In a big move, PM Narendra Modi -led Cabinet today approved raising the foreign shareholding limit in Indian Stock Exchanges from the current 5% to 15%. (Reuters)

In a big move, PM Narendra Modi-led Cabinet today approved raising the foreign shareholding limit in Indian Stock Exchanges from the current 5% to 15%. The decision brings the investment limit of foreign entities at par with that of domestic institutions. This is enhanced limit is for a stock exchange, a banking company, a depository, an insurance company and a commodity derivative exchange. Additionally, the Cabinet gave its nod for foreign portfolio investors to acquire shares through initial allotment, besides secondary market, in the stock exchanges.

According to the government release, this move will help in enhancing the global competitiveness of Indian stock exchanges. The government feels that the step will accelerate and facilitate the adoption latest technology and global best practices by the stock exchanges. This, it believes will pave way for better overall growth and development of the Indian capital market. Finance Minister Arun Jaitley had in his Union Budget 2016 speech had said that FDI (Foreign Direct Investment) reforms related to increase in investment limit for foreign entities in Indian stock exchanges will be introduced. “Investment limit for foreign entities in Indian stock exchanges will be enhanced from 5 to 15% on par with domestic institutions,” Jaitley had said. This enhancement of the limit to 15% is in line with that proposal.

The step also comes against the backdrop of demand from various stakeholders, who have been seeking higher foreign direct investment in stock bourses. While the immediate beneficiaries of the move could be prospective investors in the Bombay Stock Exchange (BSE), slated to go public with an Initial Public Offering (IPO) later this year or in early 2017, commodity exchanges will also get a fresh leg-up.