Indian expatriates in the Middle East have started re-entering the capital markets in their home country in a big way, reversing their pullout last year after the global economic turmoil shook Gulf economies and threatened their jobs here.

Analysts say there are several indicators of the return of Gulf-based Non-resident Indians (NRIs) to Indian money markets as a result of signs of recovery in the GCC.

"This year, there have been several signs – such as 38,000 new licences issued by Abu Dhabi for starting new companies – that there is a recovery in the region," said PK Sajitkumar, CEO, JRG Securities, Dubai, an Indian financial services firm.

"The NRI investor who was bothered about [financial] security in this part of the world is now bullish on these indicators and going ahead with investments in India," he said.

NRIs have been buying more in the Indian capital market than they have been selling, reveals data about NRI investments on the Bombay Stock Exchange (BSE). While the net difference between buying and selling was negative in March last year, this year it was positive, the figures showed.

NRI holding in the top 50 listed firms on India's National Stock Exchange, too, has seen a huge jump in the past three years – about 200 per cent in select shares.

BSE data shows that NRIs were net sellers of stocks worth Rs178.2 million (Dh15m) between January 2009 and May 2009. However, this year, between January and May, NRIs were net buyers of stocks worth Rs470m (Dh37.5m).

"Almost 70 per cent of the total NRIs investing in Indian capital markets belong to the Middle East," said CJ George, Managing Director, Geojit BNP Paribas, a leading Indian financial services company with a joint venture in Dubai.

"The NRI investor base has grown tremendously in most listed Indian companies and it is set to increase further," he told Emirates Business.

Market capitalisation (free float) of the S&P CNX Nifty is pegged at Dh1.94 trillion while market capitalisation of BSE is around Dh3.75trn (2009-end). "It would be difficult to put a figure on the total NRI exposure to capital markets, but it is huge. And if you also include investments through mutual funds, the figure would be mammoth," added George.

A huge chunk of investments into Indian equity markets also comes through overseas corporate bodies, some of which are registered in Mauritius.

Apart from this, many affluent investors also invest in India indirectly through participatory notes (P Notes). Such investments do not disclose the name of the investor or benefactor. Many of those who invest through P Notes are based out of the Gulf, say industry experts.

NRIs, especially in the Middle East, who do not have a permanent residency option tend to be bullish on Indian capital markets, say industry trackers. NRIs based out of America and Europe tend to invest more in domestic (American/European) markets. Lately, several Indian financial services companies have opened branches in the Middle East, thus increasing access to the Indian markets.

The valuation of the Indian rupee, too, has played its part. A dihram now fetches more Indian rupees than it did about two months ago, which is additional motivation for NRIs to invest in India.

The Indian rupee has devalued in the past three months against the dollar.

Several European and American foreign institutional investors (FIIs) are exiting or looking for exit options in Indian companies due to financial troubles back home. This is largely believed to be the reason for the weaker rupee.

"This, however, is temporary. The rupee will start gaining strength in three months as it is backed by robust growth in the country," said George. "When the BSE Sensex hit a low of 8,000 points last year, we started advising our customers here that it was a good time to enter. Many investors entered at that time and have booked handsome profits," said Sajitkumar. The BSE Sensex, as on Monday, stood at 16,743 points.

"NRI exposure is set to increase in the Indian capital markets with the government's recent decision to float at least 25 per cent of total holdings," a senior industry analyst said. This would mean that it would be mandatory for all Indian companies listed on the stock exchanges to maintain a minimum of 25 per cent of public float.

Around 180 companies will be affected due to this decision. This could also bring shares worth more than $30 billion (Dh110bn) on the block over a period of time. The move is set to increase retail investor presence in the equity market.