Sebi to set up FPI expert panel soon; single window to address concerns

The Securities and Exchange Board of India (Sebi) will soon set up an expert committee on foreign portfolio investors (FPIs) to directly deal with concerns faced by them and facilitate capital flows into the country.

Sources said the markets regulator also planned to set up an advisory committee on fundraising through hybrid instruments — real estate and infrastructure investment trust (REITs and InvITs) — to give a fillip to the infrastructure financing in the country.

The move to set up the two new advisory committees is part of structural changes put in place by Sebi’s new chairperson Madhabi Puri Buch for market development, said people in the know.

“Setting up an advisory committee will ensure focus is given to important areas. At present, views of FPIs are taken on board through various other committees. However, this will act as a single-window for getting feedback, instead of a fragmented approach,” said a regulatory official.

The move to set up an expert group comes at a time when the domestic markets are witnessing an exodus of foreign capital. Since October, FPIs have yanked out nearly Rs 2 trillion ($25.2 billion) from stocks amid monetary tightening by the US Federal Reserve. Strong inflows from local investors have cushioned some of the blow from this sell-off. However, given India’s huge capital requirements, it has high dependence on foreign investments in the long run and can't solely manage through domestic funding.

Experts said the advisory committee will help smoothen the implementation of key policies. In the past, there have been instances of friction between Sebi and FPIs when it came to roll-out of measures such as the T+1 settlement process, bar on non-resident Indians (NRIs) from being beneficial owners, carrying out block transactions and dealing with FPIs from non-IOSCO jurisdictions.  
 

International Organisation of Securities Commissions (IOSCO) regulates the world’s securities and futures markets.

Sources said starting next month, Sebi also will appoint one person in each of its departments just to focus on facilitative and development policy work. The personnel will be tasked with going to the industry, gathering feedback and setting long-term development agenda to boost the market ecosystem.

A regulatory source said Sebi intended to take a more customer-oriented approach towards policy-making in key areas such as bond market development and infra financing.

“India needs a lot of infrastructure financing to develop its roads, airports, highways and railways. Sebi’s expert group on hybrids will be asked to take an outside view — what is it that the infra players need and what needs to be done to facilitate that,” said a regulatory source.

Development of the corporate bond market in the country is a key challenge faced by regulatory bodies such as Sebi and the Reserve Bank of India (RBI) — a key piece to unlock a new source of capital and to move away from traditional sources such as bank funding.

“On the equity side, we have a vibrant ecosystem when it comes to foreign capital. But on the debt side, more building blocks need to be put in place. India welcomes foreign capital in debt, subject to certain limits. However, most of these caps are not fully utilised. A key reason for this being lack of liquidity in the bond markets,” the regulatory official said.

Sources said the RBI and Sebi were holding talks to develop measures for bond market development. A limited purpose clearing corporation, development of the repo market and putting in place a market-making mechanism are seen as some of the key building blocks. “There is enough foreign capital that is willing to take risks. They like investment-grade debt or even distressed debt. It is important for a capital-starved country like India to create the right ecosystem to unlock this potential,” the official added.