Foreign investments into the Indian equity and debt markets could be affected by the global financial turmoil spawned by the collapse of Wall Street giants, a senior finance ministry official said on Tuesday.
"The direct impact of Lehman Brothers going for bankruptcy and Bank of America taking over Merrill Lynch is not going to be much. But indirect impact of global financial crisis may be there in terms of FII capital inflow in both equity and debt," the official told PTI.
The indirect impact could be much larger due to turbulence in the global financial system, he said, adding that it would impact confidence of investors, both domestic and foreign.
- US sub prime crisis spooks global economy: Complete coverage
- Lehman Brothers' bankruptcy filing document
As such, there are concerns about capital flow from FIIs in both debt and equity segments, he said and added that FDI is unlikely to be impacted.
The official said the direct impact of these events would be there to the extent that these entities reduce their exposure to Indian market and the Bank of America consolidates its operations after taking over Merrill Lynch.
However, their exposure to the Indian market was never enormous compared to their total global investments, he said.
The official also said Indian capital markets may continue to witness volatility for the next six months because of uncertain global markets.
"In the next six months, we may see continued volatility not only in equity but in debt markets as well, because of global uncertainty unless US resolves its housing market crisis," he said.
However, the recent reaction of stock markets is mostly driven by news reports emanating from the United States about Lehman Brothers' bankruptcy and Merrill Lynch's takeover by Bank of America.