BackSebi plans one route for all foreign investors
Market regulator forms panel to standardize rules regarding foreign investments made by various investors
Premium(Abhijit Bhatlekar/Mint)
Mumbai: In an effort to streamline foreign money flow into the market, India’s capital market regulator on Wednesday said it has formed a committee to standardize rules regarding foreign investments made under various routes and by different kinds of investors.
The panel headed by former cabinet secretary K.M. Chandrasekhar will recommend ways of bringing all types of foreign investors under a single set of rules and examine the issues raised by them over know-your-customer (KYC) and tax norms, Securities and Exchange Board of India (Sebi) chairman U.K. Sinha said at a conference in Mumbai.
Foreign institutional investors, or FIIs, the key drivers of India’s equity markets, have invested at least $21 billion in Indian equities this year so far, the second highest after 2010.
Currently, different categories of foreign investors have different regulations. Such investors include FIIs, qualified foreign investors (QFIs), foreign venture capital investors (FVCIs), non-resident Indians (NRIs), and sub-accounts.
“QFI flows have not begun in any meaningful manner. FIIs feel KYC norms are too stringent. Most of the issues have been resolved, except for the issue of requirement of PAN (permanent account number for income tax) card for QFI investments," Sinha said. “The government has to tackle that. In consultation with the government, Sebi has set up a committee...to bring all foreign investments under a single route and examine other issues raised recently."
He did not specify any time frame for the committee’s recommendations.
After a board meeting on 6 October, Sebi had mentioned that the regulator was working on ways to rationalize routes for foreign portfolio investments.
“Sebi will prepare a draft guideline based on the suggestions of the working group on foreign investment in India so that uniform guidelines are made for various categories of investors such as FIIs, FVCIs, NRIs, QFIs, etc.," the regulator said at the time.
Also, with effect from 1 January 2014, FIIs will be allowed to re-invest up to 50% of debt holdings at the end of the preceding calendar year. Currently, reinvestment is not allowed.
In a separate development, the regulator is set to introduce norms for equity trade annulment to prevent so-called flash crashes in the equity markets. On 5 October, the Nifty—the 50-stock broader market index of the National Stock Exchange Ltd, or NSE—suddenly plunged 900 points, leading to a halt in trading for about 10 minutes. The exchange said there was no technical glitch at its end and that this had occurred due to ₹ 650 crore worth of erroneous orders by a broker, on behalf of an institutional client.
Sinha also raised concerns over the unwillingness of Indian companies to comply with minimum public shareholding norms. All listed firms are required to enhance their public holding to at least 25% by June 2013. The deadline for state-run companies is August 2013. Several listed firms are yet to comply with the minimum public holding norms.
“Sebi has met 60-70 listed companies recently to understand their problems to comply with the norms. We have created additional routes to help companies comply with rules in time. But let me tell you that there is a lot of stubbornness," said Sinha.
He urged companies and intermediaries to work towards reviving the primary market. In line with this, Sinha has asked bankers and issuing firms to focus on fair pricing in public issues. “Main point of contention has been pricing. Private equity and venture capital people tell me it has become impossible to close any deal. They are returning money to LPs (limited liability partners). Both in primary and alternate investment markets, some more thinking is required in terms of pricing," Sinha said.
Sinha also cited instances of companies tracking rivals on disclosure and compliance issues when they plan to enter the market to raise money.
Instead of tracking rival initial public offer-bound (IPO) companies, Sinha asked them to work on deepening the primary markets. “We have recently seen companies setting up offices just to keep a watch on competitors that are planning IPOs. Sebi is there to deal with that. Bringing competitors down is only going to hurt India," said Sinha.
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