Sebi's FPI Disclosure Rules: Large FPIs fully compliant, investors with concentrated holdings on shopping spree, say sources

The August 2023 circular had provided for exemptions such as government and government-related investors registered as FPIs and public retail funds.

Large foreign portfolio investors (FPIs) with over Rs 25,000 crore in Indian equity assets have either met or been exempted under Section 43B of FPI Regulations from additional disclosure requirements ahead of the September 9 deadline, according to people familiar with the development.

Section 43(B) allows Sebi to grant relaxation of any of the provisions under the regulations if Sebi is satisfied that (a) non-compliance is due to factors beyond the control of the entity or (b) the requirement is procedural or technical in nature. Many FPIs have filed applications for exemption under this provision, the people cited above said, requesting anonymity.

Therefore, investors' fear of FPIs selling heavily to avoid non-compliance after the deadline of September 9, thus causing the market to fall, are exaggerated, added the sources. On the contrary, FPIs who qualify for the disclosure framework because of the second criteria--of having concentrated holding in a single corporate group--are increasing their exposure to the Indian markets by buying additional securities to be in compliance with the August 24, 2023, circular.

The circular mandated disclosure of additional granular details for FPIs with concentrated holdings, with more than 50 percent of their Indian equity AUM, in a single corporate group and for those with high exposure to Indian equity market. The FPIs were asked to provide details of all entities holding any ownership, economic interest or exercising control in the FPI, on a full look-through basis, up to the level of all natural persons.

Non-compliant funds will become illegal on September 9, but will have additional six months to comply by paying a 5 percent penalty.

Also read: FPIs turn net sellers; pull out Rs 21,201 crore from equities in Aug so far

Exemptions given

The August 2023 circular had provided for exemptions such as government and government-related investors registered as FPIs and public retail funds.

But further amendments with exemptions were announced later too. On May 20, 2024, an amendment said that FPIs with concentrated holdings in a corporate group need not make the additional disclosures if three conditions were met.

One, if the apex company of such a group has no identified promoter. Two, if the FPI holds not more than 50 percent of the Indian equity AUM of the group after disregarding its holding in the apex company. Three, if the composite holding of all such FPIs (having concentrated holdings in a corporate group) in the apex company is less than 5 percent of the total equity share capital of the apex company.

Also read: FPIs sell NSE shares on IPO uncertainty, derivatives volume concerns

Later, university funds and university related endowments were also exempted from this disclosure framework, provided certain conditions including that their holdings in Indian equity market relative to their holdings in global markets be less than a set threshold.