MUMBAI: At a time when foreign institutional investors (FIIs) have taken out over $6.2 billion from the country in less than a month, market regulator Sebi has changed some of the rules governing these entities that are expected to ease their operations in India. On Tuesday, the Sebi board approved the rules which were based on recommendations of a committee that was chaired by K M Chandrasekhar, former cabinet secretary to the government. Although the regulator eased the rules to attract FIIs, market players feel these rules, coming at a time of volatile global markets and withdrawal of funds from emerging markets, are unlikely to bring FIIs back in a hurry.
Sebi also approved a change in rules for buyback which will now require companies to complete the process within six months of its launch and not one year which is the case now. "Simplification is positive, but concerns on rupee and fundamentals would be the main trigger for FII flows in the near term," said G Chokkalingam, CIO, Centrum Wealth Management. Of late, FIIs have intensified selling in the Indian market, with the debt segment witnessing an aggressive outflow compared to the equity side of the market. Of the total outflows in June so far, $4.8 billion has gone out of the debt segment and the balance from stocks.
The government's push to bring in more FIIs was also aimed at containing India's record high current account deficit, which is 6.7% of GDP for the quarter ended December. Under the changed rules for FIIs, these entities will now be classified as foreign portfolio investors (FPI), a new category, but this is subject to their total holding in a company remains within 10% of its equity. Any holdings above the trigger level by a single FPI will qualify as foreign direct investment ( FDI).
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