The Securities and Exchange Board of India (Sebi) is expected to announce easier guidelines for other foreign investment routes following the finance ministry’s Sunday decision to allow foreign individuals direct access to Indian equities through the qualified foreign investor, or QFI, route.Liberalisation of norms for foreign institutional investors (FIIs) and investors coming in through sub-accounts are on the agenda, suggest experts.
According to the finance ministry circular, QFIs include individuals, groups or associations, resident in a foreign country which is compliant with necessary international norms.
The circular did not propose any registration or eligibility requirements for QFIs, and said Sebi and the Reserve Bank of India will issue relevant circulars to operationalise the scheme by January 15.
If the market regulator comes out with criteria as strict as the ones it has for FIIs, it would defeat the intention of liberalisation, according to a report dated January 3 from Nishit Desai Associates titled ‘Welcome QFIs: A New Entry Route To Capital Markets For Foreign Investors’.
Conversely, easier norms for QFIs would affect other categories as well. “Depending on the eligibility criteria that may be prescribed for QFIs, this could potentially have a knock-on effect on FII and sub-account eligibility criteria, leading to easing of the norms for such registrations,” said the note authored by Ashish Kabra, Ruchi Biyani, Kishore Joshi and Siddharth Shah, dated January 3.
Currently, foreign investors coming in through FIIs and sub-accounts have to register themselves with Sebi and fulfill broad-basing criteria by which a fund must have a minimum of 20 investors.
A lawyer from another law firm also said there could be some easing in the norms for foreign investors, though he preferred anonymity since the regulator is yet to announce any. “There is a very high threshold in the sub-account route for individuals and hardly anyone would have used it. If the QFI route is being made available, then chances are this would be liberalised as well,” he said.
If a foreign investor wants to register as a sub-account, then he has to fulfill a minimum net worth criteria of $50 million (Rs 265 crore), as per current Sebi regulations.
QFIs shall be allowed to invest through a Sebi-registered intermediary, the circular said. A QFI shall open only one demat account and a trading account. The QFI investor can hold up to 5% of a company’s paid-up capital in an individual capacity while all QFIs can together hold up to 10%.
Comments