Monday, September 9, 2013

How to Counter FIIS in Indian Markets.



This refers to your editorial Reducing FII dependency (Business Line, September 9,2013) It is rightly said that there is  a paramount need  to counter FIIs influence in our financial market  in general and forex market in particular and the Pension Fund Regulatory can create a strong domestic institutional investor base in the long run., The  fact that FIIS  are able to dictate terms to the  capital and forex market since the days of liberalization of our economy despite the presence of Insurance Institutions, Mutual Funds, Provident Fund,  banks and a whole lot of whole sale and retail traders only reflects the weakness of our markets and these investors.  It is high time our investors and the authorities have a strategy to counter FIIS and see that some semblance of order prevails in the market and the volatility is range bound and some what predictable and manageable. The buy and sell policy of domestic institutions has to necessarily counter the buy and sell strategy of FIIS.

The suggestion to attract Indian households savings to capital market in this context is very apt and worth attempting. This requires incentives and a good amount of marketing. SEBI and the government have to work jointly to provide some incentives for retailers to enter the capital market. Some of these could be tax exemption up to Rs one lakh of investments in the Capital market, granting of  Loyalty bonus to shareholders who do not trade the shares and retain them for a minimum period of two years, tax incentives to companies who hold maximum retail holdings of shares and who declare regular and high dividends , and using STT as a major tool to  have a check on the buys and sells. The NRI’s should have attractive and flexible rules to invest in the market and this should be widely publicized. 
Dr.T.V.Gopalakrishnan
(This comment is in response to the editorial Reducing FII dependency that appearedin BL dated 9/9/13).

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