SEBI’s GIFT to ease market access to FPIs

The efficient approval procedures have led to an increase in the number of FPIs in 2018

The Securities and Exchange Board of India (SEBI) has implemented several significant initiatives to offer easy market access to foreign investors to trade at stock exchanges set up at the International Financial Services Centre (IFSC), located at Gujarat International Finance Tec-City (GIFT).

The market regulator has not only reduced the compliance burden but has also introduced a single application form for FPI registration and eased broad-basing norms, among other measures.

These regulatory initiatives are aimed at attracting more foreign investors to trade on GIFT IFSC exchanges.

SEBI has overhauled rules for offshore investors and has simplified the process for registering as a foreign investor in India. Foreign investors who have already registered as foreign portfolio investors (FPIs) can make investment at GIFT IFSC without undergoing multiple approval processes.

The efficient approval procedures and easier regulations have led to an increase in the number of FPIs in 2018.

Foreign investors and equity

Besides, the advancement of technology, increase in securities trading volume, global liquidity flows and development of Central Securities Depository (CSD) have resulted in the evolution of structures with intermediaries holding securities on behalf of beneficial owners through the concept of segregated and/or pooled nominee accounts.

It is in this perspective that SEBI analysed several global models for easing market access for foreign investors in GIFT IFSC, before introducing the Segregated Nominee Account Structure (SNAS) through its circular dated May 24, 2018.

The ability to invest via SNAS is expected to bring foreign investors back to Indian equities. SNAS facilitates easy access for foreign investors to trade on GIFT IFSC exchanges through established intermediaries, quick on-boarding of clients, margin funding by providers for their clients through agreements and decrease in transaction costs due to lower overhead and compliance requirements.

AIFs route

IFSC could emerge as a bright spot for private equity funds and venture capitalists with the SEBI allowing alternative investment funds (AIFs), a product category for the affluent investors, to operate from GIFT City. AIFs are instrumental in attracting global liquidity flows for growth and development of the Indian economy.

Emerging markets have significant growth potential and have become the preferred destination for global investors who would like to diversify their portfolio. Currently, there are over 500 AIFs registered with SEBI. Funds committed to be raised by AIFs in India increased to about $27.6 billion (June 2018) from $14.8 billion (June 2017) — up over 87 per cent.

Actual funds raised by AIFs doubled to $15 billion during the same period. This is indicative of the excellent growth potential for AIF industry in India and GIFT IFSC.

GIFT IFSC also provides competitive advantage in terms of tax structure that includes waiver of security transaction tax, commodity transaction tax, dividend distribution tax, capital gains tax and GST.

For entities set up at IFSC, additional tax waivers are applicable such as graded income tax holiday for first ten years, one-time subsidy on IT capex spend, no stamp duty, etc.

With several key regulatory reforms implemented to attract foreign investors, GIFT IFSC is on the threshold of emerging as a leading International Financial Services Centre on a par with Singapore, Hong Kong, Tokyo and Dubai in the years ahead.

The writer is Head-Research, India INX

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