To further strengthen the Indian stock markets that touched all-time highs this year, Finance Minister Nirmala Sitharaman in her first budget speech on Friday announced a number of proposals for greater participation.
In the Union Budget, FM said that the SEBI will be asked to consider reducing maximum promoter shareholding from current level of 75 percent to 65 percent, thus increasing minimum public sharing for listed companies from 25 percent to 35 percent.
Experts say that this move may not be good for the Indian markets (which is in the developing phase), as it is better for promoters, especially those of mid and small caps, to have more control over the company.
The government plans to introduce its first Indian sovereign bond in the global market to raise more capital.
"India's sovereign external debt to GDP (gross domestic product) is among the lowest globally at less than 5 percent. The government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market," Sitharaman said in her Budget 2019 speech.
Recapitalisation of PSU Banks
To boost credit, Rs 70,000 crore was proposed for Public Sector Banks (PSBs). The government intends to take steps to improve governance in the banking sector. It was proposed to allow customers to have a control over who can deposit cash into their bank accounts.
Increase in FPI limit in listed companies
Up till now, foreign portfolio investors (FPI) had a cap of 24 percent on investment in a company.
The government has changed the rules to automatically set the FPI limit to the maximum permissible limit for the sector.
However, the ultimate decision lies with the company that can lower FPI participation be passing a special board resolution to cap the limit.
To ease the ongoing stress in the non-banking finance sector, which also affected the markets, it was proposed in the budget that the government will provide one time six months' partial credit guarantee to Public Sector Banks for first loss of up to 10 percent on purchase of high-rated pooled assets of financially sound NBFCs amounting to a total of Rs 1 lakh crore.
"NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds without being unduly risk averse," Sitharaman said.
The central government's disinvestment target for the financial year 2019-20 has been increased to Rs 1,05,000 crore, or Rs 1.05 trillion.
Securities Transaction Tax
STT will be restricted to the difference between settlement and strike price in case of exercise of options.
Social Stock Exchange
Sitharaman proposed allowing listing of social enterprises, bodies working for social welfare in a social stock exchange under the regulatory guidance of SEBI.
An Electronic Fund-raising Platform (EFP) was suggested to be created for social enterprises and voluntary organisations to raise capital via equity, debt or as units like mutual fund. These kind of exchanges exist in the UK, Canada, Singapore, South Africa, Brazil, Jamaica and Kenya.
Foreign Direct Investment (FDI)
The government will examine proposals to allow further FDI in aviation, media (animation, AVGC) and insurance sectors after consultation with stakeholders. 100 percent FDI will be permitted for insurance intermediaries and local sourcing norms will be eased for FDI in Single Brand Retail sector.
ReITs and InvITs
FPIs will be permitted to subscribe to listed debt securities issued by ReITs (real estate investment trusts) and InvITs (infrastructure investment trusts).
Global Investors Meet
The Government is contemplating to organize annual Global Investors Meet in India using National Infrastructure Investment Fund (NIIF) as the anchor with an intent to get all the three sets of global players: top industrialists/corporate honchos, top pension / insurance / sovereign wealth funds and top digital technology/venture funds.
NRIs can invest through FPI route
Up till now, NRIs could invest in the stock markets through portfolio investment schemes (PIS) which came with several restrictions imposed by the RBI.
The Budget 2019 proposed the merger of the PIS route with the FPI route, allowing greater participation from NRIs.