India Inc says cheers to ECB relaxations

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New Delhi, May 29 : India Inc is optimistic that the ECB relaxations and easing of FII norms will reverse the negative flow of foreign capital into the country. The measures seek to make it easier to access ECB that will make the debt market perk up, and also make a larger number of entities qualify as FIIs in the equity market, including the rich overseas Indian entities.

This will also ease the lure of participatory notes as many overseas Indian funds use the route to access the Indian stock markets. NRIs have been kept out of the stock markets since the stock scam of 2001. They could only invest in primary markets.

At one stroke, the government and the markets regulator Securities & Exchange Board of India (Sebi) have eased controls on foreign capital inflows, raised the chances of interest rates coming down, eased the credit squeeze and made it easier to invest in Indian markets thereby raising liquidity of the domestic stocks. The spoil sport could still be the Reserve Bank of India (RBI), if despite the rise to $50 million of single tranche inflows it continues to restrict the flows in an informal arrangement as it has done till now.

The omnibus relaxation of the FII registration rules mean the number of FIIs should jump up sharply from the present 1,378 and 4,143 sub-accounts as on May 29. The markets have been clamouring that the restrictive regime of FIIs was crippling their growth.

While the government has relaxed overseas debt market for Indian companies, it has also allowed FIIs to pump in more money in the Indian debt market.

The finance ministry has permitted FIIs to to invest up to $5 billion in government securities and up to $3 billion in corporate bonds. At present, they are allowed to invest up to $3.2 billion in government securities and $1.5 billion in corporate bonds.

The move would help in the deepening the Indian debt market, which remains weak, compared to the vibrant equities market. It would also enhance the participation of FIIs in the domestic debt market. FIIs’ total investment in the debt market has been $423 million in the year-to-date.