Sebi may ease extra disclosure rules for foreign portfolio investors

Sebi is considering relaxing extra disclosure rules for FPIs with concentrated investments or very large Indian equity funds. The possible changes aim to distinguish genuinely small holdings from investments that could hide control or ownership. A consultation paper is expected to seek feedback on these ideas.

One proposal would set a low equity-holding threshold in a company. An FPI below that threshold might not disclose every investor, even if it focuses on one or two companies or a group. Another proposal would exempt concentrated investments in professionally run companies with no identifiable promoters and in public-sector undertakings.

The current rules apply when more than 50% of an FPI’s Indian equity assets are in one company or group, or when Indian equity AUM reaches ₹50,000 crore. Sebi has already exempted some categories, including sovereign and public retail funds. Any relaxation would reduce compliance for qualifying strategies while retaining scrutiny of larger or riskier holdings.

A foreign portfolio investor, or FPI, is an investor based outside India that invests in Indian financial assets, such as company shares, without taking direct operational control of the businesses. This answer uses the standard meaning of FPI; the article discusses FPIs mainly through their Indian equity holdings and ownership disclosures.

For example, an overseas fund might buy shares in several Indian companies. It could also follow a focused strategy and place most of its Indian equity assets in one company, two companies, or a corporate group. The fund’s Indian equity assets under management, or AUM, determine whether special disclosure rules are triggered.

The article does not describe how FPIs execute trades or their legal registration process. It does show that FPIs can have multiple investors, and that some rules require identifying the natural persons who ultimately own or control those investors. Common ownership or control across several FPIs can also combine their holdings for the thresholds.

Additional disclosure rules apply when an FPI’s Indian equity portfolio becomes highly concentrated or exceptionally large. The first trigger is concentration: more than 50% of the fund’s India equity assets under management must be invested in one company or a single corporate group. The second is scale: Indian equity AUM must be ₹50,000 crore or more.

For example, if most of a fund’s Indian equity portfolio is invested in one corporate group, it crosses the concentration test even if its overall AUM is below ₹50,000 crore. Conversely, a fund with ₹50,000 crore or more in Indian equities triggers the rules even without that concentration. Several FPIs with common ownership or control can also breach the limits together.

Once a threshold is crossed, the FPI must disclose ultimate beneficial owners down to the last natural persons. Sebi is considering a low holding threshold that could protect smaller company positions, even where a fund follows a focused strategy.

An ultimate beneficial owner, or UBO, is the natural person who ultimately owns or controls an investment, even when ownership passes through funds, companies, or other investors. The article says qualifying FPIs must reveal UBOs down to the last natural persons. This makes the real human ownership behind an investment structure visible.

For example, an FPI may have several institutional investors, and those investors may themselves be owned or controlled through other entities. Under the additional rules, the FPI must trace that chain to the individuals at the end. The requirement also applies when multiple FPIs share ownership or control and together cross the limits.

The purpose is stronger ownership transparency. The rules are aimed at preventing promoters or connected entities from using FPIs to mask concentrated holdings, avoid takeover norms, or bypass approval requirements linked to investments from countries sharing a land border with India. Certain sovereign, public retail, and university funds have been exempted.

If Sebi adopts the proposed relaxations, FPIs pursuing focused strategies could avoid the most detailed disclosure process for smaller holdings. The relief would matter because a fund can be concentrated in one or two stocks without necessarily holding a large enough stake to raise the same ownership concerns as a major position.

For example, an FPI focused on one company could remain below a new maximum holding threshold and avoid identifying every investor down to the final natural person. The proposed approach could also exempt concentrated investments in professionally run companies with no identifiable promoters and in public-sector undertakings. These are possible changes, not current rules.

The immediate consequence would be less compliance burden for eligible FPIs and more room to follow focused investment strategies. Larger holdings, major concentration, or structures that trigger the existing thresholds would still face additional disclosures unless Sebi changes those rules. The consultation paper is expected to invite feedback before any decision.

The article links Sebi’s additional disclosure regulations to allegations made by US firm Hindenburg Research against the Adani Group. The rules require greater transparency from FPIs whose Indian equity investments are unusually concentrated or very large. Their central concern is identifying the real people behind the investors in those funds.

Under the rules, an FPI must disclose ultimate beneficial owners down to the last natural persons if more than 50% of its India equity AUM sits in one company or group. The same requirement applies when its Indian equity AUM reaches ₹50,000 crore or more. Commonly owned or controlled FPIs can also be combined when testing the limits.

The article gives three stated aims: preventing promoters or connected entities from masking concentrated holdings through FPIs, stopping avoidance of takeover norms, and blocking circumvention of Press Note 3. Sebi is now considering rationalisation because focused funds can be caught by the detailed rules.

Detailed disclosures make the ownership behind an FPI visible. By identifying ultimate beneficial owners down to natural persons, regulators can connect a fund’s position with the people or entities that ultimately own or control its investors. This matters when several apparently separate FPIs may actually share ownership or control.

For example, promoters or connected entities could use multiple FPIs to hold concentrated positions while appearing less connected. Combining commonly owned or controlled FPIs helps regulators test whether their holdings cross the disclosure thresholds. The same ownership trail can expose attempts to sidestep takeover norms or disguise a holding that affects minimum public shareholding requirements.

The article also says the rules target circumvention of Press Note 3, which requires government approval for investments from countries sharing a land border with India. Disclosure does not itself prove a violation, but it gives regulators information to identify the people behind the investment and examine whether restrictions have been bypassed.