India\'s bid to lure overseas capital by loosening curbs on stock investments may be undermined by Europe\'s debt crisis, according to a strategist who predicted a year-end drop for the nation\'s equities. \"This is a desperate attempt by the government to bring dollar flows to stabilise the rupee,\" Indrajit Sen, a Mumbai-based derivatives strategist at Fortune Financial Services India Ltd, said. \"Overseas retail investors may not invest aggressively.\" Sen said in October the S&P CNX Nifty Index would fall to 4,600 by December 31. It ended last year at 4,624. India\'s government said on January 1 that it would allow overseas individual investors to buy local equities directly in a move to broaden foreign flows into the nation\'s stock market. The new policy may take effect by January 15, the government said. Currently, overseas retail investors can only buy Indian shares through participatory notes, derivative products held offshore by investors or hedge funds not registered with the regulator. Foreign institutional investors pulled out $512 million (Dh1.8 million) from local equities last year, compared with a record inflow of $29.4 billion in 2010, as Europe\'s debt crisis threatened the global economy and reduced demand for emerging-market assets. The withdrawals contributed to a 25 per cent slide in the BSE India Sensitive Index and the S&P CNX Nifty Index in 2011, the second worst annual decline for both gauges, and sent the rupee to an all-time low. Parliamentary gridlock, high inflation, a widening budget deficit and the weakest quarterly economic growth in two years dragged India\'s rupee to a record low of 54.305 per dollar on December 15, lifting import prices in a nation that buys 80 per cent of its oil from abroad. Opposition from coalition allies in December prompted the government to delay indefinitely plans to allow overseas retailers to expand in the country. Easing rules for individual foreign investors \"should reverse the perception of policy paralysis governance for the time being,\" D.S. Rawat, secretary general of the Associated Chambers of Commerce and Industry of India, said by e-mail yesterday. Demand for exports India\'s current-account deficit widened to near a record last quarter, the central bank said on December 30. Europe\'s crisis hurt demand for Indian exports. The European Union is the Asian nation\'s biggest trading partner. \"I am concerned about fiscal stability in future because our fiscal deficit has worsened in the past three years,\" Prime Minister Manmohan Singh said in a New Year\'s statement. \"We have run out of fiscal space and must begin the process of fiscal consolidation again.\" While individual foreign investors may not rush in, the new rule allows them to take bets on small and medium-sized companies usually overlooked by large investors, Chokkalingam G, chief investment officer at Centrum Broking Pvt., said by phone from Mumbai on Tuesday..