Are SEBI’s New FPI Rules Competent to Transparent the Indian Securities Market?

13 October, 2023 - 2:01 pm (48 days ago)
1 min read

The Securities & Exchange Board of India (SEBI) is amending the Foreign Portfolio Investors (FPI) Rules, demanding more detailed disclosures to reveal the Ultimate Beneficial Owners (UBO). Entities are given a 90-day timeframe, ending in November 2023, to align with these directives. The change follows SEBI’s efforts to uncover the actual beneficiaries of certain FPIs invested in Adani Group Companies.

This adjustment addresses concerns arising from investments concentrated in single groups or companies. Such actions might breach the Minimum Public Shareholding (MPS) regulation, set at 25 percent for listed entities, causing price volatility while concealing the actual beneficiary.

What’s Changing for FPIs?

SEBI’s circular is primarily focused on FPIs from ‘High-Risk jurisdictions’, susceptible to money laundering or terror financing. SEBI’s estimates suggest that these high-risk FPIs, holding assets surpassing Rs 2.5 lakh crore, will be subjected to the new disclosure norms.

The stricter regulations demand FPIs to reveal their ultimate beneficiaries annually, provide monthly consolidated investment reports, and disclose shareholding changes above 10 percent within a fortnight. Also, they must report any kind of ownership or interest in high-risk FPIs, irrespective of overseas jurisdictional confidentiality rules.

This regulation ensures the transparency of promoter activities and confirms that 25 percent of listed entity shares remain publicly tradable.

Past Efforts to Regulate FPIs

SEBI’s current move is a stark contrast to its previous stances. Prior regulations didn’t demand comprehensive natural person disclosures for FPI registration. Several measures have been taken since 2014 to enhance transparency, with varying results.

Despite these attempts, earlier regulations failed to achieve desired transparency, and foreign investments remained inadequately monitored. This new circular marks SEBI’s third and final push for clarity and transparency.

Equity Indices Trend Downwards

In other news, equity indices portrayed a downward trend during Friday’s intraday trading. The NSE Nifty 50 and the BSE Sensex both saw a decline, with only the Midcap index showing positive movement. Infosys, HDFC Bank, ITC, MMTC, and Angel One were notably active. While 107 stocks reached their 52-week highs, only five, including Atal Realtech and Rajesh Exports, touched their 52-week lows.

HCL Tech’s Financial Surge

HCL Technologies saw its share price spike by 3.49%, following its announcement of a 9.8% rise in its Q2 consolidated net profit. Despite a recent dip, HCL Tech shares have seen a significant growth over the past year. The firm has revised its growth guidance to 4-5%, sparking varied reactions from financial analysts.

Implications and Outlook

With SEBI’s regulatory changes, stakeholders can anticipate more transparency in foreign investments. These measures could lead to better due diligence, proactive reporting, and curbing of financial crimes in Indian securities markets. The renewed focus on beneficial ownership might ensure more fluid share trading and improved price discovery. As for the Adani incident, it emphasizes the need for such stringent measures, highlighting potential vulnerabilities in the prior disclosure regime.

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Disclaimer: The information provided in this article is for informational purposes only and should not be considered as financial, tax, or investment advice. It is always recommended to consult with a qualified financial advisor before making any investment decisions. The author and are not responsible for any actions taken based on the information provided in this article. Past performance is not indicative of future results. Investing involves risks, including the potential loss of principal. Always do your own due diligence before making any investment or financial decisions.

Bilgesu Erdem

tech and internet savvy, cat lover.

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