Indian market regulator Wednesday proposed to seek more disclosures from high-risk Foreign Portfolio Investors (FPIs) with large holdings in a single company or a group firm following criticism about lack of oversight over inflows in conglomerates like Adani Group.
The Securities and Exchange Board of India (Sebi) in a consultation paper said the proposals are aimed at preventing possible circumvention of minimum public shareholding (MPS) requirements and potential misuse of the FPI route to guard against the inherent risks of opportunistic takeover of Indian companies.
“The 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,” the market regulator said.
The categories include funds that have more than 50% of their assets under management invested in a single group of companies and those that have more than ₹2.50 crore ($3 billion) invested in the Indian equity markets. The regulator further said any material change in the same also needs to be communicated by the FPIs to their designated depository participants within seven working days of such a change.
Inviting comments through June 20, the regulator said these funds must comply with additional disclosure requirements within six months after the norms are implemented. Failure to provide such disclosures wherever required will render the FPI registration invalid and such FPIs would be required to wind down its operations within six months.
However, the Sebi suggested certain relaxation for global entities with higher AUMs as well as for newly-established FPIs for the first six months.
The regulator further said funds owned by the government, sovereign wealth funds, pension funds and public retail funds will be exempt from this requirement.
Sebi further noted that some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee company/company group.
“Such concentrated investments raise the concern and possibility that promoters of such corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements such as that of maintaining Minimum Public Shareholding. If this were the case, the apparent free float in a listed company may not be its true free float, increasing the risk of price manipulation in such scrips,” Sebi noted.
The regulator 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 estimates, ₹2.6 trillion worth of foreign funds would need to make such disclosures, which is about 6% of the total foreign investor flow in Indian equities.
Also, the regulator said that proposed additional disclosure requirements will not impact low-risk and moderate-risk FPIs in any manner.