India regulator bets on trading reforms to reverse foreign capital flight

Mumbai: India's market regulator, the Securities and Exchange Board of India (SEBI), is planning to overhaul its rules and address soaring outflows of foreign funds, according to three sources. The changes, if approved, could help boost India's standing in global stock market indexes. Currently, foreign ownership of Indian stocks is at a 17-year low, and the rupee has been performing poorly, ranking among Asia's worst performers due to concerns about higher imports and low capital flows.

The proposed reforms include lowering collateral requirements in cash equities and encouraging longer-dated derivatives. These measures aim to alleviate practical issues faced by investors, as per Steve Lawrence, CIO of Balfour Capital Group. The regulator plans to implement the changes within nine months after consulting with industry stakeholders and giving market participants time to adapt.

India aims to increase its weightage in global stock market indexes, and the proposed reforms could positively impact its ratings and re-ratings. Foreign investors have been seeking these reforms for a while to bring India in line with major regional markets like China, South Korea, and Taiwan. The reforms may also help attract larger foreign institutional capital, including passive funds, making it easier for global investors to invest in India long-term.