Outflows from foreign portfolio investors (FPI) in the recent past should not be attributed to the SEBI circular on granular disclosures, a senior official said on Friday.
FPIs with assets of over ₹25,000 crore or those that met a concentration criterion of more than 50 per cent of their AUM invested in a single corporate group had to provide additional disclosures or exit the country by September 9 to avoid stringent penalties.
“Notwithstanding baseless speculation from some quarters, any FPI outflows after September cannot be attributed to this circular. We can also confirm that to date, no FPIs have been required to cut positions or exit under the ₹25,000 criteria to prevent circumvention of Press Note 3 stipulations,” Whole-time Member Ananth Narayan said.
On average, FY25 saw 130 new FPI registrations per month, nearly twice the number in FY24.
F&O watch
The market regulator is looking at ways to grow the F&O ecosystem, while considering both tactical and structural steps to reduce the risk of manipulation across cash and derivative markets, Narayan said.
In October, the Securities and Exchange Board of India had announced six steps to check overtrading in index options on expiry days. “Even as we judge the impact of these steps over the next few months, we are now looking at ways to grow the F&O ecosystem so that it contributes to price discovery, market depth, risk management, and ultimately, to capital formation,” Narayan said.
According to him, market infrastructure institutions are first-line regulators and should take the lead in tackling issues around areas such as F&O and SME IPOs, giving them priority over their own commercial considerations. The larger MIIs in equity markets enjoyed high operating margins with profit before tax or income margins well in excess of 50 per cent.
The regulator, he said, is working closely with the public interest directors on the Boards of MIIs and ensuring that crucial KMPs of MIIs have dual reporting to both the MD as well as the relevant Board committees. Further steps may be needed to strengthen the framework of governance in MIIs, and ensure that they are seen as first-line regulators. SEBI has also proposed some possible ways to strengthen the independence of clearing corporations and ensure their continued focus on risk management.
AIF growth
Nrayan said that AIF investment commitments are now of a similar order of magnitude as the growth in the MF ecosystem —commitments have increased by 31 per cent on a CAGR basis over the past five years to ₹12.4 lakh crore.
Both the assets of AIFs and the units of investors are now largely in dematerialised form, which significantly benefitsinvestors, while improving regulatory visibility overall.
- Read: Over ₹1 lakh crore of AIF investments circumventing norms
“AIFs have been given significant flexibility to deal with unliquidated investments beyond the expiry of the fund. There is now a framework for erstwhile VCFs with unliquidated investments to migrate to the AIF regime seamlessly. The process for accreditation of investors has also been considerably simplified. I believe that popularising the concept of Accredited Investors can further contribute to the growth of the AIF and Angel Fund ecosystem,” the Whole-time Member said.
Demand-supply
Between FY22 and FY24, the supply of fresh paper by listed companies averaged around ₹1.5 lakh crore per year, leading to apprehensions that the supply of paper may not be keeping pace with the rise in overall flows into the secondary market.
However, during FY25, the supply of fresh paper by companies (excluding OFS) had already risen to an all-time high of over ₹2.9 lakh crore.
“The gap between demand and supply has narrowed this year, even as both sets of numbers have individually risen quite a bit. For capital markets seeking capital formation, this is indeed the best possible outcome – rising demand for and rising fresh supply of securities,” Narayan said.