Driving investor demand with India’s Foreign Portfolio Investor regime

Often perceived as bureaucratic, India has seen major changes to its foreign institutional investor (FII) regulations following a major revamp in June 2014. In merging FII, sub-accounts and qualified foreign investors, the Securities and Exchange Board of India (SEBI) introduced a single investor class under a new foreign portfolio investor (FPI) regime that has considerably eased the process for foreign investors to access the growing Indian capital markets. This opening up has been positively received by global investors, who have multiplied their investments in the country.

Under the old system, FIIs had to go through multiple bureaucratic procedures before they could obtain a licence to invest in Indian capital and debt markets. This process had put off several large institutional investors from looking at India as an investment destination.

“Just a few years ago, it used to take a long time for a foreign investor to get a trading licence,” says Sanjay Singh, Head of Global Markets at BNP Paribas India. Onboarding was a time-consuming and complicated process, which often took several months to complete.

Key milestones with respect to the FPI regime

Destination India

Within 14 months of introducing the new regime, over 1,000 fresh FPIs had registered. Five years on, there are now more than 9,000 FPIs registered in India, marking a noteworthy milestone. According to Christophe Beelaerts, Chief Executive of BNP Paribas Securities Services India, the smoother entry process and onboarding experience has led to a significant fall in waiting time “from several months to around four to six weeks, which is quite an achievement”. This is a boon for investors.

FPIs continue to show interest in Indian markets following a series of further regulatory easing in December 2017, which has boosted the inflow of capital from emerging and frontier markets. Clients no longer need to apply to the regulator to get an FPI licence or change their custodian. Now they can approach a SEBI-authorised Designated Depository Participant (DDP) like BNP Paribas Securities and within four weeks, the FPI can go live for trading. The revised process gives powers to the incumbent and new custodian to approve the migrations without needing SEBI intervention.

What’s next?

India continues to be an attractive investment destination for global investors, as the Indian government, SEBI and the Reserve bank of India (RBI) continue the process of evaluating and easing regulations to ensure easy access to the Indian capital markets. 

There is a need for a simple common application form for all new FPIs, striking out the lengthy, burdensome process that foreign investors must currently undergo. A common application form would eliminate a lot of paperwork, reduce duplication and further ease the process of FPI access to India’s capital markets. These new rules are expected to be introduced in the first half of 2019.

There is no doubt these new regulations make life much easier for investors. “Everything is much more streamlined,” says Beelaerts. “The custodian, rather than the regulator, is in charge of compliance and KYC. The real, tangible benefits have been felt by the client and the foreign investor is keener than ever to put their money in India.”