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CJ George, managing director of financial services firm Geojit BNP Paribas, is no stranger to foreign investors, especially from West Asia where he has forged business ties and runs a realty fund in one of the Gulf countries. But George, a three-decade veteran in the stock-broking business, was pleasantly surprised this week when a Polish investor wrote to his firm enquiring about India's decision to allow foreign individual investors to buy into Indian stocks directly. On January 1, the government announced a scheme which would allow foreign individuals, foreign pension funds and foreign trusts to invest directly in the Indian equity market. These investors, called 'Qualified Foreign Investors' (QFIs), were earlier allowed to invest only in Indian mutual funds. For long, Indian administrators had kept foreign individual investors at bay arguing that allowing their entry would lead to routing of slush money and funds from dubious sources. Barred direct entry into the Indian stock markets, foreign individual investors and other institutional investors had to access the markets through participatory notes (PNs), derivative instruments that allow offshore entities to trade in Indian stocks anonymously. Some believe that the QFI route may, over time, emerge as a preferred option for relatively savvy foreign individual investors. "Compared to the initial move to restrict QFI investment to mutual funds, this has more promise as it allows foreigners to buy stocks of their choice. And if you take into account that only investors from jurisdictions which are signatories to strong anti-money laundering rules are allowed to invest directly, the quality of money will be superior," says C Jayaram, joint managing director of Kotak Mahindra Bank which has offices overseas to handle equity investors. George believes that the familiarity about Indian corporates among a growing number of foreign individual investors (not just non-resident Indians) will weigh in favour of the QFI scheme. Take engineering giant Larsen and Toubro. The company's significant presence in West Asia could prod individual investors who have done business with the firm to buy the stock. Software firm Infosys is another draw for overseas investors, he says. The QFI scheme will also mean that overseas investors will have more shareholder engagement with the managements of these companies, something that they did not enjoy while investing through the PN route. Firms like Geojit plan to make presentations on top Indian companies to potential clients who sign up as QFIs to help them make investment decisions. For now, there is a broad consensus that money will flow initially into a handful of large-cap stocks or to companies which foreign investors are familiar with. That is not surprising considering that foreign institutional investors have preferred the relative safety of companies with size and whose stocks are more liquid and listed elsewhere in the

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Indian policymakers say that it will be relatively stable money coming in as it is from individuals rather than portfolio investors who are driven by the herd mentality. George says as sentiment improves, there could be opportunities for companies to raise money from foreign individual investors.