At a time when foreign institutional investors (FIIs) have been circumspect about the Indian stock market, the Securities and Exchange Board of India (SEBI) has given comfort to them as well as domestic investors to bolster the capital markets. The market regulator’s strategy is interesting. With the realisation that the secondary market doesn’t seem to be going anywhere whereas the mood in the initial public offering (IPO) segment is robust, it has taken a two-pronged approach. One, as reports suggest, it is working on cutting down the IPO clearance tenure by 50%—from six to three months. One can expect as much as Rs 1.8 lakh crore worth of issues to hit the market, and even more, if companies apply aggressively. Two, to ensure that these issues are well subscribed, SEBI has given more institutional heft and relief to issuers, by increasing the anchor investors’ limit to 40% and bringing pension funds and insurers into play.
More options for issuers and investors
The good news: The portion for retail investors has been left unchanged at 35%, after the market regulator received feedback to this effect. As SEBI Chairman Tuhin Kanta Pandey explained on Friday, it has been addressed by changing the minimum public offer (MPO) for issues with post-issue market capitalisation of Rs 50,000 crore and more—from 5% to a 2.5-2.7% structure. This is good news for companies like NSE and Reliance Jio which are expected to come up with listing plans shortly. In addition, it has given such companies a longer timeline—up to 10 years under certain circumstances—to meet the 25% minimum public shareholding (MPS). There seems to be a significant change in stance as well, with focus on accredited investors and FPIs. So, FPIs and foreign venture capital investors with a tag of “trusted foreign investors” have been given a host of benefits.
The regulator said sovereign wealth funds and overseas retail funds will be able to access domestic market via an automatic window. This single clearance window enables simplified registration across multiple investment routes and reduced compliance requirements. According to SEBI’s assessment, this rule will cover 70% of 11,913 registered FPIs. Clearly, the market regulator is not against “money making but not seeking market manipulators” after its tussle with US market maker Jane Street—a case that is being reviewed by the Securities Appellate Tribunal. At the same time, alternative investment funds (AIFs) have been allowed schemes specific for domestic accredited investors and classified as AIs and large value funds for regulatory benefits. Real estate investment trusts have got a significant leg-up after being classified as equity, giving them an opportunity to become part of mainstream indices.
Ease of doing business in advisory
From the perspective of ease of doing business for investment advisors (IAs) and research analysts, it has relaxed registration norms, eliminating requirements for address proof, CIBIL reports, and infrastructure details. Graduates from any stream can now apply, subject to certification. IAs may also offer second opinions on pre-distributed assets and charge advisory fees within prescribed limits, provided clients are informed of dual charges. They can also share past performance data in one-on-one communications, subject to certification and a two-year regulatory window. The market regulator, while protecting retail investor interest, is encouraging sophisticated investors—both domestic and FPIs—to enter Indian markets more aggressively. It would be interesting to see if these relaxations, along with the goods and services tax boost, can change the market mood.