India market regulator proposes more disclosures from ‘high-risk’ foreign funds

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India’s capital markets regulator proposes to seek more disclosures from foreign funds with large holdings in local stocks or companies, amid criticism about lack of oversight over inflows into sprawling conglomerates such as the Adani Group.

The Securities and Exchange Board of India (SEBI) in a consultation paper on Wednesday defined ‘high-risk’ foreign portfolio investors and said these funds must comply with additional disclosure requirements within six months after the norms are implemented. Comments are invited through June 20.

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The funds would need to submit ownership details including who holds economic interest and control rights.

“Some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee company,” Sebi said. “Such concentrated investments raise the concern and possibility that promoters of such corporate groups, or other investors acting in concert, could be using the FPI route to bypass regulations and manipulate stock prices,” the regulator added.

The proposals follow a report by US short-seller Hindenburg Research, which had led to criticism that SEBI didn’t do enough to track who ultimately owns the cash flowing from Mauritius-based funds into Adani companies. The conglomerate had at one point lost more than $100 billion of its market value following the allegations, which it has repeatedly denied.

Hindenburg had alleged that a web of foreign funds mainly based in tax havens — with murky ownership details — had been investing in Adani companies, pumping up stock prices and allowing billionaire Gautam Adani more room for leverage. Adani has denied the allegations and a committee appointed by India’s Supreme Court said in an interim report it doesn’t see regulatory failure or signs of price manipulation in the rise and fall of the Adani stocks.

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