NRIs most loyal investors in India

India’s Bombay Stock Exchange (BSE), which is under pressure due to reverse fund-flow thanks to the Foreign Institutional Investors (FIIs), will regain its glory as the FIIs cannot skip a country like India and because Non-Resident Indian (NRI) investors who remain loyal to their home country always come back to the market, said the CEO of BSE, earlier known as the Bombay Stock Exchange.

Speaking to Emirates 24|7 during a recent visit to Dubai to launch the S&P Sensex Futures, Ashishkumar Chauhan, Managing Director and CEO of the 138-year-old BSE, said the FIIs have invested nearly $200 billion in Indian stocks in the last 20 years, and only $5 billion has flown out of the country’s debt market in recent months due to a change in the US bond yields.

“India is a net importer of capital and the FIIs have invested $200 billion in the Indian stocks. Now we are trying to ease FII fund flows by allowing registration of the funds through depository participants. Earlier, the FIIs had to be registered and licensed by the Securities and Exchange Board of India (Sebi),” said the man at the helm of the bourse that claims to be the largest in terms of the number of companies registered.

“As the US bond yields improved, some funds have flown out of India, but further easing of norms for FIIs will bring them back to the Indian market. Sebi is trying to ease complexities involved in foreign investment. A new category, Foreign Portfolio Investment (FPI) will further ease foreign investment in India,” he said.

Media reports suggested that FIIs have pulled out more than $6.5 billion from India within a month. A foreign investment is considered such if the investment is 10 per cent or less in a listed company. If it is above 10 per cent, it is considered as Foreign Direct Investment (FDI).

“With the new regulation in place, FIIs will be able to operate with more freedom on the BSE,” Chauhan said.

The BSE itself is now a private limited company, owned 40 per cent by Indian brokerage firms, 30 per cent by non-broking Indian entities like the Life Insurance Corporation of India and State Bank of India, and 30 per cent by foreign investors like the Singapore Stock Exchange, Deutsch Bourse (Germany) and George Soros, the Hungarian born American investor.

Chauhan said Dubai Holding, which used to own a 5 per cent stake in the BSE, sold it to an investment company owned by George Soros a few years ago. “If any of the existing shareholders in the BSE are willing to sell their stake, Dubai Holding can always come back as a shareholder of BSE,” he said.

According to Chauhan, NRI investors are the most loyal investors in BSE, and even if they withdraw some investment from the Indian market, they always come back.

“NRI investors like Indian stocks and they stay invested in the market. NRIs are the most loyal investors because, ultimately, they have to come back to their home country. As the Indian rupee has depreciated further and the price of gold has fallen, many NRI investors are looking at  Indian stocks,” he said.

Major sovereign funds and investment institutions from the Middle East like the Abu Dhabi Investment Authority, some telecom and airline companies are active investors in the Indian stocks, he said.

Chauhan was in Dubai in connection with the official launch of Sensex Futures, the first-ever Indian equity index futures contract to be listed on an exchange in the Middle East and North Africa (Mena) region. DGCX Sensex Futures contract is based on the S&P BSE Sensex, the blue-chip stock index of the BSE.

“An agreement was signed in October 2011, but the DGCX was waiting for a new technology to accommodate the huge load of transactions. A rupee contract (Rs2 million) was launched, which is doing very well and now a mini rupee contract for Rs200,000 is added to include middle-class investors and smaller companies,” he said.

Due to the sharp fluctuations in the Indian currency, many companies are hedging their rupee positions, he said, creating huge demand for these currency products on DGCX.

“During the last five to six years, investment in gold has overshadowed other class of assets including stocks and real estate because investors chase quick returns. With a 40 per cent fall in gold price to $1,200 per ounce, returns from gold investment are negative. India is imports oil worth $100 billion and gold worth $50 billion per year. The prices of both these commodities are falling and hence the country’s current account deficit is likely to come down in the near future, arresting the declining currency flow,” he said.

“All these development are positive for the Indian stocks,” he said adding that more than 50 per cent of the population is young, who require new housing, goods and services, triggering demand for the manufacturing and services sector,” he said.

The BSE witnesses average transactions of $5 to $6 billion per day, and is the largest stock exchange in terms of the number of companies listed and traded (5,200) compared to the nearest largest market, Toronto Stock Exchange, which has 3,200 listed companies. 

Chauhan also said that the addition of new banks will extend banking to unbanked areas and the direct transfer of government subsidies and benefits to the ordinary people will boost demand from rural areas for manufacturing and services sector and offer good business for new banks. Twenty-six companies like the Tatas, Birlas and NRI groups like the UAE Exchange have applied for new banking licences in the country.
 

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