Yes, a Nepali can invest in the Indian Stock Market. The legal provisions of India and Nepal are confusing and contradictory. But many Nepalese have been investing in the Indian stock market. It is technically possible to do so.
The issue explained
There are countless Nepalese living in India for work and education. If you are one of them, you might be interested to invest in the Indian stock market. Even if you are a Nepali living in Nepal, you might want to invest in the stock exchanges of India.
This article is the only article on the internet that explores whether a Nepali can participate in the securities market of India. Let’s see if we can buy and sell shares for a few extra bucks.
First of all, why is investing in the Indian stock market so appealing?
There are 23 stock exchanges in India. Among them, two are national-level stock exchanges: the National Stock Exchange of India Limited (NSE) and the Bombay Stock Exchange (BSE). The rest 21 are Regional Stock Exchanges (RSEs).
As of September 2020, BSE and NSE have the combined market capitalization of more than $4 trillion. They are the 10th and 11th largest stock market in the world respectively. In comparison, NEPSE, the only stock exchange of Nepal, has the total market capitalization of just $12.779 billion.
Also, there are a heck of lot of companies to choose from in these Indian stock exchanges. Unlike NEPSE, companies in these Indian stock exchanges come from a wide variety of sectors. There are ample manufacturing companies and technology companies. This enables an investor to diversify his portfolio and minimize his risks.
Investors can themselves judge if a company in these stock exchanges are doing well. This is because the general public is eating, drinking, wearing, or using the products of the companies in NSE and BSE. In contrast, banks and financial institutions dominate the Nepalese stock exchange. The only way to judge the financial performance of a company is to bury your face in the long and boring financial reports.
These are the reasons why a Nepali (and anyone else for that matter) would want to invest in the stock market of India. If you have learned fundamental analysis or technical analysis and are confident with your strategy, you have better chances of being profitable in an established and diverse stock exchange like BSE or NSE than in an immature, small stock exchange like NEPSE.
What is the legal provision for a Nepali to invest in the stock market of India?
Both Nepal and India’s laws have addressed this matter. However, their provisions are totally contradicting.
India allows a Nepali to invest in its stock exchanges
It seems that India has opened its doors for a Nepali to invest in its stock market. In fact, India has given us preferential treatment in this matter because we are its neighbors.
“If you are a citizen of Nepal or Bhutan, Indian markets are open for you to invest directly or through stock markets.”
According to India’s legal provision, citizens of Nepal and Bhutan can invest in Indian Securities on a repatriation basis.
This means that “the amount of consideration for such purchase on repatriation basis shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.”
To summarize, India has been treating Nepali citizens generously in this matter, and it wants us to invest in its stock exchanges.
However, the Nepal government itself has tied Nepalese people’s hands
Matters aren’t clear at home, though. Every Nepali is subject to an “Act Restricting Investment Abroad, 2021 (1964)”
According to this act, no Nepali can invest abroad except in cases where they receive a special exemption of the Nepal government or Nepal Rastra Bank.
It is clear that saying “I want to invest in India for a few extra bucks” won’t give you this so-called “special exemption” from the government.
The law states that violators will be fined an amount equal to the investment and/or jailed for up to six months. Except for medical, travel, and educational purposes, the Nepalese cannot transfer money out of their country.
This act is so old that King Mahendra Bir Bikram Shah Dev made this act with the consent of the national panchayat. Old man Mahendra died, and so did monarchy in Nepal, but this law is still in effect today.
Also Read: My Stock Trading Strategy in NEPSE
Why this law
However, if we look from a neutral side, there are a number of positive aspects of this Act. Had it not been there, all the rich people would invest in foreign assets, leaving our home country barren. NEPSE is at its baby phase, and it certainly needs a little more love and care (even if it is a forced love) to grow.
Apparently, the government wants to keep the dollars from flowing out of the country. Also, most of the weak economies prevent their citizens from investing abroad. This is because they have a limited reserve of foreign currency which they need to finance huge imports. So, weak economies like Nepal do not allow their citizens to invest abroad.
Some think that this is a very anachronistic, ill-devised, and irrational law. They feel that Nepalese and any free human being should be free to make investments in any country that allows them to do so.
But rules are rules. And we have to obey them especially if they are embedded in our constitution.
Is this the end of the story?
Legally, a Nepali cannot invest anywhere besides his home country.
However, it seems to me that law and obedience aren’t as clear, black-and-white like we assume.
I have heard of countless Nepali people investing in the Indian stock exchanges. Just recently, a Nepali told me of his friend who benefitted greatly from the stock price hike of Reliance Industries. Reliance Industries (RIL) has recently become the first Indian company to cross the $200 billion market capitalization. It gained a market cap of over $70 billion in 2020 alone.
