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Markets will remain under pressure as the SEBI rule on tightening final beneficial ownership norms for foreign investors comes into effect from February 1.
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Foreign investors have sold shares worth Rs 35,000 crore this month and the benchmark Sensex has fallen 1,539 points in January.
A consultation paper issued by the SEBI in May last year stated that FPI assets under management of around ₹2.6 lakh crore (around six per cent of the total assets under management of FPI shares and less than one percent of the total capitalization of the Indian stock market) could potentially be identified as high-risk FPIs.
Last August, SEBI directed FPIs to disclose the beneficial ownership of FPIs whose 50 per cent assets under management are invested in a single Indian corporate group or FPIs that have invested more than Rs 25,000 crore in the stock market. Indian.
The new SEBI norms come in the wake of concerns over certain FPIs having a concentrated portion of their equity portfolio in a single corporate group. These concentrated investments may give rise to the possibility of promoters or other investors acting in concert using the FPI route to circumvent regulatory requirements, SEBI said last August.
- FPIs become net sellers after 6 months of investment; withdraw Rs 14,767 crore in September
Incidentally, short seller Hindenburg alleged in a report last January that some of the FPIs invested in Adani Group companies were just fronts for the promoter entities, an allegation which was refuted by the diversified conglomerate owned by Gautam Adani.
SEBI finalized the standard operating procedure last October for custodians to follow to improve disclosures. Existing FPIs, violating investment limits as on October 31, 2023, were required to reduce excess exposure within 90 days (January 29) on a voluntary basis.
In the event that the AUM of shares is not reduced within the deadline below the prescribed thresholds, they must make additional declarations within 30 business days (March 11). If they do not provide any details even after, they will have six more months to reduce their holdings.
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The tightening of beneficial ownership rules for foreign investors from February 1 is one of the reasons for the recent decline in markets. SEBI had given a long rope to FPIs to ensure that there is no panic selling in the market, an analyst said.
Although there are no immediate deadlines for high-risk FPIs to liquidate their holdings if they make disclosure, many foreign investors may not feel comfortable disclosing investment details to the Indian regulator, he said.