On Friday, SEBI approved a series of proposals to ease regulatory requirements. A lot of market participants think of it as a catalyst for ease of investment in the country. In August 2023, SEBI asked FIIs holding over 50% of the equity in a single group or holding equity of more than Rs 25,000 crore in the Indian equity markets to disclose details of the parent firm getting benefits. The market regulator wanted FIIs/FPIs to bring down the exposure by the end of January 2024. 

Here are some of the expert’s take on the decision:

The relaxation by SEBI for FPI disclosure has put India at the forefront regarding long-term investments. In March so far, FIIs have invested over Rs 6,100 crore amid strong economic growth, a decline in US bond yield, and market resilience, said Arvinder Singh Nanda, Senior Vice President of Master Capital Services. 

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This is not the right move as there are promoters who have used the FII route to control the majority shareholding in a company indirectly, said Sharad Chandra Shukla, Director at Mehta Equities. In case a promoter wants to invest their offshore funds into an Indian entity then it should come via the FDI route taking necessary approvals from Govt. “This route was created in the early 90s to facilitate foreign investors like offshore funds, Insurance cos, and Pension Funds who like DII follow risk management principles of diversification across companies and industries,” he said. However, this route was misused by a few FIIs to facilitate Indian promoters to enhance their holdings without grouping the foreign holdings with the domestic promoter holding.

“It’s a welcome move from SEBI to relax FPI norms and would certainly enhance the ease of investing for the FPI community, said Naveen KR, smallcase Manager & Senior Director at Windmill Capital. One would assume that this diktat would augment FPI investments into varied sectors and go on to further strengthen the ecosystem of India’s capital markets. The increased FPI flow into a few sunrise sectors shall bode well for business operators as they would get access to much-needed liquidity to stimulate growth, he said.

The current SEBI move is positive, FPIs will not be swayed by just ease of doing business factors. Their moves are based on the belief that the Indian economy and markets will continue to do well over the long term,” said Nikhil Aggarwal, Founder & CEO of Grip Invest.

“In addition to returns, global investors consider compliance obligations as a crucial factor in determining their market allocation decisions,” said Aggarwal. This strategic maneuver preserves SEBI’s original intent of safeguarding against potential risks associated with promoter-related entities investing in companies predominantly controlled by promoters.