The move to improve foreign investors ability to invest in Indian companies has been welcomed as a positive shift that will bolster the country's capital markets.
Earlier this month India's Ministry of Finance announced it would ease the rules for non-listed Indian companies wanting to issue depositary receipts, which allow domestic companies to raise capital from overseas investors without embarking on a full foreign stock market flotation.
The changes have been hailed as groundbreaking, but investment professionals believe they are unlikely to lead to an immediate inflow of capital from foreign investors without further government reforms to bolster the economy.
Shumita Deveshwar, director of India research at Trusted Sources, an emerging markets advisory firm, said the changes arrive at a time when international demand for Indian exposure is 'strong following the recent election of Prime Minister Narendra Modi.
She added that the previous depositary receipt regime was outdated as it was drawn up more than 20 years ago when India's financial system was less robust.
Neil Atkinson, Asia-Pacific head of depositary receipts at BNY Mellon, said: 'this will not solve all of the issues that India faces, but it makes Indian companies much more accessible to global investors.
'there is significant international demand for Indian equity and greater access to depositary receipts may meet some of the demand not satisfied through routes previously available.
Some international investors prefer to use depositary receipts as an alternative to exchange traded funds as they provide access to specific stocks, Mr Atkinson said.
Fund managers also tend to use these dollar-denominated instruments to avoid taking on heavy exposure to the rupee, he added.
Anjalika Bardalai, senior analyst at Eurasia Group, agreed that the new regulations are likely to encourage increased foreign investment in Indian companies.
Ms Deveshwar added that the improved regime may prove popular among Indian companies that are wary of overseas listings because of the tougher regulations in some markets.
She said: 'the more liberal regime will allow many more companies to tap the international capital markets. It provides both Indian companies a valuable alternative to raising funds and foreign investors an efficient route to invest in Indian companies.
However, the expectation is that the reforms will not increase international appetite for Indian equity exposure overnight.
Ms Deveshwar said: 'the overall market will need to become broader and deeper before investors really get excited about putting their money in these instruments. It will be a slow and steady process.
Rahul Chadha, co-chief investment officer at Hong Kong-based Mirae Asset Global Investments, agreed that the reforms represent a positive move for India, but he said: [This is] unlikely to be a big deal for the time being [as depositary receipt] issuance by Indian companies with listed equities has been limited in the past five years.