The Reserve Bank of India (RBI) plans to raise the investment limit for individual foreign investors in listed companies to 10% from 5%, aiming to enhance capital inflows, according to senior government officials and documents seen by Reuters.
Foreign portfolio investors (FPIs) have withdrawn over $28 billion from Indian equities since the NSE Nifty 50 reached its peak in September, influenced by weak earnings, elevated valuations and potential US tariff concerns.
India intends to extend privileges previously exclusive to overseas Indians to all foreign investors, whilst increasing investment thresholds, as confirmed by the officials.
RBI communicated to the government via a letter last week, stating “It is felt that these proposals may be implemented as early as possible,” citing concerns about disrupted capital flows in recent external sector developments.
Also Read | In 7 charts: How India’s GDP has doubled from $2.1 trillion to $4.2 trillion in just 10 years
According to the document, the new framework would permit all foreign individual investors to hold up to 10% in a listed company.
This is an increase from the current 5% limit allowed to overseas Indian citizens under the Foreign Exchange Management Act (FEMA) special provisions.
“The existing foreign exchange regulations specifically address non-resident Indians (NRIs) and overseas citizens of India (OCIs) under Schedule III,” explained the second government official, who requested anonymity.
“The scope is being expanded to encompass all individual foreign investors.”
RBI plans to increase the aggregate investment ceiling for all overseas individual investors in an Indian listed company to 24%, up from the current 10%, according to the officials.
Also Read | ‘Worst is likely behind us…’: Goldman Sachs sees 6.4% GDP growth for India; warns of market volatility
The officials confirmed that discussions regarding the increase in foreign investor limits for Indian listed companies are nearing completion, with final deliberations ongoing between the government, the RBI, and SEBI.
The RBI and government support the initiative, but SEBI has highlighted difficulties in tracking adherence to overseas investment restrictions.
SEBI has expressed concern that when a foreign investor’s 10% stake is considered alongside associates’ holdings, the total could surpass 34%, necessitating takeover regulations.
“Without effective monitoring across different frameworks, such takeovers may go undetected,” SEBI cautioned the RBI in a letter last month.
Also Read | Indian stock markets reverse 2025 losses! Bulls party as foreign investors return to D-Street – but is the rally sustainable?
According to Indian regulations, any investor acquiring beyond 25% ownership must extend an open offer to retail shareholders.
The authorities and regulatory bodies are currently evaluating these issues prior to implementing the reforms.
“We are working to rationalise the rules to prevent the possibility of such arbitrage across regulations by the foreign investors,” the second official said.
