Indian share prices are expected to remain volatile next week and will be affected by how hedge funds react to new rules limiting the anonymous purchase of shares by foreign investors, dealers said.
For the week to October 26, the Mumbai stock exchange's benchmark 30-share Sensex index surged 9.58 percent or 1,683.17 points to a record close of 19,243.17.
"The markets were volatile fearing a curb on capital flows but recovered as clarity emerged on the nature of regulation," said a dealer at brokerage Jamnadas Morarjee.
India's stock market regulator, the Securities and Exchange Board of India (SEBI) on Thursday announced new rules to phase out the anonymous buying of shares by foreign investors.
The new regulations primarily concerned participatory notes, which had allowed foreign investors, such as hedge funds, to buy Indian shares without revealing their identity.
The notes are to be phased out within 18 months in the regulator's bid to boost transparency. The regulator examined the nature of foreign investors in India after the benchmark Sensex had risen 20 percent since the US Federal Reserve cut interest rates by 50 basis points to 4.75 percent on September 18.
Sebi said efforts were being made to clean up the investment environment while encouraging the entry of regulated foreign investors into India.
It is believed that some hedge funds, which have pumped in money into Indian equities in recent weeks, may exit the market to avoid regulation. "The P-note fine print is still being studied. The markets will react in coming days based on the stance which unregulated hedge funds take on making investments in India," said a dealer with a state development bank.
As of Friday's finish, the Sensex was 39.5 percent above last year's close of 13,786.91, led by record overseas fund flows of 17.18 billion dollars.