Mumbai: The Sensex, the benchmark index of the Bombay Stock Exchange (BSE), gained 3,389 points between 18 September, the day the US Federal Reserve announced an interest rate cut to bail out its markets, and 15 October, when the domestic market regulator announced a quasi-ban on foreign investments in through Participatory Notes (PNs), to slow the pace of Indian equity markets.

Since then, the Sensex has lost nearly 1,500 points in just three trading sessions because of heavy outflow from foreign institutional investors (FIIs). Two leading members of the ING Group, the Dutch financial major ranked No. 13 in the Fortune 100, with a revenue of over $158 billion in fiscal 2007, spoke to Mint about how global investors perceive India as a portfolio market.

Mark Cliff is a key figure in the international financial and economic circle as the chief economist of ING Group. Christopher Turneris managing director and head of foreign exchange strategy at ING’s wholesale banking division. Edited excerpts:

On the impact of regulatory curbs on a popular foreign investment instrument in the Indian market.

Mark: This policy change on foreign capital inflow into the domestic market will not affect India’s appeal among international investors. The market was rising too fast on account of huge foreign capital inflow. It was leading to a dangerous situation.

India appeal: ING House, the international headquarters of the ING Group in Amsterdam, Netherlands.

On the debate on regulating hedge funds, which have invested large amounts in India through PNs.

Mark: The debate will continue. Hedge funds are deliberately designed to avoid regulations. They follow a synthetic fashion of investing. When such a product is not available in the domestic market, people take them offshore. Financial engineering has become a pejorative word.

On India having been perceived as a relatively insulated safe haven.

Mark & Christopher: India must have got a larger share [of foreign capital than other emerging markets]. We have to understand that the massive inflow of money into emerging markets, after the subprime crisis was revealed, is temporary in nature.

When the problems are over, the money could roll back home. At some point, a reversal is inevitable. The catalyst for the reversal could be obscure. The central question is how strong is the underlying story. As long as the economy grows strongly and the corporate score card is good, investors from all parts of the world will continue to invest in India. India should adopt gradual and cautious steps of liberalization.

On India and China.

Mark: Initially, China was considered to be at the driving seat of the much talked about BRIC (Brazil, Russia, India, China) economies. However, India has now repositioned itself in the global stage. It has greater appeal among international investors.

On one hand, India has better demography but then infrastructure and social inequality are major issues.

The issue of social instability is a worry for China.