It all started with a seemingly innocuous transaction on April 12 when state-owned People’s Bank of China (PBoC) bought an additional 0.2 per cent stake in HDFC Ltd., India’s largest housing finance company. Added to PBoC’s existing 0.8 per cent stake, this took the Chinese bank’s equity past 1 per cent — triggering a notification to stock exchange regulator, the Securities and Exchange Board of India (Sebi).
A registered foreign institutional investor (FII) buying a stake in HDFC is perfectly legal. It was also a smart bargain. Stock markets in the world had been topsy-turvy and till that day HDFC Ltd. had seen 32 per cent erosion in market cap since the market crash triggered by the spread of coronavirus.
Yet, the transaction rang alarm bells at Sebi coming, as it did, amid allegations of Chinese firms exploiting market crash to corner stakes in strategic firms of vulnerable economies. The market regulator played safe and promptly shot off a missive to the finance ministry seeking guidance. It asked if such transactions needed special attention.
In Delhi, its chain reaction continues to unravel till this day. Taking note of the threat posed by Chinese firms to companies in India that may be vulnerable due to economic stagnation because of coronavirus, on April 17, the commerce ministry’s Department for Promotion of Industry and Internal Trade (DPIIT) amended foreign direct investment (FDI) guidelines to apply curbs on investments from China. Aimed at preventing any opportunistic takeover from across the border, any fresh FDI from China now requires a specific nod from the government.
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