- In the union budget, the government has proposed a slew of measures in the domain of investments.
Summary of relevant budget announcements
Minimum Public Shareholding (MPS) raised
- The government has proposed to increase the minimum public shareholding (MPS) in listed companies. It has asked the SEBI to consider raising the current threshold of 25% to 35%.
- Further, foreign shareholding limits would be raised to the maximum permissible sector limits for all PSU companies which are part of Emerging Market Index.
- In 2010, the capital market regulator made it mandatory for listed companies to have a minimum public shareholding of 25% — the threshold was fixed at 10% for PSUs — within three years.
- Later on, the public holding limit for PSUs was also raised to 25% though some of the listed public sector entities are yet to comply with the norm.
- This would enhance India’s weightage in the global index, which takes into account the free-float capital of the constituent companies.
- It has been proposed to rationalise and streamline the existing Know Your Customer (KYC) norms for FPIs to make it more investor friendly without compromising the integrity of cross-border capital flows.
- Foreign investors are a key source of capital to the Indian economy and hence it is important to ensure a harmonised and hassle free investment experience for such foreign portfolio investors (FPIs).
- The importance of the government proposal can be gauged by the fact that foreign investors are often looked upon as prime drivers of any bull run in the Indian equity market and have been pumping in huge money in the stock market.
- This assumes significance also due to the fact that the government plans to raise the limit of foreign holding in select public sector entities while eyeing Rs 1.05 lakh crore through disinvestment.
- Relief has been proposed in levy of Securities Transaction Tax (STT) by restricting it only to the difference between settlement and strike price in case of exercise of options.
- Currently, traders who exercised the options contracts had to pay a huge STT as typically the settlement value is significantly higher than the premium.
- This assumes significance as rationalisation of STT was a long-standing demand of market participants.
- The change is a big relief to options traders as the STT charge will no more be made on the value of the contract but on the difference between the strike price and the market price only.
- The easing of STT on options will drive preference for options derivatives.
- Even though India is the world’s top remittance recipient, NRI investment in Indian capital markets is comparatively less.
- With a view to provide NRIs with seamless access to Indian equities, it has been proposed to merge the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment Route.
Social stock exchange for start-ups
- As part of its attempts to boost fund-raising by start-ups and ventures, especially those in the social field, the government has proposed a novel idea in the form of a social stock exchange (an electronic fund-raising platform).
- The exchange, which would be under the regulatory purview of the SEBI, would be for listing social entities and voluntary organisations working towards a social welfare objective so that they could raise capital as equity, debt or as units like a mutual fund.
- Social stock exchange with a policy, centric to promote sustainable impact investments, will generate large societal benefits apart from achieving financial goals.
- Incidentally, there are unregulated platforms, both in India and overseas, that enable social ventures to raise funds from investors.
- These dedicated platforms allow companies with a clear proof of impact investment or socially relevant objectives to connect with dedicated investor pool looking for such ventures.
- As and when the social stock exchange comes up, it would be the first instance of a regulated bourse for social ventures in India.
Other measures for startups: