Overseas fund flows into Indian stock markets are manageable and foreign portfolio investors should be allowed smooth entry and exit to boost equity investments, the regulator told the Economic Times.
Securities and Exchange Board of India (SEBI) Chairman C.B. Bhave told the newspaper in an interview published on Monday that the authority could only ensure the necessary regulations for such investments had been adhered to.
"But we can't say that only that capital is allowed which will not go out in two months time," Bhave said.
Foreign flows of almost $16 billion into Indian equities this year have helped the main index rise more than three quarters this year.
Some emerging economies, including Brazil and Taiwan, have taken steps to control inflows of hot money.
Last month, a senior economic adviser to the prime minister said India could absorb as much as $100 billion capital flows in 2009/10, well above a projected $57-$60 billion.
SEBI did not see the need to tweak rules on participatory notes in the near term, Bhave said, as most portfolio investors register directly with the authorities.
In 2007, when India attracted a similar wave of inflows, SEBI imposed curbs on participatory notes, which had enabled foreign investors to buy local securities anonymously.
A year later it removed most of these curbs after the stock market was battered by the global crisis.