Though the Finance Minister announced measures for simplification of procedural norms and KYC to incentivise QFIs, traders feel there is still a long way to go.
The Finance Minister P. Chidambaram’s speech noted that there were many categories of foreign portfolio investors such as foreign institutional investors, sub-accounts, QFIs and there were also different avenues and procedures for them.
“Designated depository participants, authorised by SEBI, will now be free to register different classes of portfolio investors, subject to compliance with KYC guidelines,” announced the FM in his Budget speech. This would be implemented in consultation with the market regulator SEBI, he added.
The total investment done by qualified foreign investors till date has been to the tune of Rs 1,111 crore. Of this, investment into Indian equity shares was about Rs 673 crore while that into the Indian corporate debt sector was about Rs 438 crore.
Risk-based approach
According to him, SEBI will simplify the procedures and prescribe uniform registration and other norms for entry of foreign portfolio investors.
“SEBI will converge the different KYC norms and adopt a risk-based approach to KYC to make it easier for foreign investors such as central banks, sovereign wealth funds, university funds, pension funds to invest in India,” he added.
However, according to marketmen while the simplification norms would help make the administrative processes a lot easier, the overreaching issue of transparency in the taxation treatment of these QFIs was not addressed in the Budget.
“The main stumbling block in attracting QFI flows is that QDPs who have been made the custodian for them are not interested in offering these as they don’t wish to undertake risk just in return for a small fee. They should be given the same treatment from tax point of view as given to FII inflow and outflows. This issue was, however, not addressed in the FM’s speech today,” said Naresh Makhijani of KPMG.
Vice-Chairman and MD, Bajaj Capital, Rajiv Bajaj said: “While the announcement would simplify the administrative procedures for QFIs to come into India as today there are different set of procedures and KYC for different kind of investors. But whether it would serve the question of them making strategic asset allocation in India is unclear. It may prove beneficial for those companies which are already in India or have decided to enter. However I don’t think it would help attract new set of investors.”