Background & Context
- SEBI has raised the Foreign Portfolio Investors (FPI) investment threshold for granular disclosures from ₹25,000 crore to ₹50,000 crore.
- This decision comes amid persistent FPI outflows and aims to reduce compliance burdens while maintaining regulatory oversight.
- The move follows the August 24, 2023 circular, which introduced stricter disclosure norms after allegations of stock manipulation using FPI structures (e.g., Hindenburg-Adani case).
Relevance : GS 3(Indian Economy )
A. Backward Linkages (Causes & Historical Context)
- Hindenburg Report & Market Integrity:
- The 2023 SEBI circular was introduced to curb misuse of FPI routes in stock price manipulation and non-compliance with minimum public shareholding norms.
- Allegations of opaque ownership structures led to regulatory tightening.
- FPI Outflows & Market Volatility:
- High compliance costs for large FPIs (above ₹25,000 crore) led some funds to reduce their exposure, contributing to recent outflows.
- India had some of the most stringent granular disclosure norms among emerging markets, discouraging investment.
- Equity Market Growth:
- India’s cash equity markets have doubled in size in the last few years, warranting an adjustment in regulatory thresholds.
- Raising the threshold to ₹50,000 crore aligns with this expansion, reducing regulatory burdens for mid-sized FPIs.
B. Forward Linkages (Impacts & Future Prospects)
- Increased Capital Inflows & Market Depth:
- Relaxed compliance norms may attract larger foreign funds, reversing the recent FPI outflows.
- Improved liquidity in equity markets may enhance stability and valuation.
- Boost to Investor Confidence & Participation:
- Mid-sized FPIs now face less regulatory burden, encouraging greater foreign participation in Indian equities.
- Institutional investors will find Indian markets more attractive due to reduced compliance complexities.
- Regulatory Balancing & Market Oversight:
- SEBI has maintained oversight for FPIs investing over ₹50,000 crore, ensuring transparency while easing burdens.
- The move indicates flexibility in policymaking, adapting to market realities without compromising accountability.
- Comparative Positioning in Emerging Markets:
- India was among the few markets with such detailed beneficial ownership disclosures for FPIs.
- The revised norms make India more competitive vis-à-vis markets like Brazil, South Korea, and Taiwan, which have relatively relaxed FPI regulations.
