Opportunities for Foreign Investors in the Indian Stock Market

By Mohammed Waseem

Indian stock market is often underestimated in developed countries. Many consider it just another market. In reality, India is among the best markets for investors to consider; it is among the most promising markets in the world. India is a country which has young population and youngsters are encouraged to take part in the stock trading.

India has as many as 22 recognized stock exchanges, including 8 permanent ones. Most of these are limited to local stock trading and are open for Indian citizens alone. However, 2 stock exchanges among these, which are primary trading exchanges, allow foreign investors to take part in the trading; they are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

NSE, MumbaiUntil 1990, no foreign entity was allowed to trade in the Indian stock market. Then, foreign investment was permitted in two forms: Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). Investments which involve taking part in managing a business fall under the FDI category, and investments which do not involve taking part in the management of business fall under FPI. For portfolio investments, one has to be registered as an FII (Foreign Institutional Investor) or as one of the sub-accounts of a registered FII. The FII stock trading recently led to over Rs. 5000 crore (@828 million) inflow in just two weeks, according to the Securities and Exchange Board of India (SEBI), which regulates the Indian stock market. This was for business investments, but what about investment opportunities for foreign individuals?

Until the beginning of 2012, Foreign Investors (FIs) were not allowed to invest directly in the Indian stock market. They were allowed, however, to invest by the way of American Depository Receipts (ADR) or Global Depository Receipts (GDR), which are stocks that are traded on the investor’s home-country stock exchange, but represent Indian companies. In other words, Indian companies which are listed on foreign stock exchanges can issue GDRs and ADRs. Additionally, they were allowed to trade in FCCB (Foreign Currency Convertible Bonds).

But the Indian government opened up a little to FIs in 2012, which has made it easier for foreigners to invest in the Indian stock market. Having said this, it should be noted that not every foreigner is qualified to invest in the market. One has to be a Qualified Foreign Investor (QFI) in order to qualify for the investment. A QFI is anyone who is a resident in a country that is a member of Financial Action Task Force (FATF) or member of a group which is a member of FATF, or a resident in a country that is signatory to Appendix A of the International Organization of Securities Commissions (IOSCO)’s Multilateral Memorandum of Understanding (MMoU). List of the qualified countries can be accessed here. Additionally, a QFI must not be a resident of India, nor registered as a FII or a sub-account of a FII.

QFI status allows FIs to directly invest in Indian companies via BSE and NSE. However, there is a limit to the investment for an individual QFI, which is 5% of the equity of an Indian company. The aggregate shareholding of QFIs in an Indian company cannot exceed 10%. They can also invest in mutual funds and Indian corporate bonds in addition the limit for which is $1 billion.

All QFI investments should come through a Depository Participant (DP), which acts as an intermediary between the investor and the depository. The list of DPs under National Securities Depository Limited (NSDL) can be viewed here and the list of DPs under Central Securities Depository Limited (CSDL) can be viewed here. The exchange for NSDL is NSE, while for CSDL, it is BSE. In order to trade in the stock exchange, a QFI has to open a Demat account; each QFI is allowed to open only one Demat account.

Investment in the Indian stock market is considered to be among the most exciting investment opportunities of this time by market experts. Investors looking for a good investment opportunity should consider the Indian stock market.

Opportunities For Foreigners In Indian Real Estate

By Mohammed Waseem

Indian real estate market has grown over the past few years and has attracted many investors. Few economists suggested that it could be a property bubble, as there was a housing slump in 2013. Leading magazines and researchers report that real estate prices are increasing in India and may not come down in 2014. In this article, I will talk about the possibility of investing in Indian real estate for non-Indians.

Investing in Indian real estate is highly restricted and very difficult for foreigners. In fact, it is very complicated, such that many seemingly legal legitimate dealings could turn out to be illegal, resulting in the property being confiscated. Foreigners of non-Indian origin who do not reside in India are not allowed to purchase any immovable asset in India, except when property is acquired by way of gift or inheritance from a person who was resident in India. In order to be eligible to buy property, foreigners must attain ‘resident’ status, which requires that they reside in the country for a minimum of 183 days. However, they are required to obtain approvals and fulfill the requirements prescribed by other authorities concerned.

A Residential Property in IndiaBuying property on tourist visa is not possible and is considered illegal. Besides, a tourist visa expires after 180 days, which disqualifies a person from being a resident in India. Foreigners holding a residential visa may buy property but this is restricted to residential or commercial property, they are not allowed to buy or acquire as a gift, agricultural land, plantation land or a farm house. A resident cannot buy any property in joint ownership with an individual who does not qualify for the investment.

Citizens of Pakistan, Bangladesh, Afghanistan, China, Iran, Nepal and Bhutan are not allowed to purchase property in India, unless they are permitted by the Reserve Bank of India for such an investment.

Foreign nationals of non-Indian origin, who have purchased a property in India or have acquired it by way of inheritance or gift, can sell it to a person resident in India, a Non-Resident India (NRI) and a person of Indian origin (PIO), with prior approval from the Reserve Bank. Sale proceedings may be repatriated by foreign nationals after obtaining approval from the RBI and an NRI or PIO may repatriate the proceeds from sale up to $1 million per financial year.

Ineligible persons are however allowed to acquire property on lease, provided the lease period does not exceed 5 years. In order to purchase property, it is preferable to hire an attorney for completing the purchase process, which could take around 67 days to complete. The initial deposit, confirming the deal is generally 10-20 per cent of the purchase price.

For commercial investments, the Indian government is looking to ease the FDI norms in real estate to boost the sector. Up to 100 per cent FDI is allowed under the automatic route in the construction development sector, with a minimum of $10 million as capital and $5 million in case of a joint venture. However, this is not as easy as it seems. There are many restrictions on FDI as well, such as 10 hectares as minimum area for housing plots, 50000 square meters built up area for construction development, and so on. Additionally, FDI in any form is prohibited in real estate business, even for NRIs and PIOs.

It is clear that investment in Indian real estate is not easy for foreign nationals of non-Indian origin and the government has made it even more difficult by restricting many types of visas to 180 days.