Private equity and venture capital funds should be allowed to invest 25% of the capital of the target companies, up from the existing limit of 15%, without having to resort to an open offer, industry chamber the Confederation of Indian Industry (CII) said in a report.
"Private equity (PE) and venture capital (VC) funds engage in substantial minority investments in private and public listed companies. Yet, they are constrained in terms of not being permitted to purchase secondary shares and are limited to acquire stakes only up to 15%," CII said in a statement.
The CII report suggests that Sebi-registered PE and VC funds should be allowed to invest the permitted one-third of fund capital through both primary and secondary purchase of equity shares or equity linked instruments.
Further, it said, such investments should be construed as complying with prevailing capital market regulations, including open offer requirements.
The investments by these institutions are of medium to long-term nature, aimed at not purely investing but also nurturing the companies in terms of provision of management and operational support, it said.
With $9.5 billion investments in India, PEs and VCs have created an impact in terms of helping companies achieve stellar performance.
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The profits after tax of PE backed firms have registered a growth of 35% as against 21% registered by other listed companies.
CII said that given the growth needs of the Indian economy, it is pivotal that PE and VC governance is reconceptualised towards a favourable regulatory environment that would promote investment.