By Karan Shelke, Advocate at Lex Credence on February 02, 2024

What are FPIs?

Foreign Portfolio Investors (FPIs) are entities outside India investing in Indian financial securities like bonds, derivatives, and stocks. FPIs bring in fresh capital which can boost liquidity and facilitate smoother buying and selling of securities. By participation of FPIs in the Indian securities market, the twin objective is achieved. Firstly, diverse participation by FPIs leads to efficient price discovery of securities reflecting fair market valuation. Secondly, foreign investment contributes to India’s overall capital formation, which can boost economic growth and development. However, with the participation of FPIs in the Indian securities market, there is a risk that inflows and outflows can cause volatility in the securities market.

What are the additional disclosure requirements for FPIs?

Striking a balance between attracting FPIs on Indian shores and protecting domestic interests poses a regulatory challenge. The market volatility noticed in the market in the last week had investors worried about wider ramifications of the disclosure norms for Foreign Portfolio Investors (FPIs). Starting from 1st February, the Securities Exchange Board of India (SEBI) wanted additional disclosure from FPIs regarding Ultimate Beneficial Owners (UBOs) based on ownership, economic interest, and control of those FPIs. The SEBI issued a circular dated 24/08/2023 that outlined a standard for imposing additional disclosure requirements.

  • Standard 1: FPI holds over 50% of its Indian equity Assets under Management (AUM) within a single Indian corporate group.
  • Standard 2: FPI who, individually or within their investor group has INR 25,000 crore (USD 3 billion approx.) or more of equity AUM in the Indian markets.

However, certain entities such as sovereign wealth funds, listed companies on specific global exchanges, public retail funds, exchange-traded funds, and other regulated pooled investment vehicles with diversified global holdings are exempt from these additional disclosure requirements. Also, disclosures need not be made if the existing FPIs crossing the thresholds realign their investments within 90 days.

An exchange-traded fund is a type of investment fund that is traded on stock exchanges, aiming to replicate the performance of a specific index, asset class, or commodity. They are broad allocations of funds to securities that are considered as safe and hence do not pose systemic risk. E.g. Miraie Asset Nifty 50 ETF, HDFC Nifty 50 ETF, SBI Nifty 50

A sovereign wealth fund is a state-owned investment fund that manages a country’s reserves typically consisting of surplus funds, foreign exchange reserves, and revenue generated from natural resources. E.g. Singapore Sovereign Investment Fund, Abu Dhabi Investment Fund, Saudi Arabia Public Investment Fund

The rationale of additional disclosure norms:

The SEBI is concerned about concentrated FPI investments as this may indicate collusion between promoters and FPIs to circumvent minimum public shareholding regulations. E.g. promoters may hold more than 75% shares by parking shares with FPIs sympathetic to them which can potentially distort the true free float of a listed company. This set-up allows the promoters to potentially evade the disclosure requirements specified in Regulation 19A of the Securities Contracts (Regulation) Act, 1957 which stipulates that a listed company has to keep 25% of its share in the public float.

Exactly one year ago, the Indian securities market was in turmoil after Hindenburg, a US-based research firm, in its report alleged that FPIs were exploiting the loopholes present in the Indian regulatory framework about minimum public shareholding. As a preventative measure, the SEBI issued an email directing designated depositary participants requiring their client FPIs to resubmit UBO details in a newly prescribed format. Subsequently, on 31/03/2023, SEBI also issued a consultation paper suggesting granular disclosures, economic interest, and control of certain objectively identified by FPIs.


SEBI’s regulatory stance portrays an approach to the future FPI regime. The sudden policy change will cause certain turmoil in the short run for the Indian market. However, the robustness shown by the SEBI in addressing market concerns surrounding FPIs and its commitment to enhancing overseas capital participation in the Indian market shows India has an attractive option for investors.

While the additional disclosure norms may cause short-term volatility in the market and increase the regulatory burden on FPIs, well-defined standards will help in tackling future shocks prevent erosion of investor wealth, and increase corporate governance.

The article represents the personal views of the author.


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