Indian MFs may stalk foreign markets soon

Indian MFs may stalk foreign markets soon
ENS ECONOMIC BUREAU

MUMBAI, OCT 5: If the government is willing, Indian mutual funds will soon be able to invest in the stocks of companies like Microsoft, Oracle, Yahoo or General Motors. A high-level committee of the Finance Ministry will be asked to consider the issue of allowing mutual fund (MF) investments into the stocks of foreign companies at its next meeting, Finance Minister Yashwant Sinha said here on Thursday.

Foreign funds are already allowed to invest in the shares of Indian companies on Indian stock exchanges. However, Indian mutual funds cannot go directly and invest in the shares of foreign companies on a stock exchange abroad as per the current guidelines. Responding to the demand of the MF industry for providing a ``level playing field'' for them by opening the doors for their investments in foreign companies, Sinha said ``I will ask the high level committee in my ministry to look into the matter at its next meeting.''

The MF industry is currently allowed by the Reserve Bank of India to collectively invest a sum not exceeding $ 50 million in American Depository Receipts and Global Depository Receipts, according to an official of the Securities and Exchange Board of India. However, this investment is restricted to ADRs and GDRs of Indian companies listed abroad.

Analysts feels Indian MFs are not anywhere near foreign funds in terms of financial muscle. Foreign funds like Janus, Morgan Stanley and Jardine hold assets worth $ 200-$500 billion each whereas the UTI -- the largest in India -- has an asset base of only $ 13 billion.

Citing the example of Life Insurance Corporation, which was getting more business from rural areas than in urban areas, he asked MFs to tap that market more effectively. Besides, improving the depth of the market by increasing the household investor base of stock markets from below eight per cent at present, the move was also in line with the national objective of increasing the savings rate in the country to over 30 per cent of the GDP, he said.

Referring to spiralling oil prices and its impact on the capital markets, he said its effect on the economy in the next six months (short-run) would be minimal as the economy is strong enough to take such shocks. ``But I think the inflation may rise by one per cent,'' he said while addressing a seminar on mutual funds here.

During his address, the Finance Minister said though the economy was strong enough to withstand the shocks of spiralling global crude oil prices in the next six months, it was hit by the ``sentiment, which has come to play an important role in the global economy.''

There is a need for the mutual fund industry to change from ``instinctive approach to scientific approach in fund management, to impart a rationale to the behaviour of the stock markets, for inspiring investors,'' Sinha said.

Risk management and corporate governance assume greater importance, he said. ``Unless we have the concept of best practices, investors confidence would not be restored,'' he said. Despite allowing banks to invest in stock markets, their investments were not much to boast about so far and higher investment by them was necessary for increasing the depth of the market, the Finance Minister said.

UTI Chairman P S Subramanyam said, during 99-00, there was a spurt in MF industry due to the fiscal incentives provided by the finance ministry.

Earlier, SEBI chairman DR Mehta said it was planning a series of steps to streamline the mutual funds industry. Among the measures being contemplated are standardisation of the publication of mutual funds' portfolios, a possible change of structure moving away from the present three-tier structure and using unclaimed monies lying with mutual funds for investor education.

The markets regulator would also consider reducing the offer period for mutual funds from the present 90 days to 42 days.

Mehta said currently mutual funds disclose their portfolios every six months, but each mutual fund tends to do this according to its own format. "We need to standardise the format and this is going to be done," the Sebi chairman said.

Reserve Bank of India Governor Bimal Jalan said from the financial stability aspect, growth of MF industry was extremely important. Referring to assured return scheme, Jalan said the MF industry should take a long term perspective of the market conditions, while assuring returns.