MUMBAI: Capital market regulator Securities and Exchange Board of India (Sebi) on Monday proposed to enhance measures for foreign portfolio investors (FPIs) to prevent violation of minimum public shareholding (MPS) requirements.
In a consultation paper, the regulator proposed FPIs with assets under management (AUM) of over Rs 25,000 crore in Indian equities, or over 50% of equity AUM in a single group will have to make additional disclosures. The proposal has its genesis in the Adani stocks issue where Sebi could not identify the beneficial owners of some foreign portfolio investments in the group stocks since the existing regulations are lax in identifying the true owners of many investments.
“For now, it is proposed that high-risk FPIs, holding over 50% of their equity asset under management in a single corporate group would be required to comply with the requirements for additional disclosures,” noted the consultation paper.
“Such FPIs shall be required to provide granular data of all entities with any ownership, economic interest, or control rights on a full look – through basis, up to the level of all natural persons and/ or public retail funds or large public listed entities,” it added.
Sebi has suggested categorising FPIs based on risk. While government and related entities like central banks and sovereign wealth funds have been placed under the low-risk category, pension funds and public retail funds have been clubbed in the category of moderate risk. Further, all other FPIs have been put in the high-risk category.
As per Sebi, some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee firm or group. Sebi estimates about 6% of total FPI equity AUM, and less than 1% of India total equity market capitalisation may come conder the category of high-risk FPIs. “Based on the data as of March 31, 2023, and on certain assumptions, we estimate FPI AUM of about `2.6 lakh crore may be identified as high-risk FPIs that meet either of the 50% group concentration or the `25,000 crore fund size thresholds,” note the paper.
Failure to provide such disclosures wherever required will render FPI registration invalid. Such FPIs would be required to wind down within six months. “We believe it (Sebi’s proposals) will not significantly impact the trend of FII inflows as legitimate qualified foreign investors like sovereigns to pension funds will be classified as low to moderate risk category,” said Vinod Nair, head of research at Geojit Financial Services.
Tightening the noose