Indian Stock Market, Now Open for NRIs
By siliconindia   |   Tuesday, 03 January 2012, 00:19 IST   |    1 Comments
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Indian Stock market
Bangalore: The last one year has been a war for the Finance Ministry of India to keep the stock markets away from dipping and entering the red zone. The already retired and hurt stock market of India went through another cataclysm when the Eurozone crisis made its occurrence. Stock market hit two year low which cautioned us that market can fickle any moment and can be very impulsive. As a defense mechanism to control the precariousness in the market, the Finance Ministry will allow qualified foreign investors (QFIs) to pitch in their money to buy shares in the Indian stock Market. The scheme is operational from January 15, 2012.The direct investments by QFIs in the Indian equity market will widen the class of investors, attract more foreign funds and reduce market volatility and deepen the Indian capital market. Earlier they were delimited to participate in only mutual fund schemes. The ministry says that the red carpet act will boost the Indian market with foreign investments. There is no safe zone or strategy that can delineate the behavior of a market where Institutional investors rule and exercise like sovereign power. Institutional investors are at some point a threat to the market as they exit the market very soon when crisis hit and by bringing down the market at the same time. Whereas, individual investors as opposed to institutional investors, are seen to be more stable investors and may not withdraw from the market immediately. QFIs can be potential individuals, groups or associations from any foreign country but all they had to do is to be registered with the Financial Action Task Force, which is an anti-money laundering forum and is also a signatory to IOSCO's multilateral MoU. In order to buy shares, the QFI has to have a qualified depository participant (DP) to pool in the money for him. A qualified depository is nothing but an agent or a stockbroker who will on QFI's behalf invest and maintain is book of accounts for the shares invested. The DP has be a registered with SEBI to act as an interface between the depository and the investor. The DP also makes sure that he has all the information of the QFI as per the know-your-customer (KYC) protocol. The money from the QFI will be transferred through regular means of banking. If the QFI is sending in dollars, it will be converted into rupee and then invested. The RBI has also set out the norms clear by mentioning that the overall QFI holding in a company can be up to 10 percent and the individual holding of a company will be limited to 5 percent. The QFI scheme comes into picture as a damage control to reinstate the rupee value. Earlier RBI has brought in some effective steps to boost the distress rupee. By increasing the interest rates in banks, the RBI encouraged NRIs to save more in their foreign currency accounts. From less than 4 percent , the interest rate sky rocketed to 9 percent which made many NRIs to convey their money into Indian banks. The QFI has not caused any phenomenal buzz in the stock market but market analysts predict that the market is a little orthodox at the moment but will divulge in near term as this will open the floodgates of investments from aboard. Falling exports and shrinking industrial output is making India a bigger importer than an exporter. The rupee continues to fall against major currencies and there is a need to stem the fall. The presence of a new category of investors would spread ownership of shares in a company. This is likely to reduce volatility in share prices according to report by NDTV Profit. However, as every coin has a contradicting face to it, the QFI system may also hold a murky side that we aren't aware of.

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