News: Doors to open for hedge funds soon

(DNA 07/12/2006) New Delhi/Mumbai - India may allow hedge funds to directly invest in the stock markets by the middle of next year

The market opening could take place under the issuance of new rules to govern foreign portfolio investors, the Financial Times reported on Wednesday, quoting Securities and Exchange Board of India chief M Damodaran.

When contacted by DNA Money, Damodaran said, “We didn’t say we would open it to hedge funds. We said we will see each application in its own merit.” He did not explain further.

Currently, hedge funds cannot directly trade in Indian stocks, though they can invest through participatory notes (PNs) or instruments linked to underlying shares traded by foreign institutional investors.

The new initiatives affecting hedge funds would be part of an overall review of regulations overseeing foreign institutional investors, which may lead to clearer guidelines about who should be allowed to participate in the country’s stock market, the FT report said.

Finance ministry officials said the government is currently examining in detail emerging global regulatory frameworks governing these funds.

Storm brews?

Government is currently examining emerging global regulatory frameworks governing hedge funds

RBI has already voiced its scepticism loudly about the entry of hedge funds

A policy that allows hedge funds in would also face political resistance from the government’s Left allies