FPIs trim holdings ahead of deadline on concentrated holdings

Sub :Eco

Sec : Capital market

Context:

Foreign portfolio investors are given a September 9 deadline by SEBI to offload their India holdings that breach the regulator’s norms for concentrated holdings.
Non-compliant FPIs that offload their holdings post this date will be levied a penalty of 5 percent on their sale proceeds.

Holding Norms

In a circular issued in August last year, SEBI had listed out two criteria for concentrated holdings.
This included FPIs holding more than 50 per cent of their Indian equity assets under management in a single Indian corporate group or FPIs that individually, or along with their investor group, holding more than ₹25,000 crore of equity in Indian equities.
Such FPIs had to provide granular details of all entities holding any ownership, economic interest or exercising control in the FPI.

Foreign Portfolio Investment (FPI)

It consists of securities and other financial assets passively held by foreign investors.
It does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market. Therefore, it is also called Hot money.
It is part of a country’s capital account and is shown on its Balance of Payments (BOP).
Examples of FPIs include stocks, bonds, mutual funds, exchange traded funds, American Depositary Receipts (ADRs), and Global Depositary Receipts (GDRs).

Foreign Direct Investment (FDI)

It is an investment made by a firm or individual in one country into business interests located in another country.
It lets an investor purchase a direct business interest in a foreign country.
Example: Establishing a subsidiary in another country, acquiring or merging with an existing foreign company, or starting a joint venture partnership with a foreign company.