Capital control curbs will hit overseas flows to India: analysts

MUMBAI, Oct 21, 2007 (AFP) – Overseas fund flows into Indian equities will drop in the coming weeks, triggering near-term uncertainty, amid regulatory moves to restrict record capital flows, analysts say. The Indian regulator Tuesday issued a proposal to curb the use of participatory notes — or P-Notes — which allow overseas investors to buy Indian shares anonymously.

Spooked by the move, the benchmark Sensex plunged nearly 1,500 points or 7.86 percent from its record close of 19,058.67 last Monday in just four days.

Overseas funds have sold 125 million dollars’ worth of Indian stock since the announcement.

The Securities and Exchange Board of India, or Sebi, is set to finalise the P-Note curbs at its board meeting on October 25.

“Investor sentiment is likely to weaken considerably as an important source of potential inflows has likely been plugged,” said Rajeev Malik, Asia economist with J P Morgan Chase, based in Singapore.

India’s finance ministry, however, insists the restrictions are needed.

“The whole intention is to moderate capital inflows, which have become copious. But we are not in favour of banning participatory notes,” Indian Finance Minister P. Chidambaram sa