The Securities and Exchange Board of India (SEBI) has been relentlessly crafting regulations over the years to create a dynamic, vibrant, and transparent securities market in India while also protecting the interests of investors. The latest in this series are the norms related to Foreign Portfolio Investors (FPIs) that aim to promote foreign investments and streamline compliance requirements. Let’s take a closer look at some key aspects of these norms.
SEBI FPI Ownership Norms: Fortifying Investor Trust
In a significant move, SEBI has introduced stringent ownership norms for FPIs, which will come into effect from February 1, 2024. As per the revised guidelines, any FPI holding over 50% economic interest and control in an Indian company will need to disclose granular details of its shareholding and controlling entities. This transparency measure by SEBI intends to safeguard investors against the circumvention of minimum public shareholding rules.
While the norms pose near-term challenges, especially for funds with concentrated holdings, SEBI aims for the greater good of building enduring investor trust in Indian markets through better transparency and corporate governance. The potential sell-offs resulting from non-compliance may shake things up but will eventually settle.
SEBI FPI Ownership Norms: Promoting Transparency
SEBI mandated stricter disclosure rules in June 2023 applicable to certain categories of FPIs based on objective criteria. This included providing a complete beneficial ownership trail with details of the ultimate natural persons behind an FPI holding. The aim was to enhance transparency, tackle opaque structures and strengthen market integrity.
However, industry participants had highlighted practical difficulties in meeting reporting timelines given the complex multi-layered ownership patterns. To address this, SEBI has allowed 7 months for FPIs to wind down holdings after the January deadline non-disclosure.
Decoding SEBI’s Regulatory Mandate
Established in 1992, SEBI was set up with the vision to cultivate healthy market conduct and protect the rights of security holders. Over the years, SEBI has systematically strengthened its regulatory framework while also promoting India as an attractive investment destination.
Recent initiatives like operational guidelines and amended regulations for FPIs are aligned with SEBI’s objectives of easing processes, eliminating redundant compliance burdens and enabling foreign entities to seamlessly invest in Indian securities. Tightening ownership norms also falls within SEBI’s overarching goals of transparency and curtailing market manipulation risks.
Navigating SEBI FPI Regulations: Key Guideposts
To help foreign investors comprehend the evolving FPI ecosystem, SEBI has published detailed Operational Guidelines. These guidelines serve as guideposts for everything from registration formalities, and eligibility criteria for investors of different jurisdictions to monitoring investment limits and disclosure requirements.
SEBI also keeps stakeholders updated on the latest timelines pertaining to FPI norms so that they can gear up accordingly. For instance, the deadline for FPIs coming under the purview of disclosure requirements is now January 2024 month-end, with additional time offered based on compliance levels.
Besides issuing amendments and circulars, SEBI also actively seeks suggestions from the public and market participants to continuously improve the FPI regime. SEBI’s openness and responsiveness to feedback make it easier for investors to adapt to changes.
FPI Investment Selection
Though SEBI guidelines do not dictate how FPIs should select investments, these entities generally undertake rigorous analysis across multiple parameters. Macroeconomic factors like GDP growth prospects, currency valuation, inflation rates and sectoral performance are foremost determinants.