Mumbai: The Securities and Exchange Board of India (SEBI) approved an overhaul of rules for foreign investors, including easing registration procedures and simplifying categories, in a bid to attract vital flows needed to narrow a record high current account deficit. The SEBI approved the rules at its board meeting on Tuesday.
They are based on recommendations from a panel appointed by the regulator and had been already unveiled earlier this month. SEBI is easing norms during a period of global market turmoil that has seen foreign investors sell $5.49 billion in debt and stocks this month. Analysts warned these regulations alone were unlikely to reverse these outflows in the near term.
"Simplification is positive, but concerns on rupee and fundamentals would be the main trigger for FII flows in the near term," said G Chokkalingam, chief investment officer at Centrum Wealth Management, referring to foreign institutional investors.
The foreign investment rules will need final approval from the government, which is keen to attract foreign flows in a bid to narrow a current account deficit that hit a record high of 6.7 per cent of gross domestic product in the December quarter.
Overseas investors will now be classified into a newly created Foreign Portfolio Investors category as long as their equity stake in a company does not exceed 10 per cent. Purchases above that amount by a single investor will be governed under Foreign Direct Investment rules.
India will also reduce the number of disclosures that foreign investors need to make, and overseas funds will also be classified into three categories depending on their risk profile, with varying degrees of restrictions.
SEBI also mandated companies announcing share buybacks will need to complete them within six months, down from the current one-year deadline, and they will need to buy at least 50 per cent of the proposed purchases to avoid monetary penalties.
A company which completes a buyback will additionally not be allowed to raise fresh capital or conduct another purchase of its own shares for one year after the original buyback. The rules are meant to counter perceptions some companies are looking to boost their shares by announcing buybacks they do not actually intend to undertake, or do not fully fund.
SEBI added it will allow angel funds to invest in start-ups under its alternative funds regulations, and allow proprietary trading by asset managers on India's nascent debt exchanges. The regulator will also allow start-ups and small companies to list on a special trading platform for institutional investors without having to resort to an exchange listing.
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