Sebi's discussion paper on FPI regulations does a good job at harmonising related circulars and clarifications at one place, while addressing the core concerns that restrict FPI participation. The market watchdog has recommended simplifying the registration process, easing of KYC norms and widening the scope of FPI investments. If things go as they seem, the 10 per cent FPI limit on investment in listed stocks could be hiked; sectoral caps could also be revised.
FPIs will be allowed to invest in unlisted companies ahead of their initial public offerings. Besides, regulations could be relaxed to invest in real estate investment trusts, infrastructure investment trusts, and alternative investment funds. Besides, FPI classification across three categories could be rationalised. For one, pension and other well-regulated funds will be moved to category-I and category-III FPIs in low-risk jurisdictions could be moved to category-II.
Sebi has also put out a couple of unresolved issues for further discussion. For example, whether two categories (FDI, FPI) of foreign investors should be clubbed in one and if FPIs should be allowed to invest in unlisted companies. Broadly, the proposals appear friendly for FPIs and may attract more flows but can also increase volatility with 'hot money' moving in and out at its whims and fancies.