NEW DELHI (Reuters) - India is considering allowing foreign retail and small investors to trade local equities, a finance ministry official with direct knowledge of the matter said on Thursday, a move that could bolster fund flows into Indian shares.
A qualified foreign investor (QFI) is an individual, group or association resident in a foreign country that adheres to anti-money laundering and anti-terrorist financing guidelines.
India currently allows wealthy foreign investors with a minimum net worth of $50 million and registered as a sub-account of a foreign institutional investor (FII) to invest directly in local equities.
“We are looking at allowing QFIs to invest in equities without capping such an investment,” said the finance ministry official, who declined to be named.
The official said all such investors who meet “know your customer” (KYC) requirements are likely to be allowed to directly invest in Indian shares.
The move is seen as positive for Indian stocks, which are down nearly 20 percent in 2011. Foreign portfolio investors have bought equities worth about $663 million so far this year, sharply down from the $29 billion they invested in 2010.
“The move is extremely good. It will help attract foreign fund flows into the Indian market,” said Ambareesh Baliga, chief operating officer at brokerage firm Way2Wealth.
“However, in the current market, with so much of global uncertainty, the move will have little impact,” he said.
The BSE Sensex dropped 1.9 percent on Thursday to post its lowest close in six weeks, as investors cut their exposure to risky assets amid concerns about the impact of high interest rates and slowing economic growth on corporate earnings.
The benchmark index fell for the sixth straight session in its longest losing streak in more than three months.
In August, India allowed foreign investors to buy up to a cumulative $10 billion in domestic equity funds, opening the door wider to capital flows into Asia’s third-largest economy.
Editing by Malini Menon