Sebi may allow FPIs to directly trade in capital markets

The regulator may float consultation papers for FPIs and private equity funds and the final decision will be taken after taking into account views of all the stakeholders

With an aim to make it easier for overseas investors, regulator Sebi is considering allowing some categories of Foreign Portfolio Investors (FPIs) to directly trade in Indian markets, starting with debt segment.

Besides, the markets regulator plans asking companies to seek minority shareholders' approval before granting special powers relating to operations of the firms to non-promoters such as private equity investors.

In addition, to make domestic capital markets more attractive, Sebi has lined up wide-ranging relaxations to its norms for REITs and InvITs and an easier set of listing rules for startups.

Several attempts are being made to garner due attention from business houses in the country but all the efforts failed leading to Sebi reconsidering the proposal to give further relaxations.

The issues are likely to be discussed in the board meeting of Securities and Exchange Board of India (Sebi) on Friday, sources said.

The regulator may float consultation papers for FPIs and private equity funds and the final decision will be taken after taking into account views of all the stakeholders.

Under the proposed norms for FPIs, Sebi may permit overseas investors to directly trade in capital markets. It has proposed to begin with allowing them to trade in debt markets and gradually access to equity markets may also be permitted.

Currently, FPIs trade in Indian markets through domestic stock brokers, who get a significant chunk of their revenues from such investors.

The norms might be applicable for Category-I FPIs that include sovereign wealth funds and central banks as well as Category-II FPIs, which include mutual funds and banks.

However, hedge funds, individuals and other high risk foreign investors may not get this facility.

The move is aimed at boosting foreign inflows in Indian capital markets. However, it will have negative impact on domestic brokerage houses as they will lose out on revenue.

Currently, investments made by Sebi-registered FPIs in domestic capital market stands at Rs 11.5 lakh crore. This include Rs 8.45 lakh crore in equities and Rs 3.06 lakh crore in debt.

With regard to the proposed regulation to private equity fund, Sebi may ask companies to seek approval of minority shareholders before granting special powers relating to operations of the firms to non-promoters such as private equity fund.

The new norms would ensure that special rights given to private equity funds are approved by minority shareholders.

There are rules mandating special power relating to operations of companies to promoters, while there are no specific rules for private equity players, who have been making significant investments in new age companies.

Photograph: Danish Siddiqui/Reuters