Reserve Bank Of India / Preparation to promote foreign investment in Indian market- RBI's big step

The Reserve Bank of India (RBI) is going to take a historic step to encourage foreign investment. There is a plan to increase the limit of individual foreign investment in listed companies from 5% to 10%. This decision has been taken to increase foreign capital inflows and ensure the stability of the stock market.

Reserve Bank Of India: The Reserve Bank of India (RBI) is preparing for a historic change to attract foreign investment. According to sources, the investment limit for individual foreign investors in listed companies may be increased from 5% to 10%. This move will accelerate foreign capital inflows and provide stability to Indian markets.

Decline in foreign investment and government's concern

Foreign portfolio investors (FPIs) have withdrawn more than $28 billion from the Indian stock market since September 2024. Foreign investors are keeping away from the Indian market due to growing global uncertainties, the possibility of US tariffs and high valuations.

RBI's strategy

RBI has indicated in a letter to the government that rules may be changed rapidly to encourage foreign investment. This includes a proposal to allow all foreign individual investors to invest up to a maximum of 10% in Indian listed companies. Currently, under the Foreign Exchange Management Act (FEMA), non-resident Indian citizens are allowed to buy up to 5% stake.

Benefits of the change

Expansion of investment: Increasing limits for foreign investors will allow more capital to flow into the market.
Support to the stock market: There has been a huge withdrawal by foreign investors in the last one year. The new rules may stabilize the market.
Global competition: India may become more attractive for investment than other countries.

Challenges and potential risks

However, the Securities and Exchange Board of India (SEBI) has expressed some concerns about monitoring foreign investment. If a single foreign investor's stake increases to 10% and he acquires more than 34% control with associates, takeover rules may apply. SEBI has cautioned that without effective monitoring, this process may hinder transparency.

Effect on the economy

This change will give Indian companies a better opportunity to get foreign capital, which can strengthen the country's economy. However, the government and market regulators will have to keep a close watch on the effects of this change.