OVERSEAS LAND INVESTMENT-CRITICAL TO SAFEGUARD INDIAN RETAIL INVESTORS

India’s Finance Ministry, Security Exchange Board of India (SEBI), and Reserve Bank of India (RBI) collectively imposed a general embargo on sub-accounts of FIIs and hedge funds for making investments through Participatory Notes in Indian equity markets.

The rationale behind monitoring these investments is to safeguard the macro economic interests’ which involves investment surveillance at the institutional level (SEBI, RBI & ICBI), appropriate consolidation of foreign funds (market take-up & take-off), safeguard of India’s FTP 2004-2009 and lastly hedging Indian value (retail) investors against market speculation.

As a consequence to the above measures, FIIs & Hedge fund investors who are not registered with SEBI, did not find these restrictions very promising and resultantly Indian stock markets lost Rs. 280 billion as market capital in the last one week due to the short positions taken by these investors.

However, Economist at S&P and IMF remain bullish about the Indian growth story. Interestingly, the FIIs and Portfolio investors even seem to realize the potential off-takes by them within the Indian capital markets as EPS stands at 16%; highest among IInd world nations (developing nations). According to government estimates, 421 FIIs are in-line to pump in mullahs within the Indian stock, commodity, & prime-line markets.

India’s growth story does not revolve around capital markets alone. India’s 1billion + population require much more to add to its consumption appetite. World’s largest democracy envisages ‘HOME FOR ALL’, which till date remains a fairy tale.
As we talk about homes, ‘infrastructure & real estate’ is of exponential (contextual) significance and guess what ‘India is taking it seriously’. Government of India has allowed 100% foreign direct investment in Indian construction & real estate sectors. 90% duty free resident imports for construction & infrastructure machinery, raw material & spare parts.

More to add, REIT (Real Estate Investment Trusts) is the next ‘buzz’ word for reality investors. The attractions of REITs for investors are clear: they provide a similar structure for investors buying into real estate as mutual funds provide for investment in stocks. GOI plans to introduce REITs by year end 2008. As REITs are introduced in India, Indian reality investors can trade in Indian reality funds and can make investments in world property markets.

Since REITs are going to take their own course with time, there’s a new opportunity for Indian reality investors. Today, GOI allows up to USD 2 million (Rs. 80 Lacs) overseas investments in real estate up from USD 1 million 6months back. This implies, an Indian can buy any property, anywhere, anytime and can enjoy the fringe benefits of property abroad.

The idea behind this new trend of overseas investments is not just what a layman would think off and i.e. INDIA ENJOYS A BOLSTERING TOTAL 251 BILLION DOLLARS OF FOREIGN EXCHANGE and it can invest anywhere. “NO” this isn’t the case, and the object is more of macro influx nature.

As we stated above, India lost a market cap of Rs. 280 billion last week, it is known that its the genuine retail investors that lose the most. Thus, in order to safeguard their positions, GOI concede and facilitates Indian investors to invest abroad and maintain capital account balances on the long term basis by hedging excessive FII in-flows in Indian capital markets. Moreover, these measures help Indian investments get greater buoyancy and rift to handle market arbitrage and nation branding.