India’s stock markets have surpassed Hong Kong’s to become the fourth largest in the world as investors swarm to a rapidly expanding alternative to China’s collapsing stock indexes.

India continues to draw international investors, who can make a variety of investments in the nation as it prepares for elections this year.

Foreign investors are required to utilise the foreign portfolio investment (FPI) pathway in order to purchase shares in India’s listed companies. Individuals and companies alike that invest must register with the nation’s markets authority and follow its disclosure guidelines. The 10,800 FPIs are primarily funds.

Investing through this approach in Indian companies is unrestricted; however, an FPI is not allowed to hold more than 10% of a listed company. A foreign direct investment (FFI) is classified as such if it makes more than 10% of any company’s equity. In certain industries, limits apply to FPIs.

Every FPI investment must be made through brokers and in Indian rupees. All FPI transactions are subject to the same taxes as those that apply to domestic investors, which include a surcharge and a securities transaction tax in addition to capital gains taxes of 15% for short-term holdings of less than a year and 10% for long-term holdings.

The Securities and Exchange Board of India (SEBI) requires custodian banks, who are the conduits through which foreign funds enter India, to provide the identity of the fund investors, but otherwise takes a hands-off approach to offshore fund registrations.

Usually, domestic banks or overseas institutions’ Indian branches serve as custodians. As to the SEBI website, there are seventeen custodian banks registered in India, which include Citi Bank, Deutsche Bank, ICICI Bank, Kotak Mahindra Bank, DBS Bank, HSBC, State Bank of India, and Standard Chartered Bank.

Regulators also need information about the so-called beneficial owners—any investor owning 10% or more of a fund’s assets—in accordance with India’s anti-money-laundering laws.

Furthermore, for funds with concentrated assets in a single company group, SEBI has tightened disclosure requirements.

Through the portfolio investment plan, non-resident Indians can invest in the Indian stock market. Transactions are processed via non-resident ordinary (NRO) savings accounts. 10% of the company’s paid-up capital is the maximum amount that NRIs and other people of Indian descent (PIOs) may invest in equities overall. An individual’s contribution is limited at 5%.

NRIs are not allowed to trade derivatives, they must accept share delivery, and they are not allowed to trade intraday.

Foreign investors can purchase Indian shares through participatory notes (P-notes) or offshore derivatives products if they do not want to register with SEBI.

These instruments are those that an FPI issues abroad in exchange for securities that the FPI owns in India, according to SEBI.

Investors can conceal their positions by using P-notes, but taking a short position in India necessitates frank disclosures.

The approximately 150 American and Global Depository Receipts (ADRs/GDRs) of Indian companies registered on overseas exchanges are also available for investment by foreigners. ADR/GDR has become less popular as a means of funding raising for businesses in recent years.

(Adapted from Reuters.com)

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