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  • Nov 23, 1999 - Foreign companies permitted entry into secondary markets

Foreign companies permitted entry into secondary markets

Nov 23, 1999

According to newspaper reports, the Union Government has decided to open up the domestic secondary market to foreign companies. Under the new norms, foreign companies will be permitted to invest upto 5% of the overall cap of 24% permitted to foreign institutional investors. However, as a precautionary measure, the government has stipulated that all such investments be made through domestic institutional investors. This is expected to prevent money laundering. Currently, only FIIs are permitted to invest in the domestic secondary markets while foreign companies can invest only via domestic primary offerings.

Foreign companies may now consider participating in various Indian companies by picking up stakes via the secondary markets. Foreign companies will thus be able to pick up significant stakes in companies without having to get approval from the numerous governmental organisations. Moreso, foreign companies would not need to take prior permission from the management before picking up a stake as the fear that the shares will not be transferred will be diluted.

The move would possibly be viewed favourably by the Indian stock markets as it could lead to a significant increase in the inflow of foreign portfolio money into the country. Moreover, with large foreign companies as significant investors in various domestic companies, there is possibility that valuations of such domestic companies will be reworked in view of the potential improvement in future prospects.

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