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Expect no quick rise in QFI inflows

Economic sluggishness, lack of knowledge and tough procedures may deter individual investors. Sachin Kumar reports.Testing the waters

business Updated: Jan 02, 2012 21:53 IST
Sachin Kumar

The finance ministry’s decision to allow foreign individuals approved by regulators to directly invest in Indian stock markets is not expected to lead to an immediate inflow of overseas funds into India.

Investors are likely to await signs of economic recovery and simpler procedures for investment and may yet prefer routing their funds through institutions for want of a better understanding of local companies and markets, experts said on Monday.

“There will not be an immediate inflow of funds in India as foreign investors will wait for economic conditions in India and outside to improve,” said Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services.

“We may see funds coming in the second half of 2012,” he added.

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In a bid to widen and deepen the Indian capital market, the finance ministry on Sunday allowed qualified foreign individuals (QFIs) and pension funds to invest directly in equity markets.

“The move will not have any significant impact on attracting foreign funds as there are not too many investors outside (of India) looking to invest directly in Indian equities,” said Avinash Gupta, leader, financial advisory, Deloitte India. “A foreign investor will not prefer direct exposure in Indian equities because of a lack of knowledge about Indian equities and would invest through fund houses,” he said.

“It is easy for a foreign investor to invest through an offshore fund or an India-specific fund that provides him insights about Indian conditions rather than doing research on his own,” said Gaurav Dua, head of research at brokerage firm Sharekhan.

Experts also feel that if government wants to lure foreign investors, it would also have to make processes simpler. “The process of investing should be made very simple by removing paper chases, introducing easy KYC (Know Your Customer) norms and enabling quick buying, selling and collection of money online,” said Agrawal.