India finance ministry tries to calm investors as SEBI rule changes spook markets
Photo Credit: Reuters

Overseas investors of Indian origin are allowed to buy up to 5 percent in any security under current regulations, India's economic affairs secretary Subhash Chandra Garg said on Tuesday, in a bid to calm markets after recent regulatory changes.

Markets fell for the second straight day as fresh concerns emerged over an April circular from the Securities and Exchange Board of India that said foreign investment rules for companies of Indian origin had been tightened.

The guidelines say a company majority owned by non-resident Indians (NRIs) or persons of Indian origin (PIOs) will not be allowed to invest as a foreign portfolio investor (FPI) in the country, and SEBI has directed that such funds should be closed or their ownership structure changed by the end of December.

According to a source familiar with the matter, policymakers informally told some investors that there was little chance of the new guidelines being relaxed, which fueled the markets' plunge.

Garg reiterated that companies majority-owned by non-residents Indians will not be allowed to invest and manage foreign funds, indicating that any relaxation of the guidelines was unlikely.

Lakshmi Iyer, fixed income head at Kotak Mutual Fund said, "the overhang of this news is acting as a catalyst and aggravating the already battered market sentiment."

On Tuesday, the Indian rupee fell to a record low of 71.58 to the dollar while the benchmark 10-year bond yield rose up to 8.07 percent, its highest since Dec 2, 2014. The broader NSE stock index closed down 0.54 percent.

Fear of contagion from the economic woes in Argentina and Turkey have driven investors away from emerging markets, and the rupee is the worst performing emerging Asian currency, having lost nearly 11 percent of its value this year.

And investors in India were further alarmed on Tuesday by a statement released by Asset Manager's Roundtable of India (AMRI), a group of fund managers that represent institutional investors, including those of Indian origin based abroad.

AMRI warned that SEBI's new guidelines cast a shadow over $75 billion worth of foreign funds that are managed by Indians, and makeup nearly 17 percent of the total $450 billion of existing foreign portfolio investments.

SEBI swiftly responded with its own statement, saying "it is preposterous and highly irresponsible to claim that $75 billion of FPI (foreign portfolio investors) investment will move out of the country because of SEBI's circular issued in April 2018."

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