Uk Investors Guide: Investing In India's Market

India is the world's third-largest economy, and its stock market and economy have boomed in recent years. The country's middle class is growing, and lower earners have increased access to education, healthcare, and finance. The UK is the sixth-largest investor in India, and the two countries have strong historical ties. There are several ways for UK retail investors to invest in India, including through active managers or index trackers. UK investors can also invest in Indian mutual funds or ETFs.

UK investors can access Indian stocks via ETFs or funds

The Indian stock market does not allow foreign individual investors to buy stock directly. However, UK investors can access Indian stocks by investing in exchange-traded funds (ETFs) or funds that offer exposure to the Indian market. This can be a great way to geographically diversify their global portfolios.

There are several India-focused ETFs available on the market that track broad market indices in India, such as the FTSE India 30/18 Capped index, the MSCI India index, and the Nifty 50 index. These ETFs typically have low expense ratios, ranging from 0.19% to 0.85% per annum. Some popular India ETFs include the Franklin FTSE India UCITS ETF, the iShares MSCI India UCITS ETF, and the Amundi MSCI India UCITS ETF. These ETFs provide access to a diverse range of Indian companies across various sectors, including financials, technology, energy, consumer goods, and more.

In addition to ETFs, UK investors can also consider investing in mutual funds that focus on the Indian market. Some examples include the Jupiter India Fund and the Fidelity India Fund. These funds can provide a more actively managed approach to investing in Indian stocks, as opposed to the passive nature of ETFs.

It is important to note that investing in Indian stocks, either through ETFs or mutual funds, carries certain risks and considerations. The Indian market can be quite volatile, and it is important to have a good understanding of the country and its markets before investing. Additionally, there may be tax implications when investing in Indian stocks, and it is important to consult with a tax professional to understand the specific rules and regulations.

Overall, by investing in ETFs or funds, UK investors can gain exposure to the Indian market and take advantage of the country's economic growth and development.

The UK is the 6th largest investor in India

The UK's investment in India is underpinned by strong historical ties between the two countries. Even before India's independence, UK companies such as Britannia, Unilever, Oxford University Press, HSBC, and GlaxoSmithKline had made India their home and are still household names today.

The UK and India have also taken steps to strengthen their economic relationship, such as through the India-UK Free Trade Agreement (FTA) and the Enhanced Trade Partnership (ETP). As an outcome of these interventions, trade between India and the UK is expected to double by 2030.

The UK has created a significant number of jobs in India, with British companies creating 422,524 jobs in the country since 2000. The main reasons British firms are attracted to India include its large and growing market, the easy availability of talented workers, and the Modi Government's ease of doing business policies and reforms.

The Indian stock market does not allow foreign individual investors to buy stock

Exchange-Traded Funds (ETFs) and Mutual Funds

UK investors can invest in Indian companies through ETFs or mutual funds that hold Indian stocks. These funds are managed by investment firms and provide diversified exposure to the Indian market. Examples include Franklin FTSE India (FRIN) and IIND. When choosing a fund, it's important to consider the fund's holdings, fees, and performance.

American and Global Depository Receipts (ADRs/GDRs)

ADRs and GDRs are another way to invest in Indian companies. These are negotiable certificates issued by a bank representing a specific number of shares of a foreign company. They allow investors to buy shares of Indian companies that are listed on foreign stock exchanges. However, in recent years, the number of companies offering ADRs/GDRs has decreased.

Offshore Derivatives and Participatory Notes (P-Notes)

Foreign investors who do not want to register with the Securities and Exchange Board of India (SEBI) can invest in Indian shares through offshore derivatives or P-Notes. P-Notes are issued by foreign portfolio investors (FPIs) and allow investors to take short positions in Indian stocks without disclosing their identities.

Regulatory Considerations

When investing in India, it's important to be aware of the regulatory requirements. Foreign investors must adhere to the disclosure requirements of SEBI, India's markets regulator. Additionally, under India's anti-money laundering rules, details of investors holding 10% or more of a fund's assets must be disclosed.

