After updating the rules and inspecting the Foreign Direct Investment from at least seven neighboring countries of India, the central government is now planning to tighten the rules on foreign portfolio investors, especially from China and Hong-Kong.
According to a report, the department of economic affairs is currently making the decision. According to the financial affairs section, a dedicated team shall be formed to scrutinize new FPI registrations and even their investments. This is done to protect the values of companies that originated in India.
To put this rule into action, the finance ministry is currently discussing with the commerce ministry and other regulators like the Stock Exchange Board of India and Reserve Bank of India.
The vernal government is rejigging different mechanisms to get the clearance for investments.
Why the sudden change in the FPI Norms?
According to a report, FPI is invested for a short duration, making it easier to liquidate. But, FDI is a long term plan and not liquidated easily.
The government is tightening the norms after most of the FPIs increased its stake in public listed companies in India. For example, China’s central bank raised its stake in HDFC from just 0.8 percent to 1 percent.
After witnessing this, the finance ministry started to address these concerns. This is resulting in foreign FPIs to buy shares at a lower price and, later, sell it at a higher price.
In India, startups like IndiaMART, Just dial, InfoEdge listed on public markets. Currently, the stock prices of these companies took a hit.