The Government's new scheme to allow foreign individuals and trusts to invest directly in the Indian equity markets has triggered bitter-sweet reactions from brokers and market gurus. The new scheme, which is expected to be operational from January 15, is definitely a good move by the government but may be victim to procedural bottlenecks, say brokers.
“This scheme will help globalize the markets. It is also a huge opportunity for corporates to get participation from foreign investors,” said Mr Raamdeo Agrawal, Jt Managing Partner, Motilal Oswal Securities. “This scheme will get good response from the middle-east region particularly Arab countries because of their close proximity to India. Also, there is good reach in terms of marketing to these countries,” he said.
“Once the market conditions improve, one can expect billions of dollars of investment into Indian markets through this route. This move will also help in increased dollar inflows which will help in alleviating the pressure on falling rupee value,” said Mr D. K. Aggarwal, CMD, SMC Investments and Advisors Ltd. “Qualified Foreign Investors (QFIs) include the classes of investors such as Pension Funds. As pension funds are long term investors, the inflows that are made by Pension Funds through this QFI route are expected to be stable and this can reduce the volatility associated with FII inflows,” he said.
A statement from the Finance Ministry said that the introduction of the new scheme will be to “widen the class of investors, attract more foreign funds, reduce market volatility and deepen the Indian capital market.” However, with the uncertainty in the Indian markets and the current bear conditions, brokers feel that there may not be any significant impact in the short term.
“What is important is to await the guidelines – we hope there will not be much paperwork but a simple Know Your Customer (KYC) process,” said Mr Rashesh Shah, Chairman, Edelweiss Financial Services.
As the scheme has just been announced, a lot of things have yet to be decided from the regulators' end. The huge amount of paperwork and procedural hassles could slow down the impact that this scheme could have on Indian markets, say brokers.
Also, another concern remains the apprehension of investing in a foreign market. “History tells us that investors are most comfortable investing in their home country,” said Mr Saurabh Mukherjea, Head of Equities, Ambit Capital.
To gain the confidence of foreign investors, there still needs a lot to be done in terms of “set-up” and “framework procedures.”
“It is important to have intermediaries for this scheme to work out. A sort of hand-holding or support service at the local level in foreign countries will allow foreign investors to gain confidence to invest in Indian stock markets,” said Mr Ajay Parmar, Co-Head Investment Banking, Emkay Global Financial Services.
According to the scheme, QFIs can hold up to five per cent of the paid-up equity of a company and as a category can hold a maximum of ten per cent in a company.