In a notable capital market reform announced during the Union Budget, Finance Minister Nirmala Sitharaman proposed easing investment limits for Persons Resident Outside India under the Portfolio Investment Scheme, a move aimed at improving ease of doing business and broadening foreign participation in Indian equity markets.

Under the proposal, the investment cap for individual PROIs in listed Indian companies will be increased to 10 percent from the existing 5 percent. Additionally, the aggregate investment limit for all such individual overseas investors will be raised to 24 percent from the current 10 percent.

At present, overseas individuals can participate in Indian equity instruments primarily through the Foreign Direct Investment and Foreign Portfolio Investment routes. The proposed changes carve out a larger and more flexible window under the Portfolio Investment Scheme, potentially allowing such investors to build more meaningful positions in listed companies without navigating the complexities of institutional FPI or FDI structures.

The announcement reflects a broader policy intent to diversify the foreign ownership base of Indian equities. Rather than relying predominantly on large global institutions and funds, the government appears to be encouraging participation from individual overseas investors, many of whom have personal, professional, or economic linkages to India.

Market participants view this as a structural reform rather than a short-term liquidity measure. Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, noted that the expansion of the scheme is a meaningful signal that India wants to deepen and diversify foreign participation beyond institutions.

She observed that by doubling the per-investor limit and expanding the aggregate cap, the government is attempting to widen the ownership base while still containing systemic risk through defined ceilings. According to her, the importance of this measure lies less in immediate capital flows and more in the nature of the capital it attracts.

PROI investors, she pointed out, typically have a longer investment horizon and are less prone to rapid entry and exit compared to global portfolio flows. Their capital is often considered more stable and “sticky,” which can contribute to market stability over time.

Srivastava also highlighted that the increase in the aggregate cap to 24 percent creates additional headroom in several mid- and large-cap stocks where foreign ownership limits frequently become binding constraints. Over time, this could improve liquidity conditions, support better price discovery, and reduce marginal volatility in such counters.

Tanvi Kanchan, Associate Director and Head of NRI Business at Anand Rathi, echoed similar views. She said the higher limits would enable overseas investors to build more substantial positions in Indian companies, potentially enhancing market efficiency and broadening the shareholder base.

From a policy perspective, the reform aligns with a wider theme in the Budget of positioning Indian equities as a core allocation in global portfolios rather than a tactical or cyclical trade. By easing participation for overseas individuals, the government is signalling comfort with deeper foreign integration into domestic capital markets, while retaining regulatory oversight through defined caps.

The effectiveness of this reform, however, will depend on operational clarity. Market experts note that simplified compliance processes, clarity on taxation, and seamless execution mechanisms will be critical in translating this announcement into actual investor participation.