Macro Moves

Why SEBI asked custodian banks to submit details of Chinese FPIs?

Created on 20 Apr 2020

Wraps up in 3 Min

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Updated on 31 Aug 2020

SEBI has asked custodians to submit details of Chinese FPIs.What’s pushing SEBI to do this?
Have you ever observed a group of Hyenas hunting? They have a cunning modus operandi. They divide into small groups and instead of stalking a fresh prey, they try to spot a an animal who has already hunted. Then they reach their prey (an animal who is enjoying its hunt). A small group of Hyenas tries to provoke the hunter. It Also tries to take a portion of its prey. Then, when the hunter gets irritated and tries chasing them down, the other group comes, steals and runs away with the hunt.

Now compare the hyena with China. While the world is struggling combatting Coronavirus (that started from China), China is reportedly trying to increase its stake in some companies. Securities and Exchange Board of India (SEBI) may have found it fishy and is hence collecting details about China’s recent investments in Indian stock markets.

 What Exactly Happened?

Things are going against China with the increasing effect of Coronavirus and that is bound to be because of the actions China is taking. Few reports are also claiming a clear Chinese conspiracy to become the world’s largest superpower defeating America. This has an economic angle as well. It’s quite logical that if the Chinese firms increase their stakes in good companies at such attractive valuations, they will be benefitted big time.

Hence, a communication came from the Government of India that the regulator should increase its scrutiny over investments coming from China and Hong Kong. And then, SEBI straightaway set to action and made a special request to the custodians to submit details of Chinese FPIs (Foreign Portfolio Investor) or where a Chinese investor is a beneficiary.

A Rare Act

What happened till now is that the custodians had to do a periodic reporting regarding ultimate beneficiary of Foreign Portfolio Investor. Or, they reported when SEBI asked for it. But this time things are different. This is a rare occasion where SEBI has specifically asked for details of Chinese FPIs and beneficiary Chinese investors. The seriousness of the situation can be understood from the communication sent to custodians.

According to a news report the communication said “Urgently provide list of FPIs whose beneficial owner is from China and list of FPIs whose beneficial owner is from Hing Kong.” The issue ignited after HDFC Limited recently reported that People’s Bank of China has increased its stake in the company through open market purchases.

Behind the Suspicion

There’s no doubt that China possesses a greatly efficient production facility and hence companies all over the globe get their goods produced in China. But, the Coronavirus outbreak and China’s actions have forced the countries to think. Japan has already declared a heavy monetary package for its companies and asked them to shift their production from China. While the reports keep pouring in from the American media and elsewhere about China conducting a small nuclear test or accidental spread of virus from its Wuhan based Virology lab, India had to be cautious. Therefore this move by SEBI may save the companies from Chinese acquisition.

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