Access India: Simpler and faster
India has undergone significant structural changes in recent years and it is presently one of the world’s fastest growing economies.
Executive Director, Head of India Securities Services Business
The World Bank is forecasting GDP growth of 7.2% for 2017-2018, and this is likely to increase to 7.7% in 2019-2020.(1) Assuming growth trajectory continues to trend higher, India’s economy is poised to overtake Japan, Germany, France and the UK by 2030. (2) Meanwhile, analysis by PricewaterhouseCoopers (PwC) predicts India will be the second largest economy after China by 2050, pushing the US into third position. (3)
A prudent mix of monetary and fiscal policies, along with efforts by policymakers to pursue difficult but growth-enhancing reforms (i.e. Goods and Services Tax [GST], demonetization, bankruptcy legislation) have helped reaffirm investor confidence in India.
For return opportunities to be realized by investors, simpler access channels into the Indian market are a prerequisite. This has already been enabled and further changes around India access are in the pipeline. Currently, foreign investors can access India’s onshore market through two major routes - Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI).
FDI is a mechanism for long-term strategic investments into India. Over the past three years, FDI regulations have been liberalized across various sectors including defence, commodities, and others. This has resulted in a doubling of gross FDI flows into India to $60 billion in the last five years alone.
The foreign portfolio investment scheme: Easier registration, more to come
The Securities and Exchange Board of India (SEBI) – through FPI – widened the categories of investors who are permitted to access the market, to include corporates, family offices and individuals, in addition to major institutions. The FPI regime has eased the process and timeframes for investors to enter the market by allowing licensed Designated Depository Participants (DDP) such as Standard Chartered Bank to conduct due diligence procedures and issue registration certificates to FPIs on behalf of SEBI.
The level of documentation required varies per investor depending on the Category of registration. Fewer documents need to be supplied by regulated entities under Category-1 and Category-2 than by unregulated entities under Category-3. For example, a state-backed wealth fund will be subject to less rigorous documentation and Know Your Customer (KYC) obligations than a family office.
As a leading custodian in India, Standard Chartered - along with other market participants - have been advocating for increased simplification of the FPI registration process. SEBI recently released a consultation paper, which proposes further easing the means by which FPIs can invest in the market. These include:
1) Expansion of eligible jurisdictions for granting of FPI registration to Category-1 FPIs by including countries which have diplomatic tie-ups with India
2) Simplification of broad-based requirements
3) Permitting appropriately regulated private banks/merchant banks to invest on their behalf and also on behalf of their clients.
4) Expansion of entities such as broker dealers and swap dealers to be considered as “appropriately regulated persons”.
Ready to participate
India’s strengthening macro fundamentals have created significant positive investor sentiment, with a PwC survey stating that 67% of global FPIs identified the country as a preferred emerging market destination. A separate CEO survey – also by PwC – acknowledged the country to be the ninth most important market overall for growth prospects. (4)
As a bank that looks after the interests of global custodians, broker-dealers, hedge funds, corporates, sovereigns, asset managers, insurance companies both in the domestic market and internationally, Standard Chartered is well positioned to help institutions access India through its state of the art, customized technology and expertise
(1) World Bank Press Release – India’s Economic Fundamentals remain strong; investment pick-up need for sustained growth, says new World Bank Report
(2) Hindustan Times – India’s economy to become 3rd largest, surpass Japan, Germany by 2030
(3) PwC – The World in 2050
(4) PwC – Foreign Portfolio Investor Survey 2016-2017
About the Authors
Vikas Tandon, Director, Head of India Securities Services Products. Vikas has more than 15 years of experience, with majority of his career spent in Securities Services. He currently manages various products for the Securities Services business in India. He is also responsible for new product development, and delivery of cross-border solutions to foreign and domestic investors.
Chaitanya Joshi, Executive Director, Head of India Securities Services Business. Chaitanya has 17+ years of widespread experience across Wholesale Banking and handled leadership roles across Relationship Management and Securities Services. He has been leading the sales team for 7 years.
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