AMCs can buy international stocks again... But with a twist

Market regulator Securities and Exchange Board of India (Sebi) has allowed AMCs to resume their investments abroad but with a minor alteration. Sources told Moneycontrol that AMCs can invest overseas to the extent of their international AUM as of February 1, 2022. What this means is that whatever shortfall might have happened due to correction in international stocks or redemptions can now be used for fresh investments.

For example, if an AMC had Rs 100 invested in international stocks as of February 1, 2022, and has since then seen a fall in that AUM to Rs 80, then the headroom of Rs 20 can now be used to make fresh investments abroad.

Nilesh Shah, MD of Kotak Mahindra AMC calls it a step in the right direction. He adds that stocks are now available at a cheaper valuation than in February 2022. By allowing funds to invest overseas, Sebi is permitting buying at cheaper valuations. He also says that in a way, this is like an indirect increase in the overseas investing limit.

Earlier this year in February, the Indian mutual fund industry had reached its cap of $7 billion which was available to invest in direct stocks overseas. Following that, several AMCs had either stopped taking fresh investments in their internationally focussed funds or in a few cases stopped investments altogether.

Feroze Azeez, Deputy CEO of Anand Rathi Wealth says the permanent solution to invest in foreign stocks is through LRS & many HNIs were capitalising via the MF route and investing in excess of the LRS limit. However, as far as retail investors are concerned, the latest step by Sebi is quite rational as this will give freedom to the fund manager to average out some of the good stocks which have fallen do the current circumstances.

While the industry still awaits news on whether the $7 billion limits will be revised higher at all, some well-placed insiders say it is unlikely to happen given the pressure on the Rupee and the already available window of $250,000.