Sebi unveils trading reforms to stem foreign investor exodus

The Securities and Exchange Board of India is implementing a series of trading reforms aimed at reversing the outflow of foreign capital from domestic markets, which has hit its lowest level in nearly two decades. The regulatory overhaul represents a significant effort to make Indian equity markets more competitive and attractive to international investors who have redirected funds elsewhere.

The proposed changes include a reduction in collateral requirements for cash equity transactions, a move intended to lower barriers to entry and improve capital efficiency for foreign participants. Alongside this, the regulator is introducing measures to encourage greater participation in longer-dated derivatives, which offer opportunities for more sophisticated hedging and investment strategies.

Foreign portfolio investors have faced headwinds in recent months due to a combination of factors including higher domestic interest rates, currency volatility, and broader shifts in global capital allocation. The decline in foreign ownership has coincided with periods of selling across emerging markets as international investors reassess their positioning.

Sebi's intervention signals heightened concern about the sustainability of India's market infrastructure and its ability to attract offshore capital at a time when Asian markets are competing intensely for investment flows. The regulatory changes are expected to be rolled out progressively over the coming months, with officials indicating that further measures may follow depending on market response and feedback from stakeholders.