New Sebi norms not to impact most FPIs
New framework on disclosures effective from Feb 1; SWFs, listed cos on certain global exchanges, public retail funds and other regulated pooled investment vehicles are exempted from new norms
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Mumbai: Market regulator Sebi does not expect a large number of Foreign Portfolio Investors (FPIs) to be impacted by the new beneficial ownership disclosure norms, according to sources. The norms are set to come into effect from February 1 and against this backdrop, the equity market has witnessed significant volatility, with the benchmark Sensex crashing over 1,000 points on Tuesday after shedding early intraday gains.
The sources in the know said FPIs, which may be required to provide enhanced disclosures, are expected to be significantly less than estimated in the consultation paper and the Sebi board note of October 2023.
“Exemption from enhanced disclosures have been provided to FPIs that are SWFs (Sovereign Wealth Funds), listed companies on certain global exchanges, public retail funds, and other regulated pooled investment vehicles with diversified global holdings,” one of the sources told on Wednesday.
Foreign Portfolio Investors (FPIs) have been dumping shares in recent trading sessions. In the past four trading days alone, FPIs have sold shares worth over Rs27,000 crore after pumping in huge money that had also pushed the market indices to record highs.
“There is no risk of MPS norms violation in concentrated FPI holdings in companies with no identified promoter. Exemptions from enhanced disclosures take this into account. But for companies with no promoters like the HDFC group or ICICI group, the new disclosure norms will be effective,” the source said. MPS refers to Minimum Public Shareholding.
The sources said the problem is when a fund, which is not regulated in any jurisdiction, but has a regulated fund manager. There is no way that Sebi can find the source or the end user of the funds, they added while explaining about the new disclosure norms. Further, the sources said there is no immediate deadline or cliff for FPIs to liquidate any holdings from February 1 when the new norms will be effective.
FPIs that met the criteria for enhanced disclosures as of October 31, 2023, had time till January 31, 2024, to rebalance their holdings if they so wished. If they continue to meet the criteria for enhanced disclosures as of January end, they would have an added 10 to 30 working days to provide the additional details required, the sources said.
Even thereafter, if they fail to provide any details, the sources said such FPIs would have a further six months to reduce their holdings. One of the sources also said the 7 days reporting time for an entity to disclose the change in the holding or end beneficiaries will be enhanced to 30 days. Both the regulators -- the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI)-- recently tightened both funding and end-user disclosure norms for foreign funds and Alternative Investment Funds (AIFs). The Indian equity market has been doing well in recent months and scaled record levels multiple times amid positivity about the domestic economy even as global economic and geopolitical uncertainties continue to impact investor sentiments.
Looming Uncertainty
l FPIs have time till Jan 31, 2024, to rebalance their holdings
l Foreign funds resorted to sell in last 4 sessions
l New disclosure norms will be effective for firms with no promoters like HDFC group or ICICI group
