India’s market regulator, SEBI, is unveiling a series of trading reforms designed to attract more overseas investors and reverse a 17-year low in foreign shareholding, amid a backdrop of currency weakness and capital outflows.
India’s markets regulator is preparing a fresh round of trading reforms aimed at making the country more attractive to overseas investors and reducing the drag from foreign outflows, according to Reuters. The move comes after foreign ownership of Indian shares fell to a 17-year low, while the rupee has weakened sharply this year amid concerns over import costs and limited capital inflows.
The Securities and Exchange Board of India is considering lower collateral requirements in cash equities and a push towards longer-dated derivatives, Reuters reported, as part of an effort to improve market access and cut trading frictions. The regulator has already taken steps this year to simplify entry for low-risk overseas investors through the SWAGAT-FI framework, which the agency said is intended to reduce compliance burdens and offer a single-window route for eligible institutions such as sovereign wealth funds, central banks and regulated insurers. SEBI also updated its foreign portfolio investor rules in July to streamline registration and ease compliance further.
Market participants say the next phase of reform is aimed at making India look more like larger Asian markets that already have deeper securities lending, borrowing and hedging tools. In November, SEBI chairman Tuhin Kanta Pandey said the regulator was looking at faster registration, lower cash-market costs and easier short-selling, according to Business Standard. Reuters also reported that the regulator wants to expand stock lending arrangements and make shorting simpler, while giving investors more effective ways to hedge over longer periods.
The changes could matter for India’s standing in global benchmarks. MSCI has said it will watch how the reforms work in practice, especially on closing prices, margin efficiency, stock lending, short-selling and hedging access, as it conducts future accessibility reviews. India’s weighting in the MSCI emerging markets index has slipped below 12% from a peak of 21% in September 2024, while National Stock Exchange data shows foreign investors sold more than $50 billion of Indian equities between October 2024 and June 2026.
Still, the transition may not be smooth. Reuters reported that an earlier shift in closing-price calculation for stocks with derivatives contracts caused sharp volatility in the Nifty 50 during its first week, with participation from market makers and investors limited. State Street Investment Management’s Angela Lan said early engagement in the closing auction had been modest, and added that while such reforms should gradually reduce execution friction, they are unlikely by themselves to drive a large jump in passive allocations to India.
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