Only a fifth of the foreign portfolio investors (FPIs) breaching the thresholds specified by the market regulator may be required to give the enhanced disclosure on ultimate beneficiaries owing to the exemption being provided, said sources.
The ultimate beneficial ownership (UBO) disclosures for FPIs with more than 50 per cent holding in a single corporate group or over Rs 25,000 crore exposure in India assets kick in from February 1. However, the impacted FPIs have six months to exit such holdings and as a result there is no panic selling envisaged as feared by some market participants.
According to an initial estimate by the Securities and Exchange Board of India (Sebi), the assets held by such FPIs with holdings above the thresholds were to the tune of Rs 2.6 trillion. Regulatory sources said that with the exemptions given in standard operating procedure (SOP), the net impact would be “significantly less”.
Currently, the value of FPIs’ equities holding is more than Rs 60 trillion.
Over the past one week, FPIs have pulled out nearly Rs 30,000 crore from the domestic markets, which some fear could be on account of the enhanced disclosure norms. Sources said a large part of this selling is of banking stocks, mainly HDFC Bank, where there are no concerns of high single group exposure by FPIs.
“Exemption from enhanced disclosures has been provided to FPIs that are sovereign wealth funds, listed companies on certain global exchanges, public retail funds, and other regulated pooled investment vehicles with diversified global holdings,” said a source with direct knowledge of the matter.
Most FPIs with holdings above Rs 25,000 crore in Indian markets fall within the exemption list. There are funds with high single group exposure that will have to furnish UBO details but they will get between 10 and 30 working days to submit these details.
Sources said that in case of certain FPIs with over 50 per cent exposure in a single corporate group, there is no risk of minimum public shareholding violation in companies which do not have an identified promoter. Such FPIs can also benefit from the exemptions from enhanced disclosures.
As per the SOP to custodians, government and government related investors registered as Category 1 FPIs or those with at least 75 percent direct or indirect ownership by such government and government related investors are excluded from the granular disclosures.
Further, public retail funds like pension funds, insurance and reinsurance entities or those structured like mutual funds are also exempted, provided that the custodians follow the specified verification. Similarly, pooled investment vehicles either registered with the regulatory authority of the respective jurisdiction or regulated by the government also fall in the exemption list.
Exchange traded funds (ETFs) trading in eight jurisdictions are also exempted but they must have less than 50 per cent exposure in India-listed equities. These jurisdictions are the US, Japan, South Korea, France, UK (excluding British Overseas Territories), Germany, Canada, and the International Financial Services Centre in India (IFSC).
Sebi in June 2023 issued a circular seeking granular details on economic interest from FPIs to address circumvention of minimum public shareholding norms (MPS) following the allegations by Hindenburg Research against the Adani Group.
First Published: Jan 24 2024 | 11:56 AM IST