HOW CAN FOREIGN CITIZENS INVEST IN INDIAN STOCKS MARKETS?

Question: Some of my friends who are citizens of the UK and Europe would like to invest directly in stocks and shares of Indian companies.  Is it possible for them to do so?  If not, what avenues are open for investing in the capital market?

ANSWER: Foreign citizens can invest in Indian stocks and shares only through the foreign portfolio investors (FPIs) route. They can acquire Indian securities through Category II FPIs which include regulated entities like mutual funds, investment trusts, asset managers, banks and insurance companies which are registered with the Securities and Exchange Board of India (SEBI). Restricting investments through such regulated investment vehicles ensures that SEBI’s regulations are strictly complied with.

Foreign individuals can invest in Indian listed equities through indirect routes, such as offshore derivative instruments (ODIs) or participatory notes.  P-notes are backed by the securities they hold in India and are issued overseas by registered foreign brokers. Accountability is placed on FPIs to ensure compliance while issuing ODIs and P-notes. However, this option of investment is discouraged due to concerns related to lack of transparency. 

The regulator, Sebi, is considering allowing foreign individuals to invest directly in the stock market but the proposal is still in its nascent stage and will need approval from the Finance Ministry and the Reserve Bank of India.  Indian authorities are cautious on this issue on account of the potential risks of money laundering.  Further, if implemented, it will require stringent KYC checks as well as monitoring the source of the funds coming into India.  Initially, foreign investors who are citizens of Financial Action Task Force (FATF) member countries may be permitted to invest directly on the stock market.

Question: I am returning to India shortly and would like to buy a car for my personal use.  I want to know whether purchasing an electric car is a good option. I am worried as I would have to travel between Pune and Mumbai frequently.

ANSWER: As you will be using your car in Maharashtra, it would be advantageous to buy an electric vehicle as this state wants to set up the best EV ecosystem in India. Currently, all EVs in the State are exempt from the motor vehicle tax and registration fees. Under the revised policy announced last month, the government will grant toll exemption for cars used on all highways and expressways, including the Mumbai-Pune and Mumbai-Nagpur expressways, for five years. Fast charging stations will be put up, every 25 kilometres, on expressways and highways and at most of the gas stations in the cities. Development control rules are also being amended to make it mandatory for all housing societies and complexes to provide the necessary infrastructure for charging of electric vehicles.

EV charging infrastructure is to be made mandatory in all commercial complexes. The state is also establishing battery recycling zones in all major cities. Special courses are being designed by industrial technical institutes, polytechnics and engineering colleges to ensure that sufficient technical manpower for repair and servicing of electric vehicles will be available by 2030. Many other states in India are giving attractive incentives for purchase of EVs. Therefore, purchasing an electric car is a good option.

Question: The company for which I work in Dubai is headquartered in Paris owning several luxury brands in ladies wear. The company is planning to set up outlets in major cities of India. However, the problem faced is in finding adequate retail space in prime locations. Is this a temporary problem which is likely to be resolved in the near future?

ANSWER: India’s luxury retail sector is currently witnessing an unprecedented level of growth. The leasing of retail space has surged 90 per cent year-on-year in the first quarter of 2025.  This growth is driven by an aggressive expansion across major cities by overseas luxury and bridge-to-luxury brands. During this quarter, 180,000 square feet has been leased out in shopping malls both by global and domestic players as per data released by a well-known consultancy firm. As consumer demographics evolve, luxury brands are recalibrating their strategies and expanding the physical footprint to capture a broader audience.  While legacy players are focused on metro markets, newer brands view India as a high potential destination and are establishing their outlets even in Tier 1 and Tier 2 cities.

As a result, lease rentals have gone up substantially in the last few months.  Despite this high cost of rentals, brands in the bridge-to-luxury segment, particularly in beauty products and accessories, are aggressively expanding in malls where they previously lacked presence. Many overseas players are setting up standalone boutiques in commercial areas where there is a heavy footfall of consumers.  One of the major reasons behind the expansion plans of luxury brands is the growing number of high income individuals, with an equivalent income of $40,000 or more which is expected to double from 15 million in 2022 to 30 million by 2030. Therefore, India’s luxury market is expected to grow significantly to reach $90 billion by 2030.

The writer is a practising lawyer, specialising in corporate and fiscal laws of India.

2025-05-13T11:14:41Z