Fund managers have dismissed investment concerns surrounding the Indian stock market, following last night's 9.2% slide.
Trading on Bombay’s Sensex index had to be suspended for an hour as investors panicked following a Securities & Exchange Board of India (SEBI) statement calling for a cap on the amount of foreign money entering the market.
The SEBI plans to moderate the level of funds investors pump into India by changing its policy on Participatory Notes (P-Notes) used by investors not able to trade Indian equities directly.
Allianz RCM BRIC Stars fund manager Michael Konstantinov says the move is designed to slow the rapid rise of the local currency, which is causing major concerns for exporters.
“We are seeing huge inflows into India and it is putting upward pressure on the rupee and the pace of it is quite fast,” Konstantinov says.
He says about one third of the most recent inflows have come from investors using P-Notes and this is the third time authorities have moved to tighten up the regulation.
“Nothing is implemented at the moment and we expect to hear more in the next few days,” Konstantinov says.
“The authorities might make it a little more difficult (for P-Notes), but there is not a drastic change.
“I think how the equity market is right now, investors feel the same way. It is not in anyone’s interest to kill the market.”
Konstantinov says his BRIC fund does have the right to trade in the country.
Fidelity says the Indian economy’s underlying fundamentals remain strong and the market has pretty much bounced back to where it was before the announcement.
Arun Mehra, Fidelity's India Focus fund manager, says the SEBI's proposed measures are a good step to slow down speculative flows and will keep the rupee at sensible levels.
"The overall positioning of the fund is based on the view that India is a 10-year growth story and not a short-term one,” he says.
“While foreign direct investment and foreign investment instruments remain important drivers for Indian economic growth, I expect domestic flows in the form of pensions and insurance are likely to increase and become more prominent."
To comment on this story, contact:
0207 034 2681
What made financial headlines over the weekend?
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch