Foreigners can now invest directly in Indian stock market thanks to the government opening doors for them. 2011 has been definitely one of the worst years for Indian stock market. And it has to do a lot with the fact that foreign institutional investors have pulled lot of funds from Indian stock markets. Till now, individual foreign investors were investing indirectly through others channels like mutual funds and institutional investors.
With government allowing them to enter stock markets, now qualified foreign investors can directly invest in Indian stock markets. So far, qualified foreign investors were allowed to invest in mutual funds. By opening up the stock market gates for qualified foreign investors, government is expecting to get more foreign funds in Indian stock market and thereby expecting more stability and lesser volatility.
This move is a strategic move and may provide some short term remedy but it is more for long term investment horizon in Indian equity markets. As far as 2012 is concerned, it’s lot about the global and domestic macro as well as micro factors which are going to impact Indian stock market. And at the ground, economical situation is almost same as it was before; it would be interesting to see how things shape up in next couple of months.
But this move will definitely help a lot of qualified foreign investors who were looking to invest in Indian equity. If things improved in next few months and budget is able to push expectation, then we may see lot of foreign money flowing in Indian equity. Foreign funds have been key to success for Indian stocks and since they dried up in 2011, we saw them falling like anything. This move can help positive stocks to gain and thereby reducing the overall loss. It is going to further enhance the role of foreign funds in Indian market and it will be interesting to see how this money is flowed in and out of India in the current situation of week global economy.
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