The market regulator Securities and Exchange Board of India (SEBI) has issued fresh communication to custodians seeking details of investments specifically coming from China or through China into Indian stock markets.
According to the reports, the SEBI has asked custodian banks to disclose details of ‘ultimate beneficial owners’ of foreign portfolio investors (FPIs) based in China and Hong Kong. The communication to custodians said, “Urgently provide list of FPIs whose beneficial owner is from China and list of FPIs whose beneficial owner is from Hong Kong.”
SEBI’s initial intent was to increase checks of only new FPIs coming from China and other neighbours of India. With Chinese investments entering into Indian markets, the SEBI is now cautioned and has now changed its focus to existing investments as well.
SEBI’s warning comes after Chinese raised investments in HDFC
The direction issued by SEBI to custodians comes as an immediate reaction to People’s Bank of China (PBOC) buying a little above 1% stakes in HDFC. The People’s Bank of China (PBoC) purchased 1.75 crore shares of HDFC. HDFC is one of India’s leading housing finance company and traditionally considered as one of the blue-chip stocks by most institutional investors.
Even though such share acquisitions are routine, it had raised some serious concerns about China looking to enter the Indian stock market to tighten its grip by taking advantage of the fall in stock prices in the country.
Following the scare, the SEBI had asked custodians to increase its scrutiny of investments coming from China and Hong Kong. The custodian companies, which are typically MNC banks and arms of Indian financial services groups handling fund and securities of FPIs registered with SEBI, maintain records of Ultimate Beneficial Owner (UBOs) of all investors owning 25% or more in an FPI.
Ultimate Beneficial Owner refers to the individual, who ultimately owns or controls a customer on whose behalf a transaction is being conducted.
1 Billion dollar worth of Chinese investment in Indian stocks
Reportedly, there are a total of 16 Chinese FPIs registered in India with $1.1 billion invested in top-tier stocks. However, the exact level of China’s investment through direct and indirect route is not in public knowledge. According to asset managers, it has been difficult to keep a track of investments from China and Japan.
Some of the big FPIs from China include PBOC, CIFM Asia Pacific Fund, China International fund management, Best Investment Corporation and Asian Infrastructure Investment. Some of these funds are also joint ventures with US-based asset managers.