India considers opening stock market to foreign individuals

Reuters is reporting that the Indian government is considering relaxing restrictions on foreign individuals investing in Indian shares, in an attempt to attract more foreign capital. If this goes ahead – and that’s a big ‘if’ – it could be a very exciting development.

Very few countries actively bar foreign individuals from investing in their stock markets, although some make it difficult. Oddly enough, it’s the BRICs – the four emerging markets that foreign investors talk about the most – that are the hardest. And India is arguably the most frustrating of all.

Russia is slightly bureaucratic, but a few international stock brokers offer it. Plenty of Russian firms are also available as ADRs and GDRs.

Brazil is much more bureaucratic and hard to access, but there are a handful of foreign stock brokers that will trade Brazilian stocks (albeit at high cost or high minimum trade sizes). Quite a few Brazilian companies are also available as ADRs.

China strictly limits foreign investment in the mainland A share market to qualified foreign institutional investors (QFIIs) and puts a quota on how much they can invest. There are about 100 QFIIs with a combined quota of around US$20bn at present.

However, a large number of Chinese companies are listed in Hong Kong, New York or elsewhere. So while it’s slightly frustrating that foreign individuals can’t access some interesting A share-only listings, it’s not a huge hindrance.

India allows registered foreign institutions, ultra high net worth individuals, Non-Resident Indians (NRIs) and those with recent Indian ancestry (Persons of Indian Origin – PIOs) to invest directly – but not ordinary foreign investors. While some Indian firms have overseas listings, few of these are especially attractive compared to some of those only available on Indian exchange (none of the very interesting consumer goods firms are listed overseas, for example).

Allowing foreign individuals access to these would open up a lot of new prospects. And while India is definitely a high-risk emerging market where getting reliable information can be difficult, the widespread use of English means that direct investment would probably be much accessible and interesting to adventurous foreigners than either of the other three BRICs. So let’s hope these changes are implemented.

NB: If you wondering how to invest in a specific emerging market, see the FAQ on Which foreign stock markets can I invest in?, search the international stock broker directory or check the international stock broker list for firms that don’t have full profiles in the directory but may be able to access some awkward markets.

2 replies on “India considers opening stock market to foreign individuals”

What was the point in blocking foreign investors in the first place? What did india / china block foreign investors in the first place?


Generally, done for control reasons – control over capital account, control over foreign ownership, control over companies’ sources of financing etc – and the development of a homegrown financial system before opening it to foreign money and competition.

In China’s case, today’s stock markets were only set up at the start of the 1990s (the old Shanghai exchange was closed down in 1949 after the communist won the civil war). While opening up for trade after 1978, China has sought to keep as much control as it can over the capital account and this is part of it.

India’s first stock exchange opened in late 1800s, but after independence Nehru and then Indira Gandhi followed a state-directed economic model with an aspiration to be as self-sufficient as possible and that meant capital controls, shutting out foreigners etc (the multinationals that remained in the country often needed to float their local arms to put them into partial Indian ownership). That approach only really changed after the 1991 crisis and plenty of the old restrictions remain in place in all parts of the economy.

Washington consensus generally tried to push EMs to open everything to foreign investment, liberalise currency regimes, let currencies float etc immediately – but EMs who seen have seen the consequences of swings in hot money (e.g. the 1997 Asian crisis) often take a different view of the merits of unconstrained foreign investment and are more gradualist, aiming to build up their domestic financial systems first.

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