I have also heard of Nepalese investing in the stock exchanges of the US and other countries.
How did they do so?
Talking specifically about India, the Indian laws have a loophole and Nepalis are exploiting the loophole to trade freely in the Indian stock exchanges.
Way 1: Use the loophole
Apparently, if you have been staying in India for more than 6 months, you are eligible to get an Adhaar card.
Any non-Indian can buy property in India as long as they are a resident in India and have proof of residency. Most Nepalese go to India for work or education. Well, it seems that even if you are on a work permit or employment pass, you can purchase property in India. At the time of purchase of the property, you just should be a resident as per the law.
Thus, if a Nepali Citizen holds a proof of Indian Residency (Aadhar Card, Bank Account) and is a taxpayer (has a legitimate Indian PAN card), he can create a trading account.
As a Nepalese Quora user puts it – “It’s possible, (I have one), but you have to be a student at any Indian college or employee of a reputed organization.”
Since I clearly sensed that this violates the Act Restricting Investment Abroad, I wanted to verify things legally.
I called the Nepal Law Commission to inquire about the matter. Mr. Jung Bahadur Dangi, Under-Secretary and Information Officer, Nepal Law Commission received my call.
Apparently, he does not have any official or personal insight on the matter. He sounded as if he was oblivious to the fact that many were using this loophole and investing in India.
I also called Mr. Alok Chandra Shrestha, spokesperson, Nepal Law Commission. As soon as I said I had called to know about this particular issue, he had an important meeting to attend.
# Update 1:
I posed this question to lawyer Mr. Krishna Pal. This was his reply:
No, Nepali citizens can not invest in international stock exchanges. It is obvious that the “Act Restricting Investment Abroad” has prohibited doing so. However, with some loopholes, Nepali citizens are investing in international stock exchanges mainly in India. It’s because their laws are somewhat flexible. Nepali people can easily work and reside in India and obtain PAN Card/ Adhaar Card. This Adhaar Card is enough to invest in the Indian stock exchange. However, this is illegal and liable for punishment as per Nepalese Law. Indian laws allow Nepalese to invest in their market but Nepalese laws do not allow.Krishna Pal
Way 2: Have an Indian relative/friend give you his trading account
This is the simplest way to enter in the Indian stock market if you have someone close to you living in India.
This could be your trustworthy Indian relative or a friend with Indian citizenship.
Set up a trading account using his/her bank details and credentials. Also, set up the online trading platform. Connect the trading portal with his/her bank account.
After this is done, you can invest in any Indian stock market you like, from anywhere in the world. Make sure s/he is fine with you using his/her portal. This is why I said you need to find someone you trust and also someone who trusts you.
# Update 2:
It was brought to my attention that the “Foreign Investment and Technology Transfer Act, 2019” has enabled Nepalese citizens to invest in foreign stock exchanges.
On further inquiry, lawyer Rakshya Singh clarified the matter. It turns out, the “Foreign Investment and Technology Transfer Act, 2019” is meant to encourage foreign investment in Nepal and not the other way around. This was her reply:
Hi Samin Ji, Thanks for putting your confusion forward. However, these two legislations are not contradictory to each other. There is a big NO! for a Nepalese citizen to invest in international stock exchanges as per the “Act Restricting Investment Abroad 2021. “. The Foreign Investment and Technology Transfer Act, 2019 (FITTA) Is all concerned about attracting foreign capital, technology, and investment in the sectors of import substitution and export promotion. The Act similar to “Act Restricting Investment Abroad 2021” doesn’t allow a Nepalese citizen to make a foreign investment rather it focuses on attracting foreign investment and technology to make the national economy competitive, strong, and employment-oriented to achieve sustainable economic growth.
a. “Act Restricting Investment Abroad 2021” restricts a Nepalese citizen from doing foreign investment.
b. While the FITTA, 2019 only attracts foreign investment and technology transfer to achieve sustainable economic growth. Henceforth, these two Acts don’t contrast each other. Hope the answer was beneficial to you. Regards,Rakshya Singh
The Indian stock market is promising and appealing compared to the Nepalese stock market for a variety of reasons.
Nepal falls in the list of the neighboring countries that India is generous in the matter of accepting foreign investment. However, our own matters at home are too complicated legally.
Nevertheless, people have been finding one way or the other to get what they want. On a humorous note, it seems to me that they always do.
Disclaimer: Besides the documented facts, every opinion is my own. I do not endorse or promote any of the actions described above. Take your financial and legal decisions wisely.