure that one more structural reform is undertaken." But, there is unlikely to be a flood of flows through the new route soon.Nehal Sampat, partner, Price Waterhouse & Co, said that while it may not necessarily be an immediate 'game changer', any such change tends to make it easier for offshore investors to access Indian capital markets and helps in the longer run.However, despite the regulatory opening, investing in India is seen as cumbersome for foreign individuals in the near term, requiring extensive documentation, banking formalities and tax compliance."Foreign individuals need to open Indian bank accounts, which requires quite a lot of paperwork including verified identity documents, address proofs, and tax compliance forms. Banks need attested copies of all documents, which can be time-consuming for someone living abroad," said Shweta Rajani, associate director, Anand Rathi Wealth."The biggest challenge is that unlike NRIs who have established systems, foreign nationals are entering uncharted territory with banks still figuring out operational procedures, and currency conversion, tax reporting, and compliance add further complexity."Market participants expect brokers, exchanges, depositories, custodians and banks to play a key role in developing the ecosystem for foreign individual investors, while also benefiting from the additional business generated by the new investor category."Such investors would need advice and also the ability to trade, which brings brokers and infra providers into the picture, like exchanges, depositories, custodians, banks," Relli said.Rajani said financial firms may introduce services tailored to overseas investors, while technology platforms could simplify account opening and trading. She also said that demand for tax and compliance advice is likely to rise as investors navigate Indian regulations.Taxation is another area where foreign individuals could seek clarity."Under the tax law, the gains earned by FPIs from sale of listed shares are expressly regarded and taxed as 'capital gains'. For foreign individuals, since their investment would no longer be under the 'FPI route', the gains from listed shares could be taxable as 'capital gains' or 'business income', depending upon their specific facts," said Sampat.

5 hours ago

Global funds get RBI nod for Indian shares

Mumbai: The Reserve Bank of India allowed all foreign individual investors to buy shares in domestically listed firms directly, implementing a budget proposal and expanding access beyond non-resident Indians (NRIs) and overseas citizens of India (OCIs).This comes at a time when foreign portfolio investors (FPIs) have been pulling money out of Indian equities, adding to pressure on the rupee. The RBI said Monday evening that overseas individuals can invest in equity instruments of listed firms on recognised stock exchanges with enhanced limits, marking a further liberalisation of India's foreign investment regime.KYC Checks This potentially widens the investor base for domestic equities.Such individuals currently bet on Indian markets mainly through pooled investment vehicles managed by foreign institutions, alternative investment funds, mainly Category III, or via limited NRI channels.The government had last week notified relaxed rules for investments in listed Indian stocks by residents outside the country, including foreign individuals and entities. The amended rules under the Foreign Exchange Management Act (FEMA) allow 'persons resident outside India' (PROIs) to invest through portfolio investment schemes, earlier offered only to non-resident Indians and overseas citizens of India.Repatriable rupee a/csThe central bank said all commercial banks will be allowed to open repatriable rupee accounts for individuals outside India."The reporting of such transactions and monitoring of investment limits prescribed under the rules shall be undertaken in the same manner as is presently followed for investments by NRIs/OCIs," said the RBI circular.The biggest roadblock in implementation could be onerous know-your-customer (KYC) checks and client onboarding, including documentation that is compliant with FEMA. "If foreign citizens want to invest through an Indian rupee bank account, it is not as easy to open one," said Harshal Bhuta, partner at law firm PR Bhuta & Co. "You need attested copies of proof of identity and address, etc. Typically, NRIs invest in listed companies through an NRE (non-resident external) portfolio investment scheme account. So practically, it would have to be seen how this would be operationalised for foreign citizens."The RBI said any breach of investment limits would trigger a reclassification from foreign portfolio investment to foreign direct investment (FDI) under its prescribed framework. The move by the government and the central bank to allow foreign individuals to invest in listed stocks directly is seen as yet another bid to boost foreign currency inflows to stabilise the rupee, shore up foreign exchange reserves and ease external funding constraints. Last week, the RBI opened a special window for banks to mobilise foreign currency non-resident (FCNR) deposits from NRIs - its first since 2013 - and offered a 1.5% fixed-rate swap facility for external commercial borrowings (ECBs) by public sector units (PSUs). Economists estimated likely inflows from these two measures at $50-70 billion.The RBI last week urged banks to maximise efforts to raise overseas deposits to shore up forex reserves, which had dipped to $681 billion from a high of $728 billion in February. The central bank stepped up interventions after the US-Iran conflict began, leading to a drawdown in reserves. Its net short forward position stood at $95 billion as of April, indicating significant intervention to support the rupee.Separately, the RBI on Friday amended rules governing how overseas investors can pay for and repatriate proceeds from non-debt investments, streamlining procedures and clarifying reporting requirements under the foreign exchange framework.

1 day ago

India Opens Direct Stock Market Access For Global Retail Investors

India has introduced a significant policy shift allowing global retail investors to directly participate in its equity markets for the first time outside the traditional Non-Resident Indian (NRI) and Overseas Citizenship of India (OCI) framework. The change has been enabled through an amendment to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, notified on June 12.Under the revised framework, the earlier classification restricted to “non-resident Indian or overseas citizen of India” has been replaced with a broader category defined as “an individual person resident outside India.” This expands direct access to Indian equities beyond the diaspora to a wider global investor base, representing a calibrated step toward capital account liberalisation.Govt May Introduce More Steps To Attract Foreign Capital: Sitharaman Overseas individuals can now invest in equity instruments of listed Indian companies through recognised stock exchanges using authorised banking channels. However, the framework includes strict safeguards to ensure portfolio flows do not translate into control or ownership changes.An individual foreign investor is permitted to hold less than 10% equity in any listed company, while aggregate holdings by all such overseas individuals are capped at 24%. These limits are designed to maintain the character of portfolio investment. If an investor breaches the 10% threshold, the excess must be reduced within five trading days; failing this, the entire holding is reclassified as foreign direct investment (FDI), bringing it under a stricter regulatory regime.RBI Measures May Attract USD 55-65 Billion Inflows In FY27, Push Balance Of Payments Into Surplus: SBI Report The rules also retain enhanced scrutiny for sensitive transactions. Any investment resulting in transfer of ownership or control to entities from countries sharing a land border with India—or where the ultimate beneficial owner is based in such jurisdictions—will require prior government approval. This continues the tighter oversight introduced in 2020.The reform is expected to diversify India’s foreign investor base, which is currently dominated by institutional foreign portfolio investors. It could enable smaller investments from global retail participants and high-net-worth individuals, aligning India with more open developed markets.However, the success of the reform will depend on operational clarity regarding brokerage access, taxation, and banking procedures for overseas investors. Overall, the move reflects India’s gradual and controlled approach to opening its capital markets while maintaining regulatory safeguards.

1 day ago