Sebi, the market regulator of India, has issued new disclosure norms for foreign portfolio investors (FPIs) that have high exposure to a single corporate group or significant overall holdings in India. The norms are aimed at preventing the circumvention of regulatory requirements such as takeover rules and minimum public shareholding norms by FPIs. However, sources say that the new norms will not impact a large number of FPIs due to the exemptions provided by Sebi.
What are the new disclosure norms?
According to Sebi’s circular issued in August 2023, FPIs that have more than 50 per cent of their equity portfolio in a single investee company or corporate group, or have over Rs 25,000 crore exposure in India assets, will be classified as high-risk FPIs and will have to provide enhanced disclosures on their ultimate beneficial ownership (UBO), economic interests and control rights. The deadline for submitting these disclosures is February 1, 2024.
The enhanced disclosures are intended to help Sebi identify the promoters or investors acting in concert with the FPIs, who may be using the FPI route to evade the takeover regulations or maintain minimum public shareholding in the listed companies. Sebi has also specified the thresholds for triggering the disclosure requirements based on the market capitalization of the investee company or corporate group.
Who are exempted from the new disclosure norms?
Sebi has provided exemptions from the enhanced disclosures to certain categories of FPIs, such as sovereign wealth funds, listed companies on certain global exchanges, public retail funds and other regulated pooled investment vehicles with diversified global holdings. These FPIs are considered to have low risk of misuse of the FPI route for regulatory evasion.
Sources say that most FPIs with holdings above Rs 25,000 crore in Indian markets fall within the exemption list. Moreover, there is no risk of minimum public shareholding violation in companies that do not have an identified promoter. Such FPIs can also benefit from the exemptions from enhanced disclosures.
What is the impact of the new disclosure norms on FPIs and markets?
Sources say that only a fifth of the FPIs breaching the thresholds specified by Sebi may be required to give the enhanced disclosures owing to the exemptions. The assets held by such FPIs with holdings above the thresholds were estimated to be around Rs 2.6 trillion by Sebi. However, the net impact would be significantly less, according to sources.
Moreover, the impacted FPIs have six months to exit such holdings and as a result there is no panic selling envisaged as feared by some market participants. Sources say that a large part of the recent selling by FPIs is of banking stocks, mainly HDFC Bank, where there are no concerns of high single group exposure by FPIs.
Therefore, Sebi’s new disclosure norms for high-risk FPIs are unlikely to have a major impact on FPIs or markets, as they are aimed at ensuring transparency and compliance with regulatory requirements without affecting genuine investors.