Mumbai, Oct 07: Foreign investors are charmed by India these days, and no wonder. The government is stable, domestic consumption is strong and inflation is in check. Since May, FIIs have pumped $2.6bn into Indian equities, more than three times the inflow in the whole of ’02, according to the Securities and Exchange Board of India (Sebi). The stock market has risen by 51%.

But Sebi is more worried than pleased. Much of the foreign money has come from hedge funds that have bypassed its gaze. Although a few hedge funds had invested in India soon after the country began liberalising its financial markets in the early 1990s, their interest has surged recently. Industry sources estimate that perhaps 25-30% of all foreign equity investments are now held by hedge funds.
Hedge funds like India because it is one of the few emerging markets to offer such sophisticated products as futures and options on single stocks and stock indices.
However, only foreign investors registered with and regulated by Sebi are allowed to participate in the markets. To get around this, hedge funds route their investments through registered investment banks, which buy securities and sell synthetic products based on them to the funds. Bureau Report