Finance Ministry Increases FPI Limit in Indian Companies

On Friday, National Securities Depository (NSDL) and Central Depository Services (CDSL) made changed in the foreign portfolio investment (FPI) limit across all listed shares of the Indian stock market. Following this update, the FPI limit has reached 100 percent in some stocks.

This revision allows foreign investors to buy a stake in the company on the basis of Foreign Direct Investment (FDI) in the sector. This may also result in the increase of the global indices of MSCI and FTSE. Earlier MSCI deferred the decision of India to increase its stake in global indices.

The decision was deferred by MSCI citing delays by the government. The government had decided that from April 1, 2020, the limit of FPI in Indian companies will be increased from the existing 24 per cent to the limit of FDI on the basis of the sector.

A circular was duly issued by the Finance Ministry in October 2019 in this regard.

As per this decision, foreign investors can buy shares of Indian companies up to the prescribed limit of foreign direct investment  in that sector, provided that the company's board and shareholders do not pass a resolution against it.

MSCI said in its note that it would wait for this decision to come into force practically and only after issuing sector-based limitations in Indian companies, MSCI would change India's share in the indices.

After the change by MMSCI, India's share on the Emerging Markets Index of MMCI will increase from 8.9 percent to 9.6 percent. According to Morgan Stanley, this passive investment of $ 2.5 billion will increase in the Indian market.