"People will probably be disappointed by the speed of change so there's a good chance there'll be a correction or destabilization along the way," Mobius said. "Secondly, you're going to see a lot of new stocks coming into the market, lots of IPOs [initial public offerings], which will tend to depress and absorb a lot of the flows that will come in."
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Quite a bit of new equity is expected to flow into India's market in the near term, with Goldman Sachs estimating a pipeline of around $3.1 billion of new and secondary offerings are already announced for the rest of this year. The government is targeting divestments of almost $10 billion worth of shares this fiscal year, which runs through the end of March, Goldman said.
To be sure, Mobius sees the likely correction as a buying opportunity. "That will be the opportunity to come into the Indian market," he told CNBC.
Mobius is also watching for two particular reforms which could spur a flood of foreign funds into the market: loosening restrictions on how much of a company can be owned by foreigners and easing requirements for foreign institutional investors to reveal the names of all their funds' underlying shareholders.
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"The flows actually could double from what we've seen so far if – and that's the big if – the government changes the rules," he said, expecting the MSCI to increase India's weighting in the index following such reforms. "At least half of all emerging market money is indexed," he noted, with any fresh index-based funds likely to help balance and absorb the planned new share issues.