Securities and Exchange Board of India (Sebi) Chairman Ajay Tyagi is planning to meet top foreign portfolio investors (FPIs) in the US this month. He will meet other investors too.
The meeting comes at a time when FPIs have pulled out $5 billion from the domestic markets this quarter.
“A full-fledged event is being planned and the Indian embassy is coordinating it. The purpose of the visit is to have first-hand interaction with FPIs to understand their point of view on emerging markets (EMs) and India. Further, the regulator would address concerns of overseas investors over various issues including know your company (KYC) and taxation,” said a person in know.
Sebi has recently made changes to the FPI framework to ease the investment process for overseas investors. A direct meeting between FPIs and Sebi will help gather feedback on the changes and iron out some of the other irritants, said sources.
“Such an exercise is necessary to understand the ground reality and issues faced by FPIs. Further, the meeting will also give an opportunity to Sebi to explain the recent policy changes to global investors,” a source said.
The regulator will also apprise foreign investors about steps taken in areas such as electronic trading technology; enhancing accuracy as well as reliability of market and reference data, and a comprehensive risk management framework. Sebi had last month simplified the framework for FPIs by easing compliance and regulatory constraints. It had also done away with the broad-based eligibility criteria for FPIs.
The escalation of the US-China trade war and domestic concerns over the slowdown has prompted foreign funds to trim their India exposure.
These developments come at a time when India is already perceived as highly regulated and one with the steepest taxes. FPIs have been requesting the government to do away with the long term capital gains tax for over a year now. Most EMs don’t levy capital gains tax on market investments.
Experts believe the latest outflows have more to do with global factors. “It is the global sentiment that is deciding the mood. The stress between China and the US is making investors nervous and most of them want to sit on cash,” said Bhavin Shah, partner, PwC.
Domestically, slowing growth and disappointing corporate earnings have further weighed on sentiment. The regulatory uncertainty created by the increase in tax surcharge on FPIs has added to woes. While the government has reversed the decision to impose a higher tax surcharge, it hasn’t helped improve FPI sentiment.