Adani-Hindenburg impact: SEBI paper seeks enhanced transparency measures for foreign portfolio investors

The primary objectives behind these proposed disclosures are to prevent potential circumvention of the Minimum Public Shareholding (MPS) regulations and to safeguard against any potential misuse of the FPI route.

“Such concentrated investments raise the concern and possibility that promoters of such corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements such as that of maintaining Minimum Public Shareholding (MPS). If this were the case, the apparent free float in a listed company may not be its true free float, increasing the risk of price manipulation in such scrips,” the paper said.

"No additional disclosures will be needed for existing FPIs in process of winding down investments," it said.

The additional disclosure would include granular data of all entities with any ownership, economic interest, or control rights on a full look –through basis, up to the level of all natural persons and/ or Public Retail Funds or large public listed entities” the SEBI paper said.

SEBI seeks comments on consultation paper latest by June 20, 2023.

Commenting on the development, SK Hozefa, CEO at Tradeplus Online said it is a good move by the market regulator to make investing safer in Indian markets.

"Foreign investors putting a lot of their money in just one company or group of companies can be risky. Now these investors need to provide critical information about who owns the money, how much control they have and their interests in those funds. This additional data will bring to light the foreign investors and companies using this route to bend the rules or manipulate stock prices. When investors have too much money in one place, it can affect the true value of a company's shares making it easier for them to bypass the system," Hozefa said.

With more information available, retail and institutional investors can make smarter and safer choices understanding the potential risks involved, thus protecting their investments.

Last week, Supreme Court (SC) panel found that Sebi suspects 13 foreign funds invested in the Adani Group may have links with the promoters. The latest report from the Supreme Court panel revealed that the SEBI investigation into the Adani Group shareholding has been on since October 2020 but there's no conclusive evidence yet in favour of the Adani Group or against it.

Fund managers have reportedly pruned their exposure to crisis-hit Adani Group stocks. Adani Ports and Special Economic Zone topped the list of most-sold large-cap stocks by domestic mutual funds in February. Ambuja Cements and Adani Enterprises were also among the top five large-cap companies that witnessed selling by MFs.

Around 20 mutual funds have invested in Adani Group companies and total market value of their investment reportedly is estimated at around Rs 23,000 crore as of December 2022.