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Government increases foreign shareholding limit in Indian Stock Exchanges

The government has raised the foreign shareholding limit in Indian stock exchanges from 5% to 15%, allowing overseas banks, insurers, stock and commodity exchanges and depositories to hold up to 15% stake in Indian stock exchanges. The move is aimed at attracting more foreign inflows in stock exchanges like BSE and the NSE; the higher foreign shareholding limit would also help BSE and NSE in their plans to list on exchanges. The decision is in line with an announcement made by finance minister Arun Jaitley in his budget speech of this year.

The decision was taken at a meeting of the cabinet, chaired by Prime Minister Narendra Modi, additionally the Cabinet also gave its nod for foreign portfolio investors to acquire shares through initial allotment, besides secondary market, in the stock exchanges. The move will help in enhancing global competitiveness of Indian stock exchanges by accelerating and facilitating the adoption of latest technology and global best practices, which will lead to overall growth and development of the domestic capital market.

The proposal of increasing foreign shareholding limit in domestic stock exchanges to 15 per cent from 5 per cent currently, was first made by capital market regulator Securities and Exchange Board of India (Sebi) in 2012, but was turned down by the Bimal Jalan committee set up to suggest amendments to Stock Exchange and Clearing Corporations (SECC) Regulations. In November last year, the finance ministry wrote to SEBI for its feedback on allowing an individual foreign shareholder to hold up to 15% in an exchange.

A number of foreign investors are already invested in the two leading Indian exchanges and the decision to hike the limit will help them enhance their exposure to the Indian markets. Singapore Exchange and Deutsche Boerse AG currently hold 4.9% each in BSE. While, in the NSE, the top foreign shareholders include Gagil FDI (Cyprus), GS Strategic Investments, SAIF II SE Investments Mauritius and Aranda Investments (Mauritius) Pte they hold 5% each.

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