Foreign portfolio investors (FPIs) will get seven months to liquidate their holdings if they do not meet the Securities and Exchange Board of India’s January-end deadline to disclose data about their investors, highly-placed sources said.
In August last year, the Securities and Exchange Board of India (Sebi) had issued a circular which asked high-risk FPIs, holding more than 50 per cent of their equity AUM in a single corporate group or with an overall holding in Indian equity markets of over Rs 25,000 crore, to disclose granular details of all entities holding any ownership, economic interest, or exercising control in the FPI.
“There is no immediate deadline or cliff for FPIs to liquidate any holdings,” sources said. Sebi had earlier asked FPIs to bring down such exposure by January 29, 2024.
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If FPIs continue to meet the criteria for enhanced disclosures as of January end, they would have an added 10/30 working days to provide the additional details required, they said. “Even thereafter, if they fail to provide any details, they would have a further 6 months to reduce their holdings,” sources said.
Sources said FPIs which met the criteria for enhanced disclosures as of October 31, 2023 had time till January 2024 end to rebalance their holdings if they so wished.
FPIs had sold stocks worth over Rs 27,000 crore between January 17-23 in the cash market, according to stock exchange data. FPIs have offloaded Rs 19,308 crore of local shares on a net basis in January so far, according to data from National Securities Depository Ltd (NSDL). Net FPI outflows, after accounting for their investments in IPOs and debt market, were Rs 4,439 crore in January.
The Sebi’s circular came into effect on November 1, 2023. According to the standard operating procedure (SOP) issued by FPI custodians on additional disclosure norms, existing FPIs, which are in breach of the investment limits as on October 31, 2023, would be required to bring down such exposure within 90 calendar days i.e. January, 29, 2024 (settlement date), unless they fall under any of the exempted categories.
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According to sources, 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.
In May, Sebi had said that based on the data as of March 31, 2023, FPI assets under management of around Rs 2.6 lakh crore may potentially be identified as high-risk FPIs who would have to make additional disclosures.
Sources said that exemption from enhanced disclosures have been provided to FPIs which are sovereign wealth funds (SWFs), listed companies on certain global exchanges, public retail funds, and other regulated pooled investment vehicles with diversified global holdings.
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The markets regulator had mandated additional disclosure norms for high risk FPIs after it observed that certain FPIs were holding concentrated portion of their equity portfolio in a single investee company/ corporate group.
Such concentrated investments raise the concern and possibility that promoters of such investee companies/ corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements such as that of disclosures under Substantial Acquisition of Shares and Takeovers Regulations, 2011 (SAST Regulations) or maintaining Minimum Public Shareholding (MPS) in the listed company, Sebi had said.