Summary of this article
SEBI is reportedly looking to relax strict disclosure rules for offshore funds.
Strict transparency mandates caused major compliance hurdles for investors.
Tweaked regulations aim to revive foreign portfolio investments locally.
India is changing the regulatory framework for its securities market to increase its appeal as a lucrative destination for global capital. The Securities and Exchange Board of India (Sebi) is likely to relax disclosure requirements for high-risk offshore funds.
What Are Sebi's Disclosure Requirements For Offshore Funds
Earlier in 2023, Sebi implemented stringent transparency mandates for foreign investors. These norms were introduced amidst Sebi’s regulatory scrutiny of the Adani Group following allegations of stock manipulation by short-seller Hindenburg.
Notably, the disclosure norms were introduced to curb offshore vehicles from holding opaque and concentrated investments in domestic companies. Under the disclosure framework, funds holding more than 50 per cent of their equity assets in a single corporate group were classified as high risk. Upon being categorised as high risk, these entities are subjected to detailed requirements to disclose their ownership.
These regulations resulted in compliance hurdles for several global investors, such as Generation Investment Management, a $25 billion sustainability fund which filed a legal appeal against the rules earlier this year. The firm argued that thematic funds often enter India by investing in a single stock. This strategy automatically breaches the concentration threshold and affects their discretionary decision making process.
Apparently, Thai Union Group PCL also faced similar challenges over an investment made in a single Indian firm. Thai Union opted to sell part of its stake to resolve the issue but was penalised by Sebi, a decision the company is currently contesting in court.
Why Is Sebi Changing Its Disclosure Requirements
Sebi is taking a relook at the disclosure requirements to ease the entry of foreign institutional capital into India.
According to a report by Reuters, Sebi is looking to tweak the rules by offering grace periods of six months to a year for new funds, raising the concentration limit, and broadening the list of exempt jurisdictions. These changes are expected to spur the return of foreign portfolio investors (FPIs) who have pulled out significant capital from Indian equity markets in 2026.
By removing the compliance for legitimate foreign funds, the country can potentially ensure a steady and reliable inflow of international capital. Robust foreign investment enhances market liquidity, supports the valuation of domestic enterprises, and provides the necessary funding for corporate expansion projects.
On the other hand, for domestic retail and institutional participants, the return of foreign capital is expected to provide greater market depth and help reduce market volatility.
