Eternal's Foreign Ownership Cap: A Strategic Move in India's Regulatory Landscape?

Eternal Limited, the Indian food delivery giant formerly known as Zomato, has taken a bold step to reshape its ownership structure. On April 18, 2025, the company announced its board’s approval of a proposal to cap foreign ownership at 49.5%—a move that, if ratified by shareholders, would mark a pivotal shift in how the company balances foreign capital with domestic control. The decision arrives amid heightened scrutiny of foreign investment policies in India, where regulators increasingly emphasize safeguarding strategic sectors.

The Regulatory Backdrop

The proposed cap applies to all forms of foreign investment, including direct equity stakes, portfolio investments, and indirect holdings via non-resident entities. Notably, it excludes investments made under the non-repatriation route, which restricts capital from flowing out of the country. This distinction underscores Eternal’s aim to attract capital while maintaining compliance with India’s Foreign Exchange Management Act (FEMA), which governs foreign ownership thresholds in sectors deemed critical to national interest.

The move aligns with a broader trend in India, where tech and e-commerce firms have faced pressure to limit foreign ownership. For instance, ride-hailing giant Ola has long maintained a foreign stake below 49%, while Flipkart’s ownership structure has been a focal point during its IPO preparations. Eternal’s proposal, however, is significant because it formalizes a policy that was previously unenforced, potentially setting a precedent for other unicorns.

Shareholder Approval and Market Implications

The proposal now hinges on approval by Eternal’s shareholders, who will vote via a special postal ballot. This process could take months, introducing uncertainty for investors. Foreign shareholders holding stakes above 49.5% would face the prospect of divesting, which could pressure the company’s stock.

Historically, Eternal’s stock has been volatile, reflecting its reliance on foreign capital. Between April 2024 and April 2025, its shares fell by 18%, partly due to concerns over rising competition and regulatory hurdles. If the ownership cap passes, the immediate impact could be mixed: foreign investors might reduce exposure, but domestic investors could step in, stabilizing the stock.

The Strategic Rationale

Why cap foreign ownership now? The answer lies in both regulatory foresight and corporate governance. By proactively setting the limit, Eternal may preempt stricter FEMA regulations or sector-specific caps. Additionally, the move signals a shift toward greater alignment with India’s “Make in India” agenda, which prioritizes domestic ownership in key industries.

The 49.5% threshold is strategically set just below the 50% mark, ensuring no single foreign entity can claim majority control. This structure allows Eternal to access global capital while retaining operational autonomy—a balance critical for firms in data-driven industries like food tech, where control over consumer data and pricing strategies is paramount.

Risks and Opportunities

The proposal carries risks. If rejected, Eternal could face investor skepticism about its governance. Conversely, approval might attract domestic institutional investors and high-net-worth individuals, diversifying its shareholder base. For foreign investors, the cap could limit liquidity but also reduce the risk of sudden regulatory crackdowns.

In the broader market, Eternal’s move could influence how other Indian tech firms navigate foreign ownership. A 2024 report by EY noted that 65% of Indian startups with foreign stakes now prioritize capping ownership to mitigate regulatory risks—a trend Eternal is now formalizing.

Conclusion: A Prudent Move with Long-Term Benefits

Eternal’s decision reflects a calculated trade-off: sacrificing some foreign investment flexibility to gain regulatory certainty and domestic investor confidence. With its stock price down 18% over the past year, the company likely aims to stabilize its valuation by appealing to a broader investor pool.

Crucially, the 49.5% cap aligns with India’s regulatory trajectory. As of 2024, only 22% of Indian tech firms had formal foreign ownership caps, per data from Tracxn. By adopting one, Eternal positions itself as a leader in compliance, potentially attracting domestic capital while avoiding overexposure to foreign market volatility.

For shareholders, the vote is a litmus test. Approving the cap could signal long-term strategic clarity, even if it temporarily deters some foreign investors. In a market where regulatory certainty is rare, Eternal’s move may prove to be a shrewd play for stability in an increasingly regulated landscape.