INDIA BUSINESS WORLD - JULY 2006
THE MONTH THAT WAS...

FII REGISTRATION FEE DOUBLED TO $10,000

THE Securities & Exchange Board of India (Sebi) has hiked registration fees for foreign institutional investors (FII) to $10,000 for five years from the earlier $5,000 while also increasing the fees for sub-accounts to $2,000 from $1,000, as per a communication sent to FIIs last week.

The move is aimed at increasing revenues for the regulator as well as modifying the rates that have remain unchanged for long, a source at the regulator said. It is learnt that Sebi is considering reducing the validity of the registration period to three years from the existing five years.

FIIs have been the driving force of the bull run in Indian equities that began in May 2003. In 2005, key stock indices surged 50% as foreign funds pumped in a record $10.7 billion into Indian shares. In 2006, FII inflows were robust during the first four months, with $8 billion flowing into equities. However, they have since cooled off due to perception that Indian shares have become expensive compared to regional peers.

However, the move is unlikely to affect FII plans for India , Asia 's third-largest economy. According to a senior executive in a leading US-based fund, foreign investors are still bullish on the India growth story. “The recent fall in the Indian market is only temporary and in line with the fall in other emerging markets… the ( US ) interest rate concerns send jitters across most markets,” he said.

The Indian economy is expanding at the rate of over 8%, the second-fastest growing economy in Asia after China.

Sebi is also planning to introduce a turnover-based tax for exchanges to boost its revenues. While Sebi hasn't yet issued a notification in this regard, senior officials recently expressed the view that as the cost of regulation has gone up, they have to consider such measures.

Sebi's plan is also likely to include increasing the fees of intermediaries such as merchant bankers as part of the programme.

But market participants say although FIIs have been responsible for providing liquidity in the Indian markets, they hold less than 20% of the total market capitalisation. Hence, such moves by Sebi won't have a major impact, dealers said.

 “But most FIIs are still interested in India if the response to the recent Indian real estate seminar at Hong Kong is any evidence,” said Net Worth Stockbroking chairman S P Jain. “The booming real estate sector in the country and the demand for infrastructure will still attract such investors,” he added.