"If you (India) want to be a part of the global markets, you have to bear this cost (of having hedge funds in the market). Hedge funds have to be there if you want to be integrated with the global trend. Otherwise instances like some development taking place in Thailand and foreign investors selling stocks here would continue to place," Marti G Subrahmanyam, Professor of Finance and Economics, Stern School of Business, New York University, said in Mumbai.
Prof Marti delivered a special address on investments in hedge funds at the Annual Capital Markets Conference organised by industry body Ficci.
Marti opined even though, the source of the money coming to the hedge funds is not revealed, it is wrong just to restrict their entry just because of this.
"There absolutely no need to stop hedge funds entry just because you don't know the source from where the money came. Essentially, the economy needs foreign capital and these funds could bring it in huge sizes," he told reporters on the sidelines of the function.
Hedge funds, though not allowed officially, are increasingly seen to be active in the Indian markets through the participatory notes issued by foreign institutional investors.
Global hedge funds are seeking direct India entry and are learned to have sought short-spanned licenses from Sebi, under which the regulator could review performance of the concerned hedge funds and renew their licences each year.
However, the hedge funds are also criticised for creating in volatility in the market. Asked about it, Professor Marti said that volatility definitely continues to be an issue of concern. But, the regulators could deal with it.
"There are regulatory methods whereby this could be dealt or you could put some investment cap on the. But, if you want to trace source of each money coming through the hedge funds, it is impossible. You have to ensure that the money is not coming from illegal businesses like drug-peddling," he said.
