Some foreign institutional investors (FIIs) could be encouraged into giving the Indian markets a second look. But it is difficult to see why FIIs already active in the markets would commit much more money than they already have at this stage. They are largely isolated from the hassles of bad delivery and fake or forged shares because they deal in large institutional lots. Allocations of FII funds are made based on a large number of factors, of which ease in settlement systems is a significant one. FII interest depends on the number of companies that participate in the depository. It may take quite some time before a critical mass of companies is achieved.
Reliance Industries, with the largest shareholder base in the country, is committed to moving into the depository. State Bank of India and IDBI have some problems with their parent Acts which keep they away for the time being. But once the most widely held companies come in, the benefits should percolate far and wide. Ease of transactions should enable investors to turn over their portfolio more often and infuse more money into the system. Then, the establishment of a depository will begin to impact on market sentiment.
