Sebi circular link to massive FPI selling

Tough disclosure norms for some FPIs may have sparked exits

- Ram Sahgal & Neha Joshi

A regulatory diktat in September 2023 to prevent Indian entities from abusing the foreign portfolio investor (FPI) route likely sparked a sizeable chunk of the aggressive FPI selling in the recent past, market experts said.

At a time of weak corporate earnings and rising US bond yields, selling to comply with the regulator's circular accounted for about 20-40% of the $13.75 billion outflows by global funds and global emerging market (GEM) funds in October and November, two fund managers and one securities lawyer said on the condition of anonymity.

The Securities and Exchange Board of India (Sebi) circular was designed to prevent Indian entities from bypassing India's minimum public shareholding (MPS) norms, which mandate every listed company to have a minimum public float of 25%.

The circular, which was amended in March, directed FPIs to disclose their ultimate beneficiaries by 9 September 2024.

Shruti Rajan, a partner at law firm Trilegal's corporate and financial regulatory team, said that by the 9 September deadline, all non-compliant FPIs were required to liquidate their positions and exit, as their FPI licences would become invalid.

The circular covered two categories of FPIs: Those holding over half of their Indian equity assets under management (AUM) in a single corporate group; and those with equity AUM exceeding ₹25,000 crore in India, either individually or along with their investor group.