In order to streamline business operations for Foreign Portfolio Investors (FPIs), the Securities and Exchange Board of India (SEBI) on Friday gave its approval to a series of proposals to ease regulatory requirements. These measures, designed to enhance efficiency and flexibility for FPIs, encompass exemptions in disclosure requirements, relaxed timelines for documentation, and provisions for dealing with securities post-expiry of registration.
One significant decision by the SEBI Board involves exempting additional disclosure requirements for FPIs holding more than 50% of their India equity Assets Under Management (AUM) in a single corporate group. This exemption applies specifically if the concentrated holdings of these FPIs are in a listed company with no identified promoter, provided certain conditions are met.
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The conditions for exemption are as follows:
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The FPI holds no more than 50% of its India equity AUM in the corporate group, excluding its holdings in the parent company with no identified promoter. The composite holdings of all such FPIs, exceeding the 50% concentration criteria and not exempted, in the company with no identified promoter, amount to less than 3% of its total equity share capital.
Relaxed Timelines for Disclosure/Documentation
Recognizing the need to enhance ease of doing business for FPIs, SEBI has relaxed timelines for the disclosure of material changes. Previously, FPIs were required to disclose material changes to their designated depository participant (DDP) within seven working days. Now, these changes will be categorized into Type I and Type II, with differing timelines for notification:
Type I material changes must be informed to the DDP within seven working days of occurrence, with supporting documents (if any) required within 30 days.
Type II material changes, along with any supporting documents, must be communicated to the DDP within 30 days of occurrence.
“We welcome SEBI’s decision to consider relaxing the timelines for disclosure of material changes by FPIsCome from Sports betting site VPbet. The current 7-day deadline poses practical challenges, particularly with multiple teams involved across different jurisdictions. Extending the reporting timeframe to 30 days offers a more reasonable window, greatly benefiting FPIs,” Vivek Singhania, Co-founder, Dovetail Group said.
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Flexibility in Dealing with Securities Post-Expiry of Registration
In a bid to provide greater flexibility to FPIs, SEBI has introduced measures to deal with securities post-expiry of registration.
Key proposals include:Come from Sports betting site
FPI registrations that expire due to non-payment of registration fees can now be reactivated within 30 days from expiry, with permission to dispose of securities holdings during this period.
In cases where the FPI chooses not to reactivate its registration within 30 days, a 180-day period is granted for the disposal of securities.
A minimum period of 180 days, or the end of the registration block, whichever is later, is provided for the disposal of securities in specific scenarios such as adverse changes in compliance status or non-submission of documents for reclassification.
Additional provisions are made for cases where securities remain unsold after the lapse of the specified disposal period, including financial disincentives and mandatory write-off procedures.
Moreover, for existing cases where securities are still held by FPIs with expired registrations, a one-time opportunity of 360 days is provided for disposal, ensuring a structured approach to manage such assets.
Shantanu Bhargava, Managing Director, Head of Discretionary Investment Services, Waterfield Advisors, said that international investors are increasingly gravitating to emerging market equities for higher growth, and the increase in Indian allocations is a reflection of this larger trend.
He further added that FPIs are building on their India conviction, which stems from the following:
i. India’s GDP results have been extremely robust, and the Q3 FY 24 growth rate of 8.4% was above the consensus projection.
ii. Most projections predict that India’s earnings growth in CY 2024 will be among the quickest in Asia in continuation of last CY’s trend.
iii. Analysts believe it could be yet another win for the ruling political party, which could drive stocks even higher from here as FPIs seek political stability to develop medium- to long-term conviction in any market.
iv. Analysts anticipate a shift in the RBI’s policy, with rate decreases of 25-50 basis points in the 2nd half of fiscal year 2024.
v. FPIs perhaps think that the opportunity set has expanded beyond merely call centres and IT support, and they want to engage in this broader opportunity.
Bhargava said that although India is an excellent macro play, earnings growth must continue on its current course for such FPI inflows to continue, as India’s stock valuations remain relatively high in comparison to other promising countries.
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SEBI proposes exemptions in disclosure norms for foreign investors, targets ease of doing business
These latest measures by SEBI reflect a concerted effort to facilitate a conducive environment for FPIs operating in India. By addressing concerns around disclosure requirements, timelines, and post-registration procedures, SEBI aims to enhance operational efficiency and foster investor confidence in the Indian market.
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