At a time when foreign money has been steadily leaving Indian markets, the Securities and Exchange Board of India (Sebi) has stepped in with a small but important change. The idea is simple, i.e., make trading easier and cheaper for global investors, and hopefully bring back some confidence.
The regulator has allowed large foreign portfolio investors (FPIs) to settle their trades on a net basis, reported Reuters.
Until now, investors had to settle each buy and sell trade separately. This meant higher funding needs and more complex transactions. With net settlement, they can offset buy and sell positions, reducing the amount of money required for each cycle.
In simple terms, it makes trading smoother and less costly.
The timing is not accidental. Indian equity markets have been witnessing heavy outflows, with foreign investors pulling out significant funds in recent months.
In fact, FPIs are on track to record their highest monthly outflows since October 2024. This has put pressure on both stock prices and overall market sentiment. The sharp outflows suggest that global funds have been pulling back due to a mix of factors such as rising global interest rates, a strong US dollar, and geopolitical uncertainty.
This shift has weighed on Indian markets, even though domestic investors have helped cushion the fall to some extent.
By easing rules, Sebi is trying to make India a more attractive and efficient market for global investors.
Further, market participants had flagged several issues with the earlier system. The gross settlement mechanism meant every transaction had to be funded individually. This led to higher capital requirements, especially for large investors dealing in high volumes.
It also resulted in inefficiencies, increased trading costs, and even foreign exchange losses due to constant currency conversions.
However, the new rule is expected to ease this pressure significantly.
Meanwhile, by lowering costs and simplifying processes, Sebi hopes to improve participation and make markets more efficient.