India stocks reform only a partial boost: experts
Monday, 9 January 2012
MUMBAI, Jan 8 (AFP): The Indian government's decision to allow foreign nationals to invest directly in stock markets is an attempt to revive its reform agenda but any benefits will only be seen long-term, analysts say.
The move to liberalise share-trading was announced on January 1 amid growing concern over India's slowing growth rate and an exodus of overseas capital during 2011.
The ministry of finance in New Delhi said that it hoped the reforms, which are due to come into place by next weekend, would "widen the class of investors, attract more foreign funds and deepen the Indian capital market".
Until now, foreigners have been allowed to invest in India's stock markets only via mutual funds or through registered institutions.
International investors may find it easy to resist the temptation after India's benchmark Sensex index fell 25 per cent last year, making it one of the worst-performing equity markets among major economies.
Overseas funds were net sellers of $358 million-worth of Indian stocks in 2011. In the previous 12 months, they bought stock worth $29 billion, according to the Securities and Exchange Board of India, the market regulator.
Analysts say the new regulations are designed to tackle the problem as foreign-buying into Indian stocks was drying up due to slackening domestic growth and global uncertainty.
"This policy is welcome as India needs more capital," said Hemen Kapadia, chief executive with Chart Pundit, a Mumbai investment advisory firm.
But he told AFP that the move should have come sooner.
"At this stage, it appears to be more out of desperation to improve dollar flows and support a weakening rupee," he said.
The move to liberalise share-trading was announced on January 1 amid growing concern over India's slowing growth rate and an exodus of overseas capital during 2011.
The ministry of finance in New Delhi said that it hoped the reforms, which are due to come into place by next weekend, would "widen the class of investors, attract more foreign funds and deepen the Indian capital market".
Until now, foreigners have been allowed to invest in India's stock markets only via mutual funds or through registered institutions.
International investors may find it easy to resist the temptation after India's benchmark Sensex index fell 25 per cent last year, making it one of the worst-performing equity markets among major economies.
Overseas funds were net sellers of $358 million-worth of Indian stocks in 2011. In the previous 12 months, they bought stock worth $29 billion, according to the Securities and Exchange Board of India, the market regulator.
Analysts say the new regulations are designed to tackle the problem as foreign-buying into Indian stocks was drying up due to slackening domestic growth and global uncertainty.
"This policy is welcome as India needs more capital," said Hemen Kapadia, chief executive with Chart Pundit, a Mumbai investment advisory firm.
But he told AFP that the move should have come sooner.
"At this stage, it appears to be more out of desperation to improve dollar flows and support a weakening rupee," he said.