Foreign companies may be allowed to buy stocks from market

In a move that could step up capital flows, check the stock market slide and arrest depreciation of the rupee, the government may allow f
oreign companies to buy shares from the stock market. As of now, only FIIs are allowed to buy shares from the secondary market through stock exchange deals.

The department of industrial policy and promotion (Dipp) and the finance ministry are discussing a proposal to allow foreign investors — who usually operate through the FDI window — to access the Portfolio Investment Scheme (PIS), which is now open only for FIIs.

According to highly-placed government sources, the department of economic affairs (DEA) is consulting market regulator Sebi on the implications of clearing the proposal. “The Dipp does not have any objection to the proposal and the DEA is expected to firm up its views on the basis of Sebi’s comments,” the sources said. If the proposal goes through, a foreign company that has a joint venture in India can acquire the shares of the JV from the secondary market. Such stock market deals would mean that backing of Indian promoters would not be needed for a foreign company to hike its stake in a joint venture.

The move is significant since the government protects interests of Indian promoters of JVs by making it mandatory for the foreign partner to get a no-objection certificate before inventing another JV or a subsidiary in the same field of business. Over the years, the requirement has been relaxed and it does not apply to new joint ventures.

Source: EconomicTimes