New Delhi, January 1
The government has decided to allow Qualified Foreign Investors (QFIs) to directly invest in the Indian stock markets.

The Finance Ministry said in a statement that the move would widen the class of investors, attract more foreign funds, reduce market volatility and deepen the Indian capital market. QFIs have been already permitted to have direct access to Indian mutual funds schemes pursuant to the Budget announcement of 2011-12. Today's decision is the next logical step in that direction, it said.

However, experts are sceptical about the impact of the move given the negative sentiment in the Indian markets. In addition, they point out that the Indian markets have enough exposure globally and various types of global funds and foreign institutional investors (FIIs) channel the pool of international capital from retail and institutional investors into the Indian markets.

So, it does not seem as if enough avenues are not available to individual investors abroad to invest here, it's just that the emerging markets story, and India in particular, is not compelling buys and, therefore, foreign portfolio capital is not coming in.

In the developed markets, most retail investors take the mutual funds route. These funds invest on their behalf in their home markets or abroad. It is unlikely that there are significant individuals or smaller investors in various countries who are waiting to invest in India directly. As it is, markets the world over are not doing well and with developed economies struggling, smaller investors are not investing as much in their home markets, leave alone emerging or international markets.

The US markets are doing well and most of the global money is flowing there. Also, the currency risk in India is so high now that newer investors may not want to run that risk. When the bigger funds are not investing so much in India, it is unlikely that individuals will go against the tide at this juncture. It is another matter that when the sentiment improves, the QFI route may become another window.

Experts, however, point out that the government will have to be careful in monitoring the newly opened QFI route and vet the quality of investors as this may have the potential of becoming a channel to route black money. It may be recalled that P-Notes of FIIs had run into a controversy when there were allegations that money from tax havens was being routed into the Indian stock markets.