Monday, March 19, 2007

SEBI to allow hedge funds direct entry into Indian capital markets

The capital markets regulator, the Securities and Exchange Board of India (SEBI), is considering direct participation of hedge funds in the Indian stock markets. SEBI has invited hedge funds to register with the regulator and invest in the Indian stock markets without the cover of participatory notes, currently the most preferred route of hedge funds for channeling investments in the Indian markets.

Participatory notes are often seen as tools for money laundering and there have been numerous calls, including from the Reserve Bank of India, to curtail them. It is widely estimated that 48% of the $50 bn investment by foreign institutional investors in the Indian markets has come through offshore participatory notes. Allowing hedge funds direct entry will help SEBI track the source of funds coming into the capital markets more efficiently. It is difficult to track the source of funds coming in through participatory notes.

SEBI’s thinking was articulated by its chairman, M Damodaran, at a meeting organized by ICICI Securities in Singapore early this month, which foreign investors, including several hedge funds, attended.

Read more in the article in Business Standard.

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