Allow smooth passage of FII funds: Bhave

Allow smooth passage of FII funds: Bhave
The Economic Times, December 07, 2009, Page 1

Shaji Vikraman & Santosh Nair MUMBAI

NET foreign fund inflows into Indian equities is nearing a record high, but concerns of restrictions on portfolio flows may have been exaggerated. Securities and Exchange Board of India (Sebi) chairman CB Bhave is of the view that unless foreign portfolio investors are allowed entry and exit without being hobbled, it would be difficult to attract foreign investments into equities. In an interview to The Economic Times, Mr Bhave said the massive inflows this year have to be viewed in the context of net outflows in 2008 and as such, net dollar inflows were within a manageable limit.

“We can only ensure that the necessary KYC (know your client) norms have been adhered to. But we can’t say only that capital is allowed which will not go out in two months,” said Mr Bhave.

With more portfolio investors coming through the front door, or in other words, opting to register directly, he also doesn’t see the need, at least in the near term, to tweak the participatory note, or PN, regime. PNs are derivative instruments which derive their value from the underlying shares of Indian firms and are issued by foreign portfolio investors to overseas investors or entities who may not wish to invest directly. Mr Bhave, however, said those FIIs that issue PNs without following proper KYC norms would be penalised.

Topping the list of priorities for the capital markets regulator is reducing the time taken to list after the issue closure to seven days from the current 20. The regulator is also trying to extend the application supported by blocked amount (Asba) facility to institutional investors and high net worth individuals. This would then speed up the process to make it mandatory for institutions to pay 100% margin while applying for IPOs. “Extension of the Asba facility and cutting the time taken for listing are key since institutional amounts are huge and if you keep them blocked for a considerable time, there will be issues,” said Mr Bhave.

The regulator, he said, was also considering tightening the norms for mutual funds to lower concentration of risks owing to a few investors holding a large chunk of investments, and to ensure that no single investor holds more than 25% in a single scheme. Since October 2008, Sebi has put stringent rules in place, including abolishing the entry fee, or the load for investors in mutual funds, and other measures aimed at preventing a systemic crisis.

On the contentious issue of extension of trading hours, the regulator is content to play the role of a facilitator rather than taking a view. “Let the industry decide, we are not getting into it,” the Sebi chief said.