If all goes well and the market regulator agrees, foreign portfolio investors (FPIs) will find it easier to invest in Indian markets. They will be able to put money in debt and stocks without routing it through intermediaries.
According to analysts, Sebi is likely to further relax account opening steps and allow multiple demat accounts. The regulator is also likely to consider direct FPI investment in the debt segment. This facility is likely to be extended to the equity market subsequently. These steps, which may not come immediately, are likely to boost foreign inflows into the capital markets, they said.
The Sebi board which is meeting on Friday is likely to consider more sops for FPIs for direct and easier investments. However, it may not be smooth sailing as any such relaxation will be opposed by local brokerages. “Sebi should come out with a consultative paper before announcing such measures to take into account the opinion of other market players,” said a market source.
According to a PwC India survey, investors’ displayed a preference for engaging directly with the Indian market rather than through overseas derivative instruments (ODIs), also commonly referred to as P-notes. “In India, the cost of trading includes several levies like brokerage, service tax, stamp duty, STT, Sebi turnover fees, exchange transaction fees and custody fees. Though these costs might seem small on first glance, they can have a major impact on investment portfolios. These costs, coupled with high tax, administrative and compliance costs and hedging costs, result in the cost moving upwards,” PwC said.
Foreign investors were concerned about the impact of GAAR on the Indian tax law. Around 78 per cent of the tax managers and 42 per cent of the portfolio managers were concerned about the impact of GAAR. These results suggest that the government should provide further clarity. Also, there is a need to rationalise offshore transfer provisions as these funds are at a tax disadvantage compared to global funds.
Sebi is also likely to hike foreign shareholding limit in Indian bourses to 15 per cent from the existing 5 per cent. Finance Minister had already announced this step in the FY17 Budget. With NSE and BSE set to go public, this move will increase foreign investor interest in Indian bourses.