Finance Ministry may soon relax norms for foreign portfolio investors
NEW DELHI: Fearing more turmoil in the financial market over weakening rupee, the Finance Ministry is planning to relax the norms on the beneficial ownership of Foreign Portfolio Investors (FPIs). “The ministry (Finance) is looking at the concerns of the market over the April circular over FPI norm. SEBI is already studying its impact. The general consensus is that the timing is not right for the move. The external factors are not very conducive. So, in the coming weeks, some of the norms may be relaxed,” a senior official from Finance Ministry told TNIE.
However the official added that the extent to which the norm can be relaxed will be determined after consultation with SEBI. In April, circular by Finance Ministry had prescribed that all the investment including those from sovereign funds, if they are coming from these 25 high risk jurisdictions, will have to comply with the additional documentation requirement, reveal more information and have to follow stricter norms.
Also no NRI or PIO can own more than 10 per cent in FPI for these high-risk jurisdictions. The move was aimed at preventing any round tripping of fund. Also even those countries which are not in the list of high-risk jurisdiction, no NRI or PIO can own more than 25 per cent in an FPI. Fund houses were upset over the move and had warned of its impact as destinations including China, Saudi Arabia, Thailand, Malaysia, Philippines and Indonesia had figured in the list.
According to Asset Managers Roundtable of India (AMRI), new KYC norms in the circular could lead to capital outflows of $75 billion and hit the domestic currency and stocks. While the regulator gave six months time to FPIs to comply with the new framework, the deadline was later extended to December 31.
Initially both Finance Ministry and SEBI denied any impact.
However, amid concerns falling currency and as the FPIs have already turned net sellers of stocks in 2018, the Finance Ministry last week asked SEBI to review its impact.
On Saturday, SEBI panel headed by HL Khan, former Deputy Governor of the Reserve Bank of India proposed amending most of the clauses of the circular.“Mostly the inflow from these fund houses worked as cushion against rupee fall. It was both ill advised and ill timed decision,” a member of AMRI told TNIE.
On Monday Foreign portfolio investors (FPIs) on Monday sold shares worth Rs 840 crore, extending their one-month selling to over Rs 5,000 crore. Also FPIs have pulled out $700 million from debt markets this month and $6.33 billion so far in 2018.