India to Double Investment Cap for Foreign Individual Investors to 10%

India's central bank is poised to raise the investment cap for individual foreign investors in listed Indian companies from 5% to 10%. This move is aimed at boosting foreign capital inflows, following a significant outflow of over $28 billion from Indian stocks since September, driven by factors such as high valuations, poor earnings, and concerns over U.S. tariffs.

In response to this outflow, India is expanding investment benefits that were previously restricted to overseas Indians, while also increasing the limits for foreign investors. Senior government officials and documents reviewed by Reuters revealed that the Reserve Bank of India (RBI) is pushing for the implementation of these changes as soon as possible to address disruptions in capital inflows from the external sector.

As part of these reforms, foreign individual investors will be allowed to invest up to 10% in any listed Indian company, up from the previous 5% cap that applied only to non-resident Indians (NRIs) and overseas citizens of India (OCIs) under the Foreign Exchange Management Act (FEMA). Additionally, the combined holding limit for all foreign individual investors in an Indian listed company will increase from 10% to 24%, officials stated.

These changes are still under discussion between the government, the RBI, and the Securities and Exchange Board of India (SEBI). However, SEBI has expressed concerns about monitoring compliance with foreign investment limits. The market regulator has warned that a single foreign investor or their associates could hold a stake greater than 34%, potentially triggering takeover rules, which would require an open offer for shares held by retail investors.

The government and regulators are currently evaluating these concerns and working on streamlining the rules to prevent potential regulatory arbitrage by foreign investors. Once the rules are finalized, they are expected to facilitate increased foreign investment in Indian listed companies, which is seen as crucial to support the country's economic growth.