India to the max

The limited supply of Indian stock market investment opportunities is now spoken for. Last month, a group of investors, including General Atlantic, Goldman Sachs, Softbank Asian Infrastructure Fund and the NYSE Group each agreed to purchase 5 percent stakes in India’s National Stock Exchange (NSE).
The value of the combined 20 percent stake is an estimated $115 million (€89 million), valuing the Mumbai-based NSE at roughly $2.3 billion.
An announcement of the deal noted that the investment is “the maximum investment permitted by a foreign investor in a stock exchange under the securities laws of India,” which limited direct foreign ownership of a stock market to 20 percent.
The selling institutions included ICICI Bank; Industrial Finance Corporation of India, IL&FS Trust Company, Punjab National Bank; and General Insurance Corporation of India.
Stock markets notwithstanding, India has in fact opened up its markets to greater foreign ownership, a welcome development for
Western private equity firms eager to participate in one of the world’s booming economies. In the sectors seen as most attractive by many foreign investors, including information technology, pharmaceuticals and manufacturing, Indian law allows 100 percent foreign ownership.
In a handful of other industries, some foreign-ownership restrictions remain in place, although these have been loosened somewhat over the years. Six years ago, the insurance sector was opened up to allow 26 percent foreign ownership. This level is expected by market observers to be raised to 49 percent. Telecommunications imposes a 49 percent limit on foreign ownership; oil and gas are 51 percent; airports 74 percent.
According to Donald Peck, a managing partner for South Asia at emerging markets investor Actis, further change is on the horizon. “The declared rhetoric is in favor [of further liberalization],” he says. “But there are always protracted points of negotiation in coalition” governments.
While exchanges are widely viewed as strategic to national interests by politicians—witness the moves by some European politicians to stop the NYSE acquisition of the Euronext—the need to globalize is arguably more important.