Russian investors are flocking to Indian capital markets with three entities in Russia having registered with Sebi as foreign portfolio investors (FPIs) amid sanctions imposed on the nation in response to the war against Ukraine.
All the three investors which obtained FPI licence from Sebi are based in Moscow. Alfa Capital Management Company is registered in both category-1 and category 11. Besides, one individual Vsevolod Rozanov has been registered in category-1, latest data with the National Securities Depositories showed.
Further, the licence issued to them is valid for three years till early 2026, it added.
This could be the first instance when Russian investors have opted for the FPI route to invest in India. Before this, they mostly took the foreign direct investment (FDI) route.
Experts believe that Russian investors are exploring Indian markets in the wake of sanctions imposed on the country by the US and European Union following Russia's invasion of Ukraine in February 2022.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the sanctions imposed on Russia, particularly the weaponization of the dollar, has led to new economic and financial developments.
Alternatives to the dollar as reserve currency are being seriously debated. Russian investors- individuals and institutions- looking to invest in the Indian capital market have to be seen in this context, he explained.
Further, he believes that geographical diversification is good for India too.
"With a sharp increase in India's crude oil imports from Russia, Russia's bilateral trade surplus with India has increased significantly. There is little opportunity for Russia to increase its imports of Indian goods and services to utilise this balance fully.
"In addition, the balance is denominated in rupees, which reduces the likelihood that the funds will be used for other purposes. Therefore, Russia can utilise the surplus primarily for investments in India," Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares and Stock Brokers, said.
He believes that short-term portfolio investments in equities, debt, and possibly commodities are therefore the simplest way to utilise the balance.
Moreover, the annual bilateral trade surplus between Russia and India could range from USD 20-30 billion indicating that Russian portfolio investments in India may be substantial in the near future.
"The significance of Sebi's registration of three Russian entities as foreign portfolio investors in India is therefore of the utmost importance, as this can initiate very substantial capital inflows to India. The impact of these developments could have a substantial positive effect on the Indian equity and debt markets," Hajra said.
Meanwhile, Geojit's Vijayakumar said the Securities and Exchange Board of India (Sebi) has to be stringent in disclosures since the FPI investment in Adani stocks has created lots of controversy.
Apart from Russia, there are at least 16 China-based institutions that have got permanent registration as FPIs in India. Besides, there are 217 Hong Kong-based entities registered as FPIs in India and 124 from Taiwan, the data showed.
Sebi, in 2020, amended FPI regulations, whereby it eased rules for offshore funds seeking registration under the "properly regulated" FPI category. With this, funds coming from the nations which are non-FATF compliant can obtain FPI licence in case the central government allows.
FATF is an inter-governmental policy making body that sets anti-money laundering standards.
In terms of numbers, the US has the largest number of registered FPIs (3,485) followed by Luxembourg (1,353), Canada (825), Ireland (738), the UK (684), Mauritius (589) and Singapore (567).
When it comes to fund inflow, the ten-largest countries in terms of assets under custody of FPIs are the US, Singapore, Luxembourg, Mauritius, the UK, Ireland, Canada, Norway, Japan, and France, according to the latest NSDL data.
Together, these ten countries account for 83 per cent of the overall asset under custody of FPIs of Rs 50.85 lakh crore.
From 2014 when a new FPI regulatory regime replaced the erstwhile FII regime, registration and continuance activities of FPIs are being handled by Designated Depository Participants (DDPs). All registered Foreign Institutional Investors (FIIs) at that time were deemed registered as FPIs after the shift to this new FPI regime.
Moreover, FPIs have been classified into two categories, earlier they were divided into three.
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