Foreign portfolio investment in India will see a short-term correction after securities market regulator SEBI tightened KYC norms for foreign portfolio investors at its board meeting on Thursday, feel marketmen.
Stock exchange data showed that FPIs were net sellers of equities on Friday with net sales of ₹744 crore on a turnover of over ₹6,700 crore.
Atul Gupta of Orbis Financial Corporation, a designated depository participant, which on boards FPIs into India said, “Short-term pain in flows will be there. But the fact remains that the SEBI decision is just a continuation of a something that already existed. For those who do not want to disclose it does not matter, and for those who do, they can very well invest in India through an FPI. These are routine hiccups which keep happening.”
SEBI in its statement on Thursday had said that “in view of the strict norms for ODI issuance, the notional value of ODIs to the AUC (assets under custody) of FPIs has declined over the years to 10 per cent in March 2016 from a high of 55.7 per cent in June 2007.
SEBI further added that its 2014 norms on issue of offshore derivative instruments (ODIs) did not permit Category 3 FPIs (such as endowments, charitable societies/ trusts, foundations, corporate bodies, individuals, family offices) or sections of Category II FPIs (unregulated broad-based funds, which are classified as Category II FPI by virtue of their investment manager being appropriately regulated) to issue or to subscribe to ODIs.
The regulator has taken steps to ensure that KYC is conducted properly, followed by periodic review to ensure that the beneficial owners of the ODIs can be identified besides tracking suspicious transactions leading to money laundering/ terror financing.
“The introduction of KYC for P-Notes effectively means that SEBI will be able to keep a penetrating eye on the investors and check the flow of black money and unwanted money from unknown persons in the Indian stock markets. Though this stringent rule may have a short-term effect on the capital market, it would be a boon for honest investors and FIIs and the market as a whole in the long run,” concludes Pavan Kumar Vijay, founder of consulting firm Corporate Professionals