Our Terms & Conditions | Our Privacy Policy
The Securities and Exchange Board of India (SEBI), on March 24, doubled the granular disclosure limit for Foreign Portfolio Investors (FPI) from the hitherto ₹25,000 crore of asset under management (AUM) to ₹50,000 crore of asset under management (AUM) is retrograde and anticlimactic.
The clamour for such a disclosure arose to promote transparency and prevent round-tripping which consists in black money stashed away abroad by Indians finding its way back into the Indian bourses through the FPI route. The sluice gate — FPI, earlier known as FII (foreign institutional investment) — was opened for the first time by the then Prime Minister Narasimha Rao and his cabinet colleague Finance Minister Manmohan Singh way back in 1991 in keeping with their economic leitmotif —liberalisation and globalisation.
While the objectives were to deepen and broaden the Indian bourses besides encouraging better corporate governance as FPIs normally tend to put their money only in well-managed companies, subsequent events have made skeptics wonder if the move had been counterproductive — market getting hotter fuelling liquidity boom and making our forex reserves vulnerable to the gyrations of the market with the Indian Rupee (INR) appreciating on infusion of FPI funds and plummeting on pulling out of funds from India.
Also read: SEBI board clears increase in disclosure threshold for FPIs
The more serious concern has all along been the evil of round-tripping with Indian black money owners hijacking the regime that was by design and intention meant for foreigners through FPIs. That round-tripping is an evil is trite. It becomes the official money laundering route besides winking at the evil of insider trading — promoters hiding behind FPIs funnelling their ill-gotten wealth to prop up the shares of their own companies listed in the Indian bourses.
The principal instrument for such shenanigans, it is believed, has been the opaque Participatory Notes, as well as the FPIs headquartered in distant shores, which accommodate all types of investors—whether they are terrorists, drug cartels, or holders of Indian black money.
It is against this backdrop that the SEBI had put in place a mechanism for granular disclosure of the investors hiding or lurking behind the FPIs. The disclosure requirement is akin to lifting of corporate veil to find out the true face of the owners. FPIs having an AUM of ₹25,000 crore or more were therefore mandated to come clean with the identities of the investors who have handed over their money to an FPI. This was in the direction of promoting transparency as the public and authorities could look through to find out if the FPI was genuine or shady partially or fully.
Already the AUM cut-off limit of ₹ 25,000 crore was high according to the critics. To heighten it further by doubling it in their perception is to practically render the disclosure regime a nullity, a non-starter and a farce. One wonders, if this retrograde step is to shield the hijackers of the FPI regime in general and the Indians who have stashed away their black money abroad in particular. By the way, in a bear market, there was if anything a case for reducing the disclosure threshold but then one must hasten to add that the disclosure limit should not be an ever-oscillating figure. It should be fixed.
The best scenario would be for every FPI to disclose the granular details of all major investors—those accounting for 5% or more of its AUM—who have hitched their stars to the FPI bandwagon. But then one should not underestimate the ingenuity of the investors lurking behind FPIs. They can be counted upon to hide behind multiple FPIs so that their identity is never disclosed to the authorities. What however disappoints the critics is the perception engendered by the latest SEBI move.
—The author, S. Murlidharan, is a Chartered Accountant and a finance, legal expert, and writer. The views expressed are his own.
Read his previous columns here
(Edited by : Unnikrishnan)
First Published: Mar 25, 2025 10:47 AM IST
Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.
Aggregated From –
Comments are closed.