How to Profit from India's Plan to Open Stock Market to Foreigners

India has decided to open up its equity market to individual foreign investors in a move aimed at increasing foreign investment in the Indian economy. Investors who wanted to invest in Indian stocks were previously restricted to buying investments like mutual funds, ETFs or the limited number of Indian stocks that are traded on foreign stock exchanges. Indian officials hope that allowing individual foreign investors to buy Indian stocks directly will help reverse last year's decline in Indian stock prices and lead to increasing inflows of funds into the Indian economy. The move to allow individual foreign investors greater access to the Indian stock market comes after a year of declining stock prices in India, with the Bombay Stock Exchange SENSEX index of Indian stocks down about 25% in 2011. The rupee, India's currency, didn't fare much better than the BSE SENSEX index in 2011, falling nearly 14% compared to the United States Dollar. India's economic growth appears to be slowing and money stopped pouring into the country last year, so the relaxed investment rules for foreigners could give the Indian economy a boost when it's needed most. The changes are expected to take affect on January 15 and could send Indian stocks higher. Although the Indian economy isn't growing as quickly as in the recent past, it's still expected to grow at rates much greater than the American and European economies. ACTION ITEMS:

Bullish:
Traders who believe that the move by India to allow greater access to its stock market by foreign investors might want to consider the following trades:

• Indian stocks like Tata Motors TTM, ICICI Bank IBN and Wipro WIT that are currently traded on American stock exchanges as ADRs could all climb higher if the opening of the Indian stock market to individual foreign investors helps push Indian stocks higher.

• Traders who prefer to invest in a broader range of Indian stocks should take a look at the WisdomTree India Earnings Fund EPI, the PowerShares India Portfolio PIN and the iShares S&P India Nifty 50 Index INDY ETFs. Since each of these ETFs contain many Indian stocks that are not traded on American stock exchanges as ADRs, they could have more potential upside than Indian ADRs.

• If the Indian rupee's decline against the US dollar reverses itself, the WisdomTree Dreyfus Indian Rupee ICN ETF could prove to be a profitable investment.

Bearish:
Traders who believe that the Indian stock market will continue to underperform may consider an alternate position:

• Traders who believe that the opening of the Indian stock market to individual foreign investors won't be enough to halt the fall of Indian stock prices might want to consider the Direxion Daily India Bear 3x Shares INDZ ETF.

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