Nearly half of the Rs 70,000 crore in offshore investment that's come into Indian bourses this fiscal, till October, is from alleged tax havens such as Mauritius, Hong Kong and Luxembourg the three together contributing almost Rs 25,000 crore of the net inflow from foreign institutional investors.

Significant omissions from this list are FIIs from Singapore and Switzerland, two countries that had figured among the top-five with highest investments in Indian equities during the economic slowdown of 2008. FIIs from the two countries had put in over Rs 15,000 crore last year.

The government says there is no cause for concern on the strong FII inflow into stock markets, with finance minister Pranab Mukherjee stating that regulators are keeping a close watch and will act if its found alarming.

Till October 2009, FII-held equities totalled over $160 billion. A finance ministry statement said the highest investments came from US-based FIIs, to the tune of Rs 21,344 crore till November 10. Second on the list is Luxembourg with Rs 12,275 crore. France, Mauritius, UK, UAE, Hong Kong, Australia, Norway and Canada are the others in the top-10.

Investments from Mauritian FIIs were Rs 9,400 crore, ahead of UK (Rs 4,900 crore), UAE (Rs 4,800 crore) and Hong Kong (Rs 3,438 crore).

As foreign institutional investors (FIIs) are pumping money heavily into the Indian stock markets, the government is keeping a tight vigil. The government is little worried about the fact that a huge chunk of this investment is coming from alleged tax havens such as Mauritius, Hong Kong and Luxembourg. What can be of concern to the government is the rising share of participatory notes (PNs) in the total FII inflow into stock markets.

Since the identity of PN investors is not revealed, the government had put a tight leash last year on such investments after it feared that some dirty money might have entered the market, riding on PNs.

Poor market conditions towards the end of 2008 had, however, forced the government to remove restrictions on PNs, but it had asked FIIs to register in India rather than invest through PNs. It is estimated that of the net FII inflows of Rs 44,000 crore during September-October, nearly a third or Rs 14,000 crore was through PNs.

In 2007, Hong Kong, Mauritius, Singapore, Switzerland and UAE not only figured among the top-seven countries from where maximum FII inflows came into the stock market, but their combined investment was over Rs 27,000 crore.
The story was similar in 2006, when Luxembourg topped all other countries with maximum investment of Rs 12,600 crore.

The top four that year included Singapore, Hong Kong and United Arab Emirates US was a distant fifth with Rs 3,300 crore in FII investments. However, government said earlier that it was not planning any action at present, and will take appropriate steps if required.