Indian Markets Open the Foreign Floodgates

Ease of access is a staple of market booms. It’s hard to imagine American stocks, for example, surviving these days without support from retail, institutional and international investors alike. In the same way, much of China’s incredible market boom is thanks to Hong Kong, whose exchange opens the gate to millions of investors who want a piece of the world’s hottest market.

Now it looks like ease of access is coming to India.

“India is planning to open the country’s equity markets to foreign retail investors,” The Financial Times reported earlier this month. While there’s nothing definite yet, an Indian government panel recently recommended the finance ministry remove many of the barriers that currently prevent small international investors from buying Indian companies. (At present, only institutional-sized investors can have the full pick of Indian companies.)

According to the FT, Indian regulators are taking the panel’s advice and beginning to build an exchange capable of handling the rush that would likely ensue.

“One of the biggest frustrations I have with India is the small number of stocks we can invest in,” Chris Mayer adds. “This is unlike China, which has a well-developed Hong Kong exchange, not to mention the many companies that trade on the NYSE and NASDAQ. In India, foreign investors like you and me can’t buy Indian stocks, save for the small number that list in the US.

“While I was in India, I remember talking to brokers and money managers who told me it was only a matter of time before that changed. The big institutions have been allowed to invest in India for 18 years. But now it looks like the common fellow will be able to pick up shares soon, too.

“On my last trip to Mumbai, I spent some time with analysts who shared their favorite ideas with me. There are many Indian small-cap stocks growing 30-40% a year and still trading cheaply. But they’ve been off-limits so far. Maybe not for much longer.”

Ian Mathias
for The Daily Reckoning