Investment is key, the government reiterated it in the economic survey as well as in the budget this year.
The move to increase investment limit flows from the HR Khan committee report’s recommendations. This will help create headroom for FPI investment in companies that fall within higher sectoral cap for FDI but haven’t passed the resolution to formally increase the FPI limit from 24 percent to sectoral cap. Hence, now no action (by way of resolution) from company required and FPIs can invest upto sectoral cap.Shagoofa Khan, Partner, Cyril Amarchand Mangaldas
FPI May Partake In ReITs and InvITs’ Debt Securities
FPIs are also proposed to be permitted to subscribe to listed debt securities issued by ReITs and Infrastructure Investment trusts (InvITs).
While the Securities and Exchange Board of India had operationalised issue of debt securities under InvIt and ReIT regulations, raising financing from FPIs hit a snag due to restrictions under the FPI regulations as only debentures of corporate issuers are permitted whereas InvITs and ReITs are organised as trusts, Khan said, adding that it is now proposed to align the FPI regulations and permit FPIs to subscribe to debt securities issued by these trusts.
Removing the inconsistency between the FPI regulations and InVIT/ReIT regulations reiterates the government’s commitment to facilitate monetisation of infrastructure assets, she said.
NRI-FPI Merger
In order to provide NRIs with seamless access to Indian equities, the budget proposed that NRI portfolio investment scheme route be merged with the foreign portfolio investment route.
Merger of NRI and FPI route is a very progressive move and is the adoption of one of the key recommendations of HR Khan committee. This should help in bringing much larger pools of NRI capital through pooled and professionally-managed structures. The cap of 10 percent which exists on NRI participation through the FPI route had received serious pushback from global fund managers and so, this proposal should be received by the investment managers very positively. The key is how seamlessly this merger is accomplished. The transition of control on PIS regime from RBI to SEBI for FPI would require the two regulators to work in tandem to ensure a smooth transition.Siddharth Shah, Partner, Khaitan & Co
The government wants to improve the KYC norms for FPIs to make it more investor friendly without “compromising the integrity of cross-border capital flows”.
While it’s not clear exactly what they wish to do here, but one would hope that the proposal removes ambiguity around heightened KYC for “high-risk jurisdictions” by clearly setting out which countries would be regarded as high risk, Khan said.
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