The capital markets regulator Securities Exchange Board of India (Sebi) has released a circular that mandates additional disclosures by the foreign portfolio investors (FPIs) that fulfil certain objective criteria.
The regulator, via the circular, stated that certain FPIs hold concentrated portions of their equity portfolio in a single investee company. Such concentrated investments raise the concern and possibility that promoters of such companies could be using the FPI route for circumventing regulatory requirements.
To mitigate the concerns, a need was felt to obtain granular information of persons having any ownership, economic interest or control in some objectively identified FPIs.
The circular states that the granular details of all entities holding any ownership, economic interest or exercising control in the FPI on the full look through basis up to the level of all natural persons shall be provided by FPIs that fulfil any of the criteria:
A. FPIs holding more than 50 percent of their Indian equity assets under management in a single corporate group.
B. FPIs that individually or along with their investor group hold more than ₹25,000 crore of equity AUM in the Indian markets.
However, the foreign portfolio investors which have a broad based, pooled structure with widespread investor base and ownership interest by government or govt related investors may not pose significant systematic risk. So, FPIs that adhere to this criteria do not need to make the disclosures:
A. Government and government related disclosures.
B. Public Retail Funds
C. Exchange traded funds with less than 50 percent exposure to India and India related equity securities.
D. Pooled investment vehicles registered with government regulatory authority.
E. Certain other categories that are unable to liquidate their excess investments due to statutory restrictions.
However, the Sebi circular highlights that the constituents of FPI investor group which collectively hold more than ₹25,000 crore of equity AUM in the Indian markets shall be exempted from making the additional disclosures if the FPIs qualify for exemption.
The provisions of this circular will come into effect from November 1, 2023.