India’s Moment to Shine: Connectivity and investment flows transform the post-trade landscape
Economic growth has bypassed most countries lately, but India is one of the few exceptions. Strong fundamentals and market-friendly reforms strengthen the country’s reputation as a place to do business.
India’s economy moves in the right direction
In this low global growth environment, India stands apart. Despite grappling with high inflation – a problem most major economies are facing – the Asia Development Bank (ADB) is forecasting that India’s GDP will top 6.4 per cent in 2023, rising to 6.7 per cent in 2024, off the back of rising private consumption, strong infrastructure investment, a reduction in the numbers of non-performing loans sitting on bank balance sheets and widespread corporate deleveraging.1
The government is also looking to stimulate the economy by turning the country into a regional financial hub. The government’s latest budget contains several incentives designed to strengthen the International Financial Service Centre (IFSC) at GIFT City, which some believe could one day compete against the likes of Singapore, Hong Kong and Dubai.
Highlights here include extending the tax benefits available to investment funds moving to the IFSC at GIFT City, delegating powers to the International Financial Services Centres Authority to prevent dual regulation, and creating a single-window IT system when registering with the country’s different regulators.2 These budget initiatives will play a key role in encouraging more global financial institutions to establish themselves in GIFT City.
Making life easier for the investor
Enabling foreign investment has been a priority for the Securities and Exchange Board of India (SEBI) for a long time now, and the regulator has introduced a series of liberalising measures to make it easier for global investors to access the domestic market.
For example, SEBI consolidated the number of foreign portfolio investor (FPI) categories from three to two; eased know-your-customer (KYC) rules for so-called Category 1 investors (i.e. government institutions, banks, broker-dealers, swap dealers, pension funds, insurance/re-insurance companies, asset managers); and overturned restrictions preventing Category 1 investors from issuing and subscribing to offshore derivative instruments – such as p-notes.
More recently, SEBI has simplified the FPI onboarding process by allowing designated depository participants (DDPs) to register FPIs based on scanned copies of their application forms and other supporting documents, instead of requiring physical copies3. However, accounts cannot be activated until physical documents have been sighted by the DDP. Digitalisation in this area is a welcome development, and it is something we have been advocating for many years now.
Regulators circle in on ESG
Global investors are paying more than just lip-service to Environmental, Social, Governance (ESG), and are increasingly demanding that issuers embrace sustainability and work towards achieving net zero targets. With investors taking ESG so seriously, regulators are having to respond. SEBI is developing an ESG regulatory framework, which will introduce ESG disclosure requirements for listed companies. Such provisions will help domestic issuers attract investments from ESG conscious institutions.
Meanwhile, SEBI is also scrutinising the ESG ratings process, and is consulting with the wider industry on ways to improve transparency in ESG investing.4 Amid mounting investor concerns about greenwashing, SEBI is poised to unveil rules designed to stamp out product mis-selling. The development of sensible and proportionate regulation tackling sustainability issues will be essential if investor trust in the ESG market is to be preserved.
Getting the right support
As global investors increasingly incorporate India into their portfolios, they will need to work with providers which have extensive experience in helping clients open accounts in the country. In 2022, we onboarded more than 215 accounts including FPIs, foreign direct investors and other domestic institutional investors, in what is indicative of our deep-rooted expertise in India. It is also a by-product of our regular dialogues with SEBI and the industry on the need to simplify the FPI registration process.
Moreover, clients need to be assured that their providers are continuously investing into their technology and automation to cater for evolving market and investor requirements. This is especially important following India’s recent decision to adopt T+1 for its equity settlement cycle. For instance, we have automated bulk settlements for processing efficiency and can now provide near real-time processing for equity trade matching.
Additionally, we are improving the client experience by delivering STP (straight through processing) for proxy voting instructions, while also automating our DDP platform to expedite FPI registrations, and regulatory reporting solutions, in what will help reduce delays and errors.
As investors face more costs and operational complexities, the case for appointing providers who can offer them a holistic suite of services is compelling. We provide clients with a range of banking services, including financial markets, custody, FX, cash management, derivatives clearing and fund accounting services, allowing them to consolidate wallet share
India is an exciting growth market, and it is a rapidly changing one. In order to thrive, it is vital investors work with providers who not only understand the market and the regulations that come with it, but who tirelessly advocate for reforms, which benefit both the investor and the local capital markets.
1 Asia Development Bank – April 4, 2023 – India’s economy to grow by 6.4% in FY 2023, rise to 6.7% in FY 2024
2 Hindustan Times – February 2, 2023 – Budget 2023: Major boost for Gujarat’s GIFT city as government ends dual regulation
3 Livemint – March 28, 2023 – SEBI easier foreign portfolio investor onboarding process
4 SEBI – February 20, 2023 – Consultation paper on ESG disclosures, ratings and investing
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