The government on Monday clarified that any Indian company engaged in a sector where foreign direct investment (FDI) is prohibited can issue bonus shares to its pre-existing non-resident shareholders.
However, after the issue of bonus shares, the shareholding pattern of the pre-existing non-resident shareholder would remain the same, according to a government notification.
The move is set to give the much-needed clarity to companies in the tobacco sector that have been seeking clarity regarding the issuance of bonus shares, experts said.
Under the FDI policy, tobacco is among the eight sectors where FDI is prohibited.
“An Indian company engaging in a sector/activity prohibited for FDI, is permitted to issue bonus shares to its pre-existing non-resident shareholder(s) provided that the shareholding pattern of the pre-existing non-resident shareholder(s) does not change pursuant to the issuance of bonus shares,” said Press Note 2 issued by Department for Promotion of Industry and Internal Trade (DPIIT).
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According to the FDI policy, Indian companies can issue bonus shares to existing non-resident shareholders, subject to the sectoral caps applicable under the FDI norms.
Other sectors where FDI is prohibited includes lottery business, gambling and betting — including casinos — chit funds, Nidhi companies, trading in transferable development rights (TDRs), and real estate business or construction of farm houses.
They also include sectors that are not open to private player investment, including atomic energy and railway operations.
The clarification will be effective from the date of issue of the relevant Foreign Exchange Management Act (FEMA) notification, according to the note.
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The rupee saw its steepest single-day decline in around 26 months amid global trade war tensions, erasing all its gains of 2025. Fears over global trade tensions escalated after China implemented retaliatory tariffs on US goods.
On Monday, the local currency depreciated by 0.6 per cent — the worst fall since February 6, 2023, — to settle at 85.84 per dollar, against the previous close of 85.24.
The rupee was one of the worst performing Asian currencies on Monday. The Philippines peso depreciated the most with 1.1 per cent fall during the day.
“Till the time tariffs talks are there, the market is expected to remain volatile. The Reserve Bank of India (RBI) was there in the initial hours of trading. We saw some selling from foreign banks as well. However, key levels were protected, with the RBI protecting it (rupee) around 85 levels,” said a dealer at a private bank.
The domestic currency erased all its gains for the year, registering a 0.2 per cent fall during the current calendar year so far.
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On Friday, the rupee had surged past the 85 per dollar mark, reaching 84.95 intraday. The rupee ended the day with a gain of 0.44 per cent.
In March, the rupee had regained strength against the dollar, buoyed by inflows after hitting new lows earlier in the year. It had recovered from nearly 88 per dollar to recoup all losses for the calendar year.
Foreign exchange market participants said the rupee is expected to be volatile for a few sessions. However, it is seen stabilising around 85.50 per dollar mark in the medium term.
Government bond yields inched up by 2 basis points (bps) as mutual funds and foreign banks sold bonds for profit.
The 10-year benchmark yield settled at 6.48 per cent against the previous close of 6.46 per cent. The bond market is now waiting for the Monetary Policy Committee meeting decision on Wednesday.
The benchmark yield is expected to soften to 6.4 per cent if the domestic rate-setting panel changes the stance to accommodative, said dealers.
“There was profit booking by mutual funds and foreign banks on Monday,” said a dealer at a state-owned bank. “The yield should be range-bound until Wednesday; the change in stance should take yield (on the benchmark bond) to 6.4 per cent. Any positive development should take it to 6.45 per cent,” he added.
The April review of the monetary policy meeting started on Monday amid expectations of another 25 bps rate cut.
Also, focus will be on liquidity-related measures to boost transmission of policy rates to bank lending and deposit rates.
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