Sebi's roadshow assumes significance after India’s move to ban high-value notes and a spate of changes in tax treaties with countries such as Mauritius, Singapore, and Cyprus, had unsettled FPIs investing in the country
The Securities and Exchange Board of India (Sebi) will embark on overseas roadshows next month to meet large foreign portfolio investors (FPIs) with an aim to tell them about the reforms undertaken by the regulator in the last few years and get feedback.
The regulator will visit countries such as the United States (US), the United Kingdom (UK), and South Africa, and meet the securities’ regulators of these countries. The team will be led by whole-time member G Mahalingam.
The roadshow assumes significance after India’s move to ban high-value notes and a spate of changes in tax treaties with countries such as Mauritius, Singapore, and Cyprus, had unsettled FPIs investing in the country.
“This will be an opportunity to meet large investors one-on-one and listen to their concerns, although the regulator may not be able to address all of them,” said an official familiar with Sebi’s plans.
Although not entirely unexpected, the changes in tax treaties have made several FPIs reassess the structures through which they invest in India.
There has also been uncertainty surrounding India’s tax treaties with European jurisdictions such as the Netherlands, which provide for capital gains’ exemption on transfer of shares.
With the new tax treaty with Singapore and Mauritius coming into effect from April 1, inflows through participatory notes (P-notes) are expected to see a sharp drop.
Going by Sebi data, nearly 90 per cent of P-note investments are routed through Singapore and Mauritius.
Last year, Sebi had tightened Know Your Client and anti-money laundering rules for P-notes, bringing them on a par with those for onshore investors, besides issuing curbs on transferring P-notes from one foreign investor to another.
The bulk of the FPI money flowing into India comes from the US, Mauritius, and Singapore.
In November and December, FPIs had pulled out nearly $4 billion from Indian equities following India’s demonetisation drive, changes in its tax treaties, as well as a surprise win by Donald Trump in the US presidential elections.
Things have looked up, however, for FPIs this year. For one, the demonetisation drive did not make too much of a dent the December quarter earnings of India Inc, as much as it was feared.
For another, the Union Budget included an exemption from the provisions of indirect transfer tax for Category-I and Category-II FPIs, somewhat soothing investor nerves.
The Budget proposed steps to ease the business environment and operational flexibility for FPIs by introducing a common application form for registration, opening of bank and demat accounts, and issuing of PAN (Permanent Account Number), among other things.
The recent win by the Bharatiya Janata Party in the Assembly elections has also raised hopes among FPIs that the government will push ahead with reforms.
Over 2,800 new FPIs have registered with Sebi in the first 10 months of the current financial year.
Photograph: Beawiharta/Reuters
