India to Open Equity Market to non-Institutional Investors

January 12, 2012
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On January 1, 2011 the Finance Ministry of India decided for the first time to allow QFI’s (Qualified Foreign Investors) to invest in the Indian market. Prior to the ruling only Indians, non-resident Indian (NRIs) and foreign institutional investors were allowed to invest directly in the Indian equity market. I think this is great news for investors in developed markets who are facing recessions and bear markets (particularly Europe). If you were an American retail investor and wanted access to the Indian market, you had limited options prior to the ruling. Basically, you would have been limited to a few ADRs trading on US exchanges and a few mutual fund/ETF options. The ruling will now open the Indian market to any qualified foreign individual. The key question remains in my view what will be required by an individual investor who is not Indian to be considered a Qualified Foreign Investor. Full details of the initiative are expected to be published on January 15th. I’m planning to post a summary of the detailed ruling once it’s made available. I think the Indian government has taken a step in the right direction by opening up the market. In my view, greater liberalization should be welcomed. The ability of foreign investors to invest directly in the market should help improve liquidity, drive capital inflows and possibly force improvements in corporate governance.

The following link from the Economic Times provides a good summary of the information made publicly available so far:

 

Written by Ankur Shah

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