Should FIIs be our main source of external capital

I think FII should not be the main source of external capital for our economy. Forign investment comes in the economy in different shape and size like hedge funds, FDI, FII, etc. As they come in with a huge investment their capital dominance in the market may lead to unfair trade practices where the reatil and small investors are at loss as they cant dominate the market. As we have seen last year the Sensex plunging from high 21k to the lows of 8k, all know the reason behind it the suddeb FII outflow from the market in lieu with the fear of global recession, so it is highly prone to global risk and fears which even does'nt has any correlation with the Indian market.

Secondly, it is difficult to know the sanctity of the funds invested through undisclosed participants eg :  Promissory Notes. As we don't have KYC norms as for the Foreign Investor as we have for National Retail Investor.

Thirdly Hedge funds are one of the bigger players in the markets these days, who has a very high risk return profile. They apply different strategies for their returns which can increase the market volatality whereby increasing the discomfort amongst the small investors who are not so prone to high risk. These hedge funds has the concept of hedging their portfolio through futures.

The downside of allowing FII’s  is that they link us to global markets and bring some of the riskier global practices into our markets, as we are experiencing currently. One other route of getting foreign capital would be to allow corporates and foreign individuals to invest directly into our markets. This will add a few more investor categories and make it more heterogeneous. We should also create more categories of local institutional investors in our markets.

The downside of allowing FII’s is that they link us to global markets and bring some of the riskier global practices into our markets, as we are experiencing currently. One other route of getting foreign capital would be to allow corporates and foreign individuals to invest directly into our markets. This will add a few more investor categories and make it more heterogeneous. We should also create more categories of local institutional investors in our markets.