SEBI Keeps Close Eye on Chinese Investments

The Securities and Exchange Board of India (SEBI) has issued a fresh notice to the custodians seeking details of investments, especially those coming from China or via China into Indian stock markets.

Presently, the custodians have to do periodic reporting of ultimate beneficiary of a Foreign Portfolio Investor (FPI) or when SEBI asks for it. 

It all happened after government clarified that the regulator should increase its scrutiny of investments coming from China and Hong Kong. Significantly, the SEBI was awaiting clarity from the government on how to look at Chinese investments.

While, the SEBI’s initial intent was to increase scrutiny of only new FPIs coming from China and other neighbors of India, it has now changed its focus to existing investments as well.

“Urgently provide list of FPIs whose beneficial owner is from China and list of FPIs whose beneficial owner is from Hong Kong”, the SEBI’s communication letter to the custodians reads.

The equity indices have been falling sharply across economies as the world grapples with the covid-19 pandemic. This has made many bellwether stocks cheaper and affordable for both domestic and foreign investors.

On April 12, 2020 , soon after the HDFC Ltd revealed that People’s Bank of China (PBOC) had raised its stake in the Indian lender to 1.01% from 0.8% in March quarter through open market purchases, many began voicing concerns whether some of these stocks had become susceptible to acquisition, using open market transactions, through the foreign portfolio investor (FPI) route.

There are a total of 16 Chinese FPIs registered in India with $1.1 billion invested in top-tier stocks. The exact level of China's investment through direct and indirect (beneficial ownership) route is not in public knowledge.

SEBI and depositories disclose only top 10 jurisdictions which invest in India, and China is not one of them.