India pledges greater access for funds
Saturday, 20 October 2007
Joe Leahy
FT Syndication Service
NEW DELHI: India has pledged to open the "front door" wider to hedge funds in an apparent bid to bolster foreign investor confidence after a stock market plunge triggered by a proposed crackdown on investment in the country through offshore derivatives.
Hedge funds will be given easier direct access to the Indian stock market after the proposed curbs that have raised fears of a rush of selling by foreign investors.
M Damodaran, the chairman of the Securities and Exchange Board of India (SEBI), said the regulator had already registered some hedge funds as investors qualified to invest in the country.
He said Sebi was reviewing regulations to see if there were more types of funds that could meet the criteria for entry. "We are looking at the content to see if we can bring in a few more people that might not presently qualify," Mr Damodaran said.
Sebi sparked the stock market plunge last Wednesday by announcing the proposed regulations that would curtail the sale of derivatives known as participatory notes that are used by foreign investors, particularly hedge funds, to gain exposure to underlying Indian shares. The market initially fell 9.0 per cent on the news amid speculation the measures would curb massive capital inflows into India's market.
The authorities were concerned the flow of hot money into stocks was beginning to pose a systemic risk to India's financial system. They also worried the inflows were forcing the rupee to appreciate rapidly against the dollar, making Indian exporters uncompetitive.
Lingering concerns over the regulatory changes last Thursday sent the Bombay Stock Exchange's benchmark Sensex Index 3.8 per cent lower to finish at 17,998.39, extending a 1.8 per cent decline at the close last Wednesday.
Mr Damodaran's assurance was echoed by P Chidambaram, India's finance minister, who told an Indian investor conference in New York: "Let me assure you, we have no intention of imposing controls on capital flows or keeping out certain kinds of funds."
Indian authorities have viewed hedge funds with suspicion since the Asian financial crisis of the late 1990s and only this year began considering applications for them to enter the country through the front door by registering with Sebi.
To get around these impediments, hedge funds have typically bought the participatory notes, which are sold by the leading investment banks.
FT Syndication Service
NEW DELHI: India has pledged to open the "front door" wider to hedge funds in an apparent bid to bolster foreign investor confidence after a stock market plunge triggered by a proposed crackdown on investment in the country through offshore derivatives.
Hedge funds will be given easier direct access to the Indian stock market after the proposed curbs that have raised fears of a rush of selling by foreign investors.
M Damodaran, the chairman of the Securities and Exchange Board of India (SEBI), said the regulator had already registered some hedge funds as investors qualified to invest in the country.
He said Sebi was reviewing regulations to see if there were more types of funds that could meet the criteria for entry. "We are looking at the content to see if we can bring in a few more people that might not presently qualify," Mr Damodaran said.
Sebi sparked the stock market plunge last Wednesday by announcing the proposed regulations that would curtail the sale of derivatives known as participatory notes that are used by foreign investors, particularly hedge funds, to gain exposure to underlying Indian shares. The market initially fell 9.0 per cent on the news amid speculation the measures would curb massive capital inflows into India's market.
The authorities were concerned the flow of hot money into stocks was beginning to pose a systemic risk to India's financial system. They also worried the inflows were forcing the rupee to appreciate rapidly against the dollar, making Indian exporters uncompetitive.
Lingering concerns over the regulatory changes last Thursday sent the Bombay Stock Exchange's benchmark Sensex Index 3.8 per cent lower to finish at 17,998.39, extending a 1.8 per cent decline at the close last Wednesday.
Mr Damodaran's assurance was echoed by P Chidambaram, India's finance minister, who told an Indian investor conference in New York: "Let me assure you, we have no intention of imposing controls on capital flows or keeping out certain kinds of funds."
Indian authorities have viewed hedge funds with suspicion since the Asian financial crisis of the late 1990s and only this year began considering applications for them to enter the country through the front door by registering with Sebi.
To get around these impediments, hedge funds have typically bought the participatory notes, which are sold by the leading investment banks.