Indian policy makers are framing
the guidelines to allow Non Resident Indians (NRIs), foreign firms
and individuals to park in local stock markets by registering
with foreign institutional investors.
The proposal primarily aims to attract interests from these prospective
investors through FIIs who register them as sub accounts and to
conduct the required checks on the investors.
Sebi may revamp its regulations relating to facilitate the amendments.
Likewise, the Foreign Exchange Management Act (FEMA)
regulations need to be redrafted in consultation with the government.
It has become more crucial to bring modifications as NRIs are
now allowed to make investments through portfolio
investment schemes.
The proposal to redefine the criteria for sub accounts of FIIs was
discussed at the board meeting of Sebi, says official. The government
wishes to ensure minimum issuance of participatory notes in the
Indian markets. The underlying securities of PNs are shares of Indian
conglomerates. Playing an underlying role for the investors, these
are issued to investors who either want to trade anonymously or
are unwilling to go for a direct registration. Surprisingly, Indian
market for money seems to be anxious after the government’s
decision. It cannot digest the idea of allowing local money to flow
out of the country and then returning in disguise of foreign investments.
If the government envisages keeping participatory notes out,
it needs to relax the distortions or the incentives that exist
now for foreign investors to use such instruments like PN.
