Foreigners just got greater access to Indian stock markets, with the government and the central bank announcing a significant liberalisation of investment rules.
The reforms are intended to deepen India’s capital markets, simplify access for overseas investors and attract more stable long-term foreign capital.
What has changed?
Until now, only NRIs and OCIs could invest in listed Indian equities through the PIS route. Under the revised framework, any individual residing outside India can use the mechanism.
“The Portfolio Investment Scheme, which was hitherto available only to NRIs and OCIs, has now been extended to all individual Persons Resident Outside India,” said Tanvi Kanchan, associate director and head of NRI business at Anand Rathi Share and Stock Brokers.
According to Kanchan, the change means a much wider pool of overseas investors can directly access Indian equities. “A Singapore-based fund manager, a US-based entrepreneur, a UAE-based professional with no Indian ancestry — all can now access Indian equities through a simplified, regulated onboarding framework,” she said.
The government said the reform will use the existing onboarding infrastructure already used for NRI and OCI investors while reducing compliance requirements and improving ease of doing business.
Why the higher limits matter
The increase in ownership limits could have a meaningful impact on how overseas individuals invest in Indian companies.
“A 5 per cent cap in most mid- and small-cap companies meant an overseas investor was capped at a minority stake with limited influence. At 10 per cent, an overseas individual can hold a position of genuine strategic significance,” Kanchan said.
Adhil Shetty, chief executive officer of BankBazaar, said the practical impact is straightforward. Earlier, an eligible overseas investor could own up to five shares out of every 100 shares of a listed company through this route. The revised rules increase that limit to 10 shares, while the combined ownership ceiling for overseas individual investors rises from 10 shares to 24 shares out of every 100.
“In practical terms, investors can now build larger positions before reaching regulatory ceilings,” Shetty said.
The higher aggregate limit may also reduce instances where popular stocks hit RBI ownership thresholds and become unavailable for fresh purchases by overseas investors.
A practical example
Kanchan illustrated the impact using a listed Indian mid-cap company with paid-up capital of Rs 500 crore.
Under the earlier rules, an NRI investor could invest up to Rs 25 crore, representing a 5 per cent stake. Total investment by all eligible overseas individuals together could not exceed Rs 50 crore.
Under the revised framework, the same investor can invest up to Rs 50 crore, while the overall headroom available to overseas individuals rises to Rs 120 crore.
“The investor can build, hold and add to a meaningful conviction position without running into regulatory ceilings,” she said.
What should investors keep in mind?
Experts caution that higher investment limits do not eliminate the usual risks associated with equity investing.
“Overseas investors should continue to evaluate company fundamentals, valuations, corporate governance standards and sector-specific risks before investing,” said Shetty.
Currency fluctuations also remain an important factor because investment returns generated in rupees may look different when converted into an investor’s home currency.
Karan Aggarwal, chief investment officer and cofounder of Ametra PMS, said NRIs should align investments with their long-term financial goals and future spending needs.
“If they are planning to retire or incur expenses in their home market, then bulk allocation has to be in the home market with Indian equities acting as a diversification tool. If they are planning to retire in India, then bulk investments have to be in India,” Aggarwal said.
Kanchan added that investors must also monitor sector-specific foreign ownership limits and comply with applicable tax requirements. While the government has announced tax relief for foreign investors in government securities, equity investments remain subject to prevailing capital gains tax rules.
What could it mean for Indian markets?
Market participants believe the reforms could support stronger and more diversified foreign participation in Indian capital markets.
Aggarwal said the rules remove the distinction between NRI investors and other overseas individuals, unlocking a new pool of foreign capital that was previously unavailable to Indian markets.
“Foreign individuals can now invest directly in Indian markets through the PIS route, which is expected to improve liquidity and inflows into the market, with improvement in price discovery and market efficiency,” he said.
Shetty said a broader overseas investor base could improve market liquidity and support more stable capital flows over time.
The announcement comes alongside measures to attract greater foreign investment into government securities. Kaustubh Gupta, chief investment officer, fixed income, at Aditya Birla Sun Life AMC, said the broader package of reforms strengthens India’s capital account at a time when global financing conditions remain uncertain.
According to Gupta, the expansion of foreign investment avenues in both equities and government bonds should help deepen market liquidity, encourage long-term foreign participation and support the development of India’s capital markets over time.
For Indian markets, the significance of the reform lies not just in higher investment limits for NRIs, but in opening the country’s equity markets to a much larger global pool of individual investors. If the policy succeeds in attracting long-term capital, it could widen the investor base and provide an additional source of funding for India’s growth story.
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