Mumbai: The Securities and Exchange Board of India (Sebi) on Friday intensified its scrutiny of foreign portfolio investors (FPIs) from Asian countries in the wake of fears that Chinese investors could be investing in India's blue-chip stocks at cheap valuations through indirect routes.
Last evening, Sebi sent its third communication of the week to custodians, seeking details of FPIs which have beneficiaries in Mongolia, Pakistan, Bhutan, Nepal, Afghanistan, Bangladesh, Myanmar, Taiwan, North Korea, Yemen and Iran.
Mint has reviewed the letter.
"It is possible that some investment originating in China could be invested in India through some of these countries. India typically does not get any investments from these Asia Pacific countries and some of these countries are not even allowed to invest in India owing to them being in the FATF grey list," said a person with direct knowledge of the matter.
FATF or Financial Action Task Force is an inter-governmental body which monitors jurisdictions that do not have strong anti-money laundering norms and processes to stop terror financing.
Others believe that having a longer list of countries can ensure there is no diplomatic blowback for increasing scrutiny on only investments from China and Hong Kong.
Currently, custodians have to periodically report on ultimate beneficiaries of FPIs or when Sebi asks for the information. But such a specific request targeting a particular jurisdiction and the short reporting time is rare.
Custodians have received a total of three communications within a span of a week targeting investments from China. The move was prompted by the People’s Bank of China (PBOC) raising its stake in HDFC Ltd to 1.01% from 0.8% in the March quarter through open market purchases. This had led to concerns whether some of these stocks had become susceptible to acquisition, using open market transactions, through the FPI route.
Countries across the world are contemplating placing restrictions on China from investing in their countries. The fear is that stocks have become cheap due to covid-19 related uncertainties, leaving the companies vulnerable to hostile takeovers from China-based companies and investors.