Markets to remain under pressure as SEBI norm on tightening ultimate beneficial ownership norms for overseas investors coming into effect February 1.

Foreign investors have sold equities worth ₹35,000 crore this month and bellwether Sensex has fallen 1,539 points in January.

A consultation paper issued by the SEBI in May last year had stated that FPI assets under management of about ₹2.6 lakh crore -- around six per cent of the total FPI equity AUM and less than one per cent of India’s total equity market capitalisation may potentially be identified as high-risk FPIs.

Last August, SEBI has directed FPIs to disclose beneficial ownership of FPIs whose 50 per cent of equity assets under management are invested in a single Indian corporate group or FPIs that have invested over ₹25,000 crore in the Indian stock market.

The new SEBI norms comes on the back of concern over certain FPIs holding concentrated portion of their equity portfolio in a single corporate group. Such concentrated investments may lead to the possibility of the promoters or other investors acting in concert by using the FPI route for circumventing regulatory requirements, said SEBI in last August.

Incidentally, the short-seller Hindenburg in a report last January alleged that some of the FPIs invested in Adani Group companies were just fronts of the promoter entities, an allegation that was refuted by the Gautam Adani-owned diversified conglomerate.

SEBI has finalised the standard operating procedure last October for custodians to follow for enhanced disclosures. Existing FPIs, which were in breach of the investment limits as on October 31, 2023, were required to bring down excess exposure in 90 days (January 29) voluntarily.

In case of failure to bring down the equity AUM below the prescribed thresholds within the deadline, they have to make additional disclosures in 30 trading days (March 11). If they fail to provide any details even thereafter, they will get further six months to reduce their holdings.

The tightening of ultimate beneficial ownership norms for overseas investors from February 1 is one of the reasons for the recent fall in the markets. SEBI had given a long-rope to FPIs to ensure that there is no panic selling in the market, said an analyst.

Though there are no immediate deadlines for high-risk FPIs to liquidate any holdings if they make the disclosure, many foreign investors may not be comfortable with revealing investment details with Indian regulator, he said.