Capital market regulator Securities and Exchange Board of India (SEBI) on Tuesday announced a catalogue of measures including simplifying rules and registration procedures for foreign investors aimed at attracting dollars, vital to spin jobs and multiply income in a slowing economy.
Foreign funds are important to prop up the rupee and avoid dipping into India’s $290-billion foreign exchange reserves, enough to cover imports for seven months, to finance a record current account deficit (CAD) — the difference between dollar inflows and outflows.
The string of measures that SEBI approved at its Board meeting on Tuesday are primarily based on recommendations that a panel headed by KM Chandrashekhar had announced earlier this month.
Under the new set of rules, which will need to be approved by the government, India will classify overseas investors into three broad categories depending on their risk profile (see graphic) — a move that analysts said will hasten fund flow by removing bureaucratic and procedural hurdles.
SEBI will now classify all overseas investors with an equity stake in any company of below 10% as ‘foreign portfolio investors’ merging the two earlier classifications of foreign institutional investors (FIIs) and qualified foreign investors (QFIs).
It also made it mandatory for companies to complete plans to buy back shares from shareholders within six months, down from the present deadline of one year. Monetary penalties will be imposed on companies that do not purchase at least half of the proposed shares.
Importantly, firms will be debarred from raising fresh capital from the market or carry out another buyback programme for one year after the first such scheme.
These stringent rules are aimed at preventing companies from boosting equity prices by announcing buyback programmes but eventually do not execute the plan.
In another move that will make it easier for smaller firms to raise capital, SEBI will allow angel funds to invest in start-ups under its alternative funds regulations and allow small companies to list on stock exchanges without having to make an initial public offer (IPO).
“There is a lot of simplification in the SEBI investment norms that will encourage investment,” said Rikesh Parikh, vice-president, Motilal Oswal.
“The move could act as a catalyst, but it would not be a game changer,” said Ambareesh Baliga, head, Global Wealth Management, Edelweiss Financial Services.