Foreign investors funneled more than $15 billion to Indian equities in 2009, sending stocks up more than 75% and strengthening the rupee . With expected positive growth rates for the year and higher interest rates differentials that favor emerging markets, investors are looking to India as a good place to stash their wealth.

The Reserve Bank of India (RBI) has already taken the necessary precautions to stave off a potential asset bubble forming in India’s stock and real estate markets. India’s officials are welcoming the fund inflows with open arms, but Finance Minister Pranab Mukherjee says monetary tools will be implemented if inflows become disruptive to the economy.

RBI could stem inflows by:

We are expecting very soon by Next month or First week Jan’10

• Imposing taxes on inflows; this is considered to be the most likely tactic the government would take, especially when it comes to inflows that could lead to a housing bubble
• Auctioning quotas for foreign credit to increase the cost of raising funds
• Using market intervention bonds and raising cash reserve ratios