Latest Updates « Go Back
RBI allows foreign promoters to raise stake in domestic companies
  MUMBAI: The Reserve Bank of India (RBI) has made it easier for foreign and non-resident Indian promoters to increase their stake in domestic companies through the foreign direct investment (FDI) route, a move that can bolster the stocks of companies where foreign promoters have a stake.

Almost four-fifths of nearly 400 such stocks are trading at three-year lows in dollar terms. While the stock markets fell, the rupee also took a knock, losing 18 per cent against the dollar, 22 per cent against the euro, and 16 per cent against the pound in the past 12 months. "The central bank's new circular gives more parity to overseas promoters to increase their stake in Indian subsidiaries under FDI norms," said Ravi Sardana, EVP investment banking, ICICI Securities. "The sharp fall in the rupee and share prices provide a good opportunity for foreign promoters, especially MNCs, to consolidate their stake at a reasonable price," he added.

Alstom, GSK Pharma, Heidelberg Cement, SKF India, Cummins India, Merck, Wyeth, HUL and Crisil are some of the companies where foreign promoters can increase their stake in the coming months, said investment bankers. "The RBI move not only brings more foreign funds to India, but allows foreign promoters to use the amount received from its Indian arm through dividend to buy stocks. This will discourage dollar outflow," said G Chokkalingam, executive director and CIO, Centum Wealth Management. "The current situation makes these potential transactions cheaper by almost 30 per cent than a few years ago," he added.

For instance, Columbus-based Cummins Inc can save about 30 per cent, or Rs 160 crore, compared with the year-ago period to increase 5 per cent stake in its subsidiary Cummins India. Shares of Cummins India fell 17 per cent and the rupee dropped 18 per cent in the past year. Similarly, promoters of Heidelberg Cement and Wyeth can save almost 49 per cent and 43 per cent, respectively, to raise their stake.