India Eases Foreign Fund Investment Rules to Woo Cash

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Oct. 7 – In order to encourage foreign inflows into India, the Securities and Exchange Board of India (SEBI), India's capital market regulator lifted curbs on indirect investment notes by foreign funds to spur inflows into a battered stock market. SEBI initiated the change to stem record sales by offshore funds that have triggered a 42 percent slide in the benchmark index this year, Bloomberg reported.

A requirement forcing investors to register in India before buying shares and limits on offshore derivatives that were imposed in October will be lifted with immediate effect, C.B. Bhave, chairman of the Securities & Exchange Board of India, told reporters after a board meeting in Mumbai.

The benchmark Sensitive Index, or Sensex, plunged to a two- year low today as the global credit crisis has spurred investors to shun emerging markets assets. Investors overseas, who made record purchases of Indian shares last year, have sold $9.2 billion of stocks in 2008, driving the rupee to a 5 1/2 year low.

Investors have dumped emerging markets assets after banks, stung by $586 billion in writedowns due to the collapse of credit markets, curtailed lending. The MSCI Emerging Markets Index headed for its steepest drop since October 1997 on Monday.

October Rules

Under the October rules, foreign investors could only issue offshore derivatives linked to stocks up to a limit of 40 percent of their assets under custody as of Sept. 30.

Investors also had to be regulated in their home countries before they could apply to invest in Indian stocks.

In the past year, 397 foreign institutional investors, or FIIs, and 1,160 so-called sub-accounts have registered to buy shares, the regulator said.

The regulator on Monday also overturned rules that banned overseas investors from issuing participatory notes on derivatives. The lifting of this ban means that investors can issue participatory notes on single stock and index futures and options.