India over-dependent on portfolio flows

By agencies   |   Thursday, 08 June 2006, 07:00 Hrs
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NEW DELHI: The global equity research major Morgan Stanley, commenting on the recent downslide in the stock market, has once again exposed India’s over-dependence on portfolio flows.

In its report on the country’s capital market, Morgan Stanley stated that portfolio flows accounted for nearly one-third of capital flows in India over the past three years. But the portfolio funds have divested over $2.5 billion since the downward trend in the first half of May this year.

FII dominance of Indian markets has been a subject of deliberation within the policy-making circles. The Reserve Bank of India has been informally seeking a ban on FII inflows into equities through participatory notes, considering them as volatile. However, the finance ministry and the Securities and Exchange Board of India (SEBI) hold a different viewpoint that as long as there is transparency in the fund flow with adequate disclosures, there is no necessity for changes in the existing policy.

Huge sell-offs by FIIs is believed to have triggered the downslide in the stock exchange

With the Bombay Stock exchange (BSE) Sensex dropping close to 16 percent in May with surging FII outflows, sluggish global markets and huge profit booking at higher levels.

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