FPI outflow concerns preposterous: SEBI

Unnecessary norm:We have enough norms to ensure we get clean money, says U.R. Bhat of Dalton Capital.Reuters  

A day after an association of foreign funds warned of a potential outflow of $75 billion from the Indian equity markets over a circular issued by the Securities and Exchange Board of India (SEBI) in April, policymakers brushed aside the concerns with the capital market watchdog terming the claims “preposterous and highly irresponsible.”

“It is preposterous and highly irresponsible to claim that $75 billion of Foreign Portfolio Investment (FPI) will move out of the country because of SEBI’s circular issued in April 2018,” said a SEBI statement on Tuesday.

Later in the day, Subhash Chandra Garg, Secretary, Department of Economic Affairs, said that the issue was not so complex and that non-resident Indians (NRIs) were allowed to invest directly in the Indian markets.

“There is nothing in operation at this moment. I do not know what this ado is all about. It is not that complex,” he told reporters in New Delhi.

“NRIs are permitted to invest in Indian securities. There is a limit of 5% up to which NRIs can invest in a single security. When NRIs try to manage funds from others through fund management and register as an FPI ... that is where this issue [comes up]. So, if some NRI is a beneficial owner, then that has been defined. If you have an economic interest as well as you manage, that is not permissible,” explained Mr. Garg.

On April 10, SEBI issued a circular stating that entities such as NRIs, Persons of Indian Origin (PIO) and Overseas Citizens of India (OCI) cannot be beneficial owners (BOs) of any FPI.

It further stated that FPIs that do not comply with the framework would be given six months to either change their structure or wind up their positions in India. Last month, SEBI extended the deadline to December 31 to comply with the new norms.

‘Wrong impression’

According to Nandita Parker, president of Asset Managers Roundtable of India, which is spearheading the ongoing move to make policymakers review the framework, the circular is creating an impression that all NRIs and resident fund managers managing funds are facilitating tainted monies without any empirical study or evidence.

“The core issue is the definition of Beneficial Ownership and its use on placing investment restrictions. If that issue is not resolved in a time bound manner, the affected FPIs will have to take requisite actions that may include liquidation and naturally it will have impact on the market and on FPI flows into India,” Ms. Parker told The Hindu.

“It is also to be recognised that the circular is causing an existential crisis for NRI (including foreign nationals who are OCI/PIO) fund managers and resident fund managers who have invested huge time and resources in attracting foreign investment into India,” added Ms. Parker, who is also the general partner of Karma Capital Management LLC.