FPI disclosure norms: What are the concerns and why is Sebi seeking investor data from FPIs?
- Foreign portfolio investors (FPIs) have been given a seven-month extension to provide additional disclosures, as mandated by SEBI.
- This decision comes in response to concerns about potential misuse of the FPI route and the need to prevent round-tripping by certain promoters.
Background
- In August last year, SEBI instructed FPIs holding over 50% of equity AUM in a single corporate group or with a total holding in Indian equity markets exceeding Rs 25,000 crore to disclose detailed information.
- Objective: To prevent the possible round-tripping by certain promoters using the FPI route.
- FPIs are required to provide granular details of entities holding ownership, economic interest, or control in the FPI.
Timeline for Compliance
- Existing FPIs in breach of investment limits as of October 31, 2023, must reduce exposure by January 29, 2024.
- FPIs meeting criteria as of January end will have an additional 10/30 working days for disclosures, followed by six more months to reduce holdings if needed.
Exemptions
- Sovereign wealth funds, certain global exchange-listed companies, public retail funds, and other regulated pooled investment vehicles with diversified global holdings are exempted from enhanced disclosures.
Quantum of FPIs Affected
- SEBI's consultation suggested that FPIs with assets of around Rs 2.6 lakh crore may be considered high-risk.
- However, the actual number requiring enhanced disclosures is expected to be less than estimated.
- Speculation suggests recent FPI withdrawals from the domestic market may be driven, in part, by the impending SEBI deadline.
Government Intervention
- Press Note 3 (2020) amended FDI policy during the COVID-19 pandemic to prevent opportunistic takeovers/acquisitions of stressed Indian companies at lower valuations.
- It required government approval for beneficial ownership changes in entities sharing a land border with India.