Foreign institutional investors (FIIs) have welcomed the Centre's move to allow foreign portfolio investors to hike their investment up to the sectoral foreign direct investment (FDI) limit, however confusion prevails over its interpretation.
The Reserve Bank of India (RBI) said on Thursday that foreign funds can now buy up to the varying limits set for foreign direct investment in specific sectors.
"The objective of the government to relax FII investment norms is good and it will see large inflows in the future. However, one needs to check the fine print and detailed norms of the move to understand the full extent of its benefit," P.Krishnamurthy, vice-chairman, J M Morgan Stanley said.
There is confusion about the interpretation of the Reserve Bank of India announcement. While some FIIs said the move means that they can up their investment in a company to the level permitted for FDI. Another interpretation is that whether FIIs can invest in a company to the extent of FDI limit in addition to the existing limit. For example, in a sector where FDI limit is 24 per cent of the equity then whether FII can invest in the sectoral company up to a maximum of 24 per cent within the FDI limit or can invest up to 24 per cent over and above the FDI limit was being discussed.
However, despite the confusion the fund managers said that the move will definitely have a positive long term impact. "The move removes the hurdle for higher FII investment. This will help in situations when changes in country's rankings or weightage in global indices. FIIs will be able to desist from shifting their portfolios to other Asian countries," the head of research of a European brokerage house stated.
According to market players, the move will not have any immediate impact as it will take at least 3-6 months for the procedure on not only government's side but also the corporate side before the FIIs can actually invest in higher proportions, fund managers said. Besides obtaining permission from regulatory bodies, the companies will have to pass resolutions before actually allowing FIIs to hold more equity which will consume a certain time-period.
"The proposed hike is a good long-term measure. But given the fact that none of the companies in which a go-ahead for 49 per cent is given has reached the limit, it really does not matter at this point of time," Anup Maheshwari, fund manager, DSP Merrill Lynch said.
The Reserve Bank of India (RBI) has permitted eight companies to raise their FII investment limit to 49 percent. The companies are Crisil, Global Tele-Systems, HDFC, Infosys Technologies, NIIT, Reliance Industries, Reliance Petroleum and Satyam Computer Services. Despite the higher investment limit of 49 per cent, none of these companies have reached the mark. The FII investments in these companies range from 0.65-42 per cent.
