India’s market regulator is expected to deliberate and potentially approve a proposal to raise the disclosure threshold for foreign portfolio investors (FPIs) from the current ₹25,000 crore to ₹50,000 crore, according to a source familiar with the development. This proposal comes amid rapid growth in capital markets and aims to recalibrate regulations in line with market realities.
Invest in Indian Markets and Unlock Future Potential With 5paisa!Background: Press Note 3 and its Impact
The existing disclosure norms stem from Press Note 3, introduced in 2020, which increased scrutiny on foreign investments originating from countries sharing land borders with India. This directive was designed to prevent opportunistic takeovers and protect domestic companies from foreign influence, particularly from nations such as China and Pakistan.
An August 2023 circular mandated FPIs with equity assets under management (AUM) exceeding ₹25,000 crore, or holding more than 50% of AUM in a single corporate group, to disclose full details of ownership, economic interest, and control. The proposed revision would raise only the size threshold, keeping the concentration criteria unchanged.
Market Dynamics Prompting Regulatory Review
The Securities and Exchange Board of India (SEBI), chaired by Tuhin Kanta Pandey, is scheduled to review the proposal at its March 24 board meeting. This follows a consultation paper issued in January 2025.
SEBI’s move is influenced by the doubling of capital market turnover between FY23 and FY25. The National Stock Exchange (NSE), the country’s largest exchange, saw its average daily turnover jump 122%, from ₹53,434 crore to ₹1,18,757 crore. Given this dramatic rise, regulators believe that the existing ₹25,000 crore threshold no longer accurately reflects market scale.
Objective of the Proposed Change
The intended revision aims to strike a balance between transparency and practicality. By increasing the threshold, SEBI hopes to reduce the compliance burden on smaller FPIs while continuing to maintain robust oversight of significant market participants. This shift aligns disclosure requirements with the broader growth in market activity and capital inflows.
Efforts to Prevent Regulatory Arbitrage
In December, SEBI addressed potential regulatory arbitrage involving Offshore Derivative Instruments (ODIs) and FPIs operating segregated portfolios. It mandated that equity and ODI positions be aggregated when assessing compliance with disclosure thresholds. However, certain entities, including some government-owned funds, remain exempt from detailed disclosures.
Broader Implications and Market Reactions
India’s growing appeal as an investment destination has contributed to the rapid influx of foreign capital. Amid global realignments and increased interest in emerging markets, the revised norms reflect SEBI’s intent to foster investor confidence while safeguarding market integrity.
Market participants have largely welcomed the proposed threshold hike, citing it as a logical response to evolving market conditions. Meanwhile, investor advocacy groups emphasize the continued need for effective oversight to detect indirect control or concentrated influence within Indian corporates.
Awaiting SEBI’s Official Stand
The final decision rests with the SEBI board, and a formal response to queries remains pending. The outcome of the March 24 meeting will be closely watched by investors, regulatory analysts, and market observers alike.
