Stock market may open to foreign individuals

India has received foreign institutional investor inflows of more than Rs1 lakh crore in 2010, the highest ever in a year. But that may look like spare change if what the government is considering comes true: opening up India’s markets to foreign individual investors.

According to a Bloomberg report citing a finance ministry official on Friday, the government is considering allowing individual foreigners to buy local stocks for the first time, easing a rule that restricts their investment to mutual funds.

Some government officials see no need to differentiate between
India-focused mutual funds and foreign retail investors, the official said, declining to be identified because the review of the rule is confidential.

The finance ministry may set a limit on the amount individuals can invest, the official told Bloomberg.

Experts believe the move has the potential to draw a massive wall of money into the country.

“There is inherent appetite for Indian equities among foreign nationals. There is a craze among individual investors to put money here and this move, if it gets implemented, will lead to appreciably large flows. Also, expats working in India with huge salaries may be able to invest then,” said VK Sharma, head, private broking and wealth management, HDFC Securities.

Dinesh Thakkar, CMD, Angel Broking, said any such move will lead to the floodgates being opened, driving the markets to all-time highs. “Across the globe, everybody has started saving, and if they are provided with direct opportunity to invest in countries with high growth rates, we may see huge interest,” Thakkar said.

But an immediate deluge should not be expected, even if a decision comes soon, say some. “I don’t see an immediate deluge, rather, flows would be incremental as foreign retail investors may take time to get comfortable in investing in Indian equities directly,” said Saurabh Mukherjea, head of Indian equities at the London-based firm Execution Noble.

Thakkar said some distinction has to be made on how much they can invest. “Otherwise, it would lead to a situation where they get the cream at Indian retail investors’ expense, leading to an assets bubble.”

Mukherjea said the flip side would be a huge worry for the Reserve Bank of India in terms of a rise in the value of the rupee. The rupee has been rising on back of huge FII inflows and touched a two-year high of 44.115 against the dollar on Thursday, which has led to people expecting some action from the RBI.