and FDI routes, have been significant with record inflows into capital markets in India in recent years. As a key source of capital to the Indian economy, it is important to ensure a harmonised and hassle-free investment experience for international investors and improve transparency as economic regulations evolve,” the committee said in its report released on Friday.
The Khan panel has recommended allowing FPIs to exceed their 10 per cent investment cap. “Given that FPIs do not exercise any control or influence, it is proposed that prohibition relating to foreign investments in certain sectors should be limited to FDI and not be extended to FPIs. However, such FPIs’ existing investments, including ADR and GDR, may not exceed 49 per cent,” the report says.
Also, sectoral investment caps applicable to FDI should not be applicable to FPI, the panel has proposed. It also said permission for FPIs to invest in units of real estate investment trusts (Reits), infrastructure investment trusts (InvITs), and alternative investment funds (AIFs) should be allowed through regulations. Currently, this is allowed only through a circular, which often leads to ambiguity.
The panel has also proposed that sovereign wealth funds
should be exempted from investment caps in corporate debt. FPIs can be allowed to invest in “to-be-listed” shares, it said, while deferring a decision on fully allowing FPI
investments in unlisted companies, citing certain risks. The panel has prescribed several relaxations when it comes to reclassification of investment from FPI
Another key proposal is to allow offshore funds floated by Indian mutual funds
to invest in India only through the FPI
route. The panel has also said participatory notes (p-notes) should be allowed to hedge both on a one-to-one basis or portfolio basis in derivatives listed in India.
As part of easing the registration process, the Khan panel has recommended fast-tracking on-boarding process, which includes know-your-client (KYC) formalities, for more set of investors such as public retail funds
or those intending to invest in central or state government securities.
The panel has also suggested that pension funds
or schemes that provide retirement benefits should be classified as Category-I investors, who are subject to least stringent regulations.
The panel has also said the broad-basing criteria can be relaxed for private banks or asset managers investing on behalf of their clients. Further, central banks even if non-bank for international settlements (BIS) should be allowed to invest as Category-I FPIs.
Regulating overseas investments is a sensitive issue. On the one hand, regulators have to provide friendly policies, on the other hand, they have to ensure that market integrity is not compromised by cross-border investors.
Besides deferring a decision on permitting FPIs to invest in unlisted companies, the panel has also said allowing FPIs to invest through domestic mutual funds (MFs) also needs mode deliberations. Sebi
will collect public feedback on the various proposals till June 14 and later take a decision on finalising them.