MUMBAI: The Securities and Exchange Board of India has taken strong exception to a group of
non-resident Indians (NRIs) and offshore investment vehicles of financial services firms based in India which warned the regulator on Monday that as much as $75 billion worth of investments may be withdrawn from India by December 2018 if
Sebi did not withdraw or modify a circular that put some restrictions on
NRIs and People of Indian Origin (PIOs) from investing through the foreign portfolio investment (FPI) route.
Sebi officials gave every indication that it will not be threatened by strong-arm tactics being employed by this group which has created a panic-like situation in the market.
“It is preposterous and highly irresponsible to claim that $75 billion of FPI investment will move out of the country because of Sebi's circular issued in April 2018,” a spokesperson for regulator said.
Some brokers had reasoned that Monday’s 333 points fall in the sensex was mainly because of the fears of foreign fund withdrawal due to the Sebi circular. However, trading data does not corroborate the brokers’ claims. On Monday, FPIs were net buyers at Rs 1,406 crore (nearly $200 million), while Tuesday’s provisional data showed a net inflow of Rs 33 crore through the secondary market.
Rashesh Shah, chairman,
Edelweiss Group, which has an overseas arm that invests funds from foreign investors into India, said that it was not correct on the part of the group to put a number that led to some panic among investors. “We should try to find an answer through the process of consultation between Sebi and FPIs. In India, the consultation process works well,” Shah said. On the other hand, “if an issue is sensationalised, finding a good and common solution becomes that much harder,” he said.
On April 10, Sebi had said that NRIs, PIOs and overseas vehicles set up by Indian financial services groups cannot be ‘beneficial owners’ of FPIs. Under the Prevention of Money Laundering Act (PMLA) and the related rules, beneficial ownership means 25 per cent ownership in a company or 15 per cent in a trust or partnership, depending on how the FPI has been set up abroad.
Sebi had given market players six months to adhere to the new rules. On August 21, it extended the date till December 31. Sebi also set up a committee under H R Khan, a former RBI deputy governor, to look into various acts and rules relating to FPIs in India.
Sebi officials said that the circular was part of its efforts to operationalise the government’s efforts to put a curb on the flow of funds from suspected sources abroad. According to Sebi sources, Parliament enacts laws and the regulator operationalises the laws. Sebi had done exactly that in this case as well. Also, the Sebi’s extension of the effective date and setting up of a committee were indications that the regulator was willing to listen to FPIs’ views before finalising the rules.
Market sources said that representatives from the group of NRI-PIO fund managers are expected to soon meet members of the Khan Committee to put forward their views.
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