India will allow individual foreign investors direct access to its stock market from January 15, the government said on Sunday, the latest step to liberalise Asia''s third-largest economy after a year of big losses on the benchmark Sensex index.
Previously, foreign nationals were limited to investing in India''s equity market through indirect routes such as mutual funds, or through institutional vehicles. "The central government has decided to allow qualified foreign investors to directly invest in (the) Indian equity market in order to widen the class of investors, attract more foreign funds, and reduce market volatility," the government said in a statement.
Analysts said the decision to allow foreign nationals to invest in Indian equities was a positive move but it was unlikely to result in an increased flow of overseas funds in the near-term due to weak market conditions.
"At a time when the foreign institutions are reducing their exposure to India, it would not be prudent to expect foreign individuals to start investing in our markets," said Jagannadham Thunuguntla, research head at brokerage SMC Global Securities.
"We can see some impact of this decision when the stock market conditions improve," he said. In the past 20 years India has gradually opened its economy to foreign cash. The economy is now faltering after growing at an annual average of about 8 percent for several years.
The rupee shed 24 percent of its value against the dollar last year and the current account deficit is widening. Many economists predict growth below seven percent for the fiscal year that ends on March 30.