Sebi has exempted a section of FPIs and extended the deadline for others for disclosing ownership, economic interest and control if they have over half their holdings in a single corporate group or have holdings in Indian equities in excess of ₹25,000 crore. These relaxations may lower the compliance burden for FPIs deemed to be ‘high risk’, but are unlikely to lower the current bout of volatility the market is experiencing. By Sebi’s own reckoning, the disclosure requirements would affect market behaviour on a scale much smaller than the FPI sell-off on display. Also, FPI sell-off this month has been more intense in stocks that are not at high risk in terms of concentrated holdings. Market correction is being driven by more fundamental domestic and global factors than by a tighter regulatory framework.Which is why any further relaxation would be inimical to the stated intent of blocking a way to get around the minimum public float, which could lead to stock price manipulation. Concentrated FPI holdings with no identification of the last natural person behind layers of corporate anonymity can also be used to route investments into Indian equities from countries where prior government approval is required. Sebi’s effort to improve transparency and reduce stock price manipulation was not iron clad to begin with. FPIs can avoid having to share information by keeping their holdings slightly below the limits the market watchdog has set. Then again, India’s regulatory framework allows more than one interpretation of corporate control over group companies. Finally, identifying beneficial interest through money laundering laws may not be effective with FPIs.To get to the desired outcome, rules – and not only the ones imposed by Sebi – will have to be progressively tightened. The effects on short-term market movements, if any, should not guide the regulatory response. India needs to enhance the efficiency of its capital markets. Greater transparency is a key requirement.
