The Securities and Exchange Board of India (SEBI) has done away with the broad-based eligibility criteria for foreign portfolio investors (FPIs) to simplify the registration process, which is a step in the right direction but the regulator has to do more to bring back foreign investors, suggest experts.
Foreign institutional investors started pulling out money from Indian markets after the finance minister in the budget proposed a higher tax surcharge - from 15 percent to 25 percent for incomes between Rs 2 crore and Rs 5 crore, and from 15 percent to 37 percent for higher incomes on non-corporate FPIs.
FPIs have pulled out nearly Rs 17,000 crore in the cash segment of Indian equity markets in July, and nearly Rs 10,000 crore so far in August, SEBI data showed.
"The changes brought in by SEBI to simplify the registration process are positive. I don't think this changes anything substantially, larger factors like taxation are hurting FPI's and we would need to do a lot more to shore sentiment overseas,” Nikhil Kamath, Co-Founder & CIO, Zerodha told Moneycontrol.
“Systemic reform is the need of the hour, and a lot more needs to be done to get FPIs interested again,” he said.
In its board meeting on August 21, SEBI also cleared the proposal to make central banks of other countries eligible for FPI registration. They have been recategorised into two categories, instead of the current three categories.
"This is a much-needed boost to the FPI route, which had been languishing on account of multiple issues in the past few months. Relaxing the broad-based criteria will open up the FPI route to a whole new category of entities who were unable to meet the 20 investor test,” Shruti Rajan, Partner, Cyril Amarchand Mangaldas said.
“The most interesting part of the press release lies in the references made to the rationalisation of offshore derivative instruments (ODIs). This has historically been a matter of debate within the industry and it will be interesting to see what changes are finally implemented,” she added.
The SEBI board also approved the norms for migration of companies listed on the Innovators Growth Platform (IGP) to regular trade category on the mainboard.
SEBI will amend regulations concerning credit rating agencies, where the agencies will be mandatorily provided information on debt defaults of companies to enable them to review ratings on these companies.
The regulator has allowed flexibility to mutual funds to invest in non-convertible debentures of unlisted entities up to a maximum of 10 percent of the debt portfolio of the scheme, subject to regulations.
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