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India’s fund managers are a hardy breed. After all, they’ve had to persevere through tough times in recent years as a wave of regulatory changes and a significant slowdown in the economy have dented confidence and diminished assets. But lately, hints of a turnaround are in the air.

The biggest change has come from New Delhi, where a ministerial reshuffle has raised hopes that the government will renew its commitment to economic reform after a period of stasis. The Congress Party–led United Progressive Alliance government had been embroiled in corruption scandals related to the staging of the 2010 Commonwealth Games, the awarding of mobile telecom licenses and cheap land grants, among other things. The scandals stymied the coalition government’s legislation agenda just as global pressures hit the Indian economy. The country’s growth rate slowed to 6.5 percent in the fiscal year ended March 31 from 8.4 percent a year earlier; growth slowed further to 5.5 percent in the April-June quarter. 

At the end of July, Prime Minister Manmohan Singh called Palaniappan Chidambaram back as Finance minister in a bid to break the political impasse over reform and jump-start the sputtering economy. Chidambaram, who had served as Finance minister for four years before moving to the Home Affairs Ministry in 2008, has moved swiftly to bolster confidence and revive investment. Among other measures, he has pushed through an increase in diesel fuel prices, opened the country’s retail and airline sectors to foreign investment and raised the limit on foreign ownership of insurance companies to 49 percent from 26 percent. The moves have sparked an improvement in sentiment, with the Bombay Stock Exchange’s benchmark Sensex index rallying by 13 percent between late July and late October.

Singh and Chidambaram have also acknowledged the need to support the investment industry. In his first week as Finance minister, Chidambaram promised “a number of decisions” to encourage more investments in mutual funds and insurance. Industry executives welcome the newfound attention. “After a period of wilderness, the Indian mutual fund industry has been attracting the rightful policy interest this year,” says Harshendu Bindal, president of Franklin Templeton Investments India.

The regulatory environment has also improved since Upendra Kumar Sinha, who had been chairman and managing director of UTI Asset Management Co., took over as chairman of the Securities and Exchange Board of India in February 2011. The regulator had poured cold water over the industry in recent years, adopting a number of measures — including a ban on entry-load fees — to discourage fund companies from churning investors from one product to the next new thing. Under Sinha, however, SEBI has taken several steps over the past year to enhance the distribution of mutual funds, particularly to the vast pool of potential investors who live in smaller towns across the country.