The Government is mulling over whether to allow Qualified Foreign Investors (QFIs) to directly buy equities in the stock market, a move aimed at further liberalisation of the Indian capital market.

“We are seriously considering allowing QFIs to invest directly in the stock market,” a ministry official said.

A QFI is an individual, group or association resident in a foreign country that is compliant with the Financial Action Task Force (FATF) standards.

Currently, only overseas high networth individuals with a minimum networth of $50 million and registered as a sub-account of Foreign Institutional Investors (FIIs) are allowed to directly participate in the stock market.

The decision, the official added, would help project India as a global investment centre and attract equity capital from abroad.

The move is being considered at a time when the stock markets are volatile due to debt problems in several advanced economies, besides concerns like inflation and high interest rates on the domestic front.

There have also been concerns over the flight of foreign capital in recent times. FIIs have pulled out Rs 3,364.9 crore or $799.8 million from the equities market so far in 2011.

In order to promote the portfolio investment route, the Government had in August allowed QFIs to invest up to $13 billion in equity and debt schemes of mutual funds in the infrastructure sector.

While the official did not provide further details regarding the proposal for allowing QFIs to directly invest in the capital market, he said if allowed, it would be on the same pattern as mutual funds.

In the case of mutual funds, the Government has allowed QFIs to make direct investments through two routes — either holding mutual fund units in a demat account through SEBI-registered depository participants or by holding MF units via unit confirmation receipts.

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