Mahesh Nayak
The timing could not have been better. At a time when the rupee is weakening and the government is struggling to lower the current account deficit (CAD), the committee on rationalisation of investment routes and monitoring of foreign portfolio investments, set up by the Securities and Exchange Board of India (Sebi), on Wednesday released its recommendations for improving foreign flows into the market.
The committee has recommended doing away with pointless regulations such as that of registering foreign institutional investors (FIIs) and FII sub accounts with Sebi. This will mean that foreign portfolio investors (FPI) can directly invest in India without prior approval from the regulator. The FPIs can register and transact business through designated depository participants (DDPs) appointed by Sebi. These could be the custodians such as Citibank and Deutsche Bank. Says Sandeep Parekh, founder of Finsec Law Advisors, "This means no exchange control regulations. FIIs will be regulated as the qualified institutional investors."
The committee has also recommended bringing FIIs, sub accounts and qualified foreign investors (QFIs) into one fold as a new investor class called Foreign Portfolio Investors (FPI) and raised the aggregate investment limit to 24 per cent.
More interestingly it has liberalised the procedure and provided clarity on the issuing of participatory notes (PN) and offshore derivative instruments (ODI). After the Black Monday episode of May 17, 2004, when the Sensex lost over 16 per cent in intra-day trades forcing the stock exchanges to close trades twice during the day, Sebi had come out with stringent norms on the issuance of P-Notes. Only registered FIIs could do so. The recommendation by the committee does not discuss easing the norms for issuance of P-Notes, but it does talk about broadening the base for issuance of such instruments by the FPIs as well, since the regulator would know the final beneficiary of these instruments.
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