UK-India Relations and Investment Opportunities

The UK and India have strong historical ties and a modern partnership. The UK is the 6th largest investor in India, and India is the 2nd largest FDI contributor in the UK. The two countries have launched initiatives like the Young Professional Scheme, which allows professionals to live and work in each other's countries for up to two years. Additionally, the UK-India Free Trade Agreement (FTA) negotiations are ongoing, aiming to strengthen economic relations.

In summary, while direct investment in Indian stocks by foreign individuals is not permitted, there are various alternative investment routes available. It's important for UK investors to carefully consider their options, understand the regulatory environment, and seek professional advice when investing in India.

The UK-India Infrastructure Financing Bridge aims to boost investment

The UK-India Infrastructure Financing Bridge (UKIIFB) is a bilateral agreement between the City of London Corporation and the National Institution for Transforming India (NITI Aayog). The agreement aims to strengthen the financial and professional services partnership between the two countries by facilitating sustainable international investments in India's infrastructure sector.

The UKIIFB is designed to prepare Indian mega-infrastructure projects for international finance. While the agreement itself does not directly get involved in the bidding process, it plays a crucial role in making these projects "bid-ready" by addressing risks and reducing capital costs. The first tranche of projects benefiting from this bridge includes the Delhi-Meerut Regional Rapid Transit System and green hydrogen initiatives, with eight key projects already identified.

The steering committee of the UKIIFB includes representatives from HM Treasury, Aon, Arup, Mott MacDonald, Clifford Chance, Sequoia Investment Management Company, Department of Economic Affairs, Larsen & Toubro, Sorin Investment Fund, Economic Laws Practice, and AECOM India Private Limited. The committee will drive the recommended aims of the UKIIFB, which include suggesting ways to accelerate the mobilisation of international private sector investment into Indian sustainable infrastructure and providing policymakers with recommendations on addressing barriers to international investment.

The UKIIFB positions the UK as a leader in financing India's infrastructure, particularly in sustainable and green projects. It also enhances India's position as a top investment destination and strengthens the UK-India relationship. By combining the UK's financial expertise with India's infrastructure growth potential, this partnership underscores the mutual long-term benefits of fostering sustainable and high-value infrastructure development.

The UK-India Free Trade Agreement (FTA) negotiations are ongoing

The UK is India's 6th largest investor, with a combined turnover of ~$45.6 billion and employing about 466,640 people directly as of 2022. The UK has invested $35.09 billion in FDI inflows between April 2000 and March 2024. There are strong historical ties between the two countries, and the relationship has focused on political and economic cooperation in recent years.

The UK government published its strategic approach to an FTA with India in January 2022, noting that an FTA could deepen economic and strategic ties, lower trade costs for businesses, and offer consumers greater choices and lower prices. The UK remains committed to upholding its standards in areas such as the environment and public health.

The UK and India launched negotiations in January 2022, with the thirteenth round of negotiations taking place from 18 September to 15 December 2023. By Spring 2024, the majority of the 26 chapters in the FTA, which include goods, services, investments, and intellectual property rights, were completed. The remaining issues include rules of origin, duty concessions on electric vehicles, Scotch whisky, a social security agreement, carbon border tax, and liberalisation of financial services, in addition to a separate bilateral investment treaty.

The UK is seeking major cuts in import duties on goods such as Scotch whisky, electric vehicles, lamb meat, chocolates, and confectionery items. They have also sought access to India's government procurement and are asking for a bilateral investment treaty before concluding the FTA. India is negotiating greater mobility for its skilled professionals in sectors like IT and healthcare and market access for several goods with nil customs duty.

The UK-India FTA is expected to be the third trade agreement signed by Britain since leaving the European Union and the first comprehensive free trade agreement that India has signed with a European country.

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