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The recent move by the Securities and Exchange Board of India (Sebi) to revamp the foreign investor framework could make India amongst the easiest markets to enter. The regulations will also significantly aid in faster entry for longer-term funds, such as sovereign wealth funds, according to experts.
Among those who believe the move is a positive is Jyoti Rai, senior vice-president at SBI-SG Global Securities Services, which provides custody and other services to clients, including foreign institutional investors (FIIs), in the Indian securities market.
“Global investors already have a positive approach to India; just that they been seeking clarity on few matters. This committee (Sebi-appointed committee headed by former Cabinet Secretary K M Chandrasekhar) has taken into consideration several aspects and gave attention to possible challenges... and the same will certainly lead to betterment of investor sentiments towards India. Government-regulated entities like sovereign wealth funds are assigned the least risk and hence much simpler KYC (Know Your Customer). This will certainly attract such investors into India and long-term funds as well,” said Rai.
SBI-SG Global Securities Services is a joint venture between State Bank of India and Societe Generale Securities Services, which provides custody services in 80 countries.
Viraj Kulkarni, head of India, BNP Paribas Securities Services, which acts as a global custodian to $7 trillion of assets, suggested the new entry norms are a positive in the way that it aligns itself with developed markets.
“The moves are in alignment with FII suggestions to make the process more simple. Earlier, a lot of documentation was required which delayed the process and the cost of coming into the market was also higher under the older regime. As such, this will be viewed positively by foreign institutions as it will now be in line with how business is done in the developed world,” said Kulkarni.
The regulator has merged FIIs, sub accounts and qualified foreign investors (QFI) into a new investor class to be called the foreign portfolio investor. These investors would no longer have to sign up with Sebi. Instead, they will register with Designated Depository Participants (DDPs). The regulator has also adopted a risk-based approach to different categories. The easiest norms would apply to government-backed funds, the less easy will apply to regulated entities, such as foreign asset management companies, and the most stringent rules will apply to funds that fall outside both these categories.
It has also implemented other norms such as defining a 10 per cent limit beyond which all stakes held in a company will be considered to be under the foreign direct investment route, which is considered to be more of a strategic stake than portfolio investments.
Anand Rengarajan, head (direct securities services) at Deutsche Bank India, said the move will cut entry time significantly. “It will put India at par with or better than most other developed markets in terms of ease of entry. With decentralisation of registration to DDPs, the time for entering India could come down to around two weeks, which is amongst the best amongst global markets," he said.
Andrew Holland, chief executive officer of Ambit Investment Advisors which provides advisory services to the foreign institutional investors including a long/short hedge fund suggested that the move is a welcome one but the depreciation in the currency and state of the markets may affect the nature of flows.
“When markets are where they are, people may not do much…people will worry about how much more currency depreciation one could see,” he said.
The rupee cross the Rs 60 mark against the dollar for the first time ever on Wednesday.
