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Foreign portfolio investor (FPI) outflows from Indian markets over the past two years should not be seen as a sign of India losing favour with global investors, SEBI Chairman Tuhin Kanta Pandey said, asserting that overseas flows are driven more by global cycles and returns than by regulatory considerations.
Speaking to CNBC-TV18 at Samvad event organised by SEBI and NISM, Pandey said India’s regulatory framework for foreign investors is already robust, and FPIs take allocation decisions based on factors such as earnings growth, currency movements and geopolitical developments. “This is not really an issue of being welcomed or not welcomed. The frameworks of Indian regulations are well in place,” he said.
Pandey pointed out that FPIs have invested close to $900 billion in Indian markets over time, underlining the depth and scale of overseas participation. Against that backdrop, recent outflows of around $18 billion are relatively small and reflect cyclical trends rather than a structural shift away from India.
Focus on market depth, diversification
The SEBI chief said the regulator’s role is not to influence investment decisions but to strengthen market structure so that volatility is better absorbed. A key priority, he said, is making Indian markets deeper and more diversified—particularly debt and corporate bond markets—so that capital flows are not excessively pro-cyclical.
“If markets are deeper, investors have more options to shift between equity and debt depending on circumstances. That itself brings resilience,” Pandey said.
Faster FPI registration, less friction
SEBI is also working to reduce operational frictions faced by foreign investors. Pandey said the regulator has closely examined the FPI registration process with the objective of making it faster, more predictable and largely digital.
As part of this effort, SEBI has introduced the SWAGAT-FIs framework, which aims to provide greater certainty on registration timelines, reduce paperwork and offer more flexibility. The process is also being digitised end-to-end, including the use of digital signatures.
Another area under review is harmonising FPI KYC norms across SEBI and the Reserve Bank of India to enable quicker onboarding. Pandey said concerns raised by FPIs following the introduction of certain thresholds in the past have also been addressed, with several of those measures later relaxed.
Netting proposal, other market measures soon
SEBI is also moving towards improving operational efficiency for FPIs through netting mechanisms. Pandey said a consultation paper on netting is expected shortly, which would allow investors to net certain positions and reduce settlement-related inefficiencies.
Separately, the regulator is examining changes to the closing auction session, with announcements on these fronts expected soon.
No comment on taxes ahead of Budget
On complaints from FPIs around withholding tax and the wider debate on capital gains tax differentials between equity and debt, Pandey declined to comment, citing the proximity of the Union Budget. He said these matters fall within the Finance Ministry’s domain and decisions will be taken by the Finance Minister.
FPI flows remain market-driven
Pandey reiterated that FPIs have full freedom to enter and exit Indian markets, and their decisions are influenced primarily by relative returns across global markets. “They look at earnings growth, currencies and geopolitics. They are in a position to come in and go out,” he said.
For regulators, he added, the focus remains on strengthening market infrastructure, improving ease of doing business for investors, and ensuring Indian markets continue to deepen over time—rather than responding to short-term flow volatility.
The remarks come at a time when domestic investor participation has surged sharply, with the number of unique investors rising from 3.8 crore to over 14 crore in the past five years, making domestic flows an increasingly important stabilising force for Indian markets.
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Below is the verbatim transcript of the conversation.
Q: In the last five years the unique investor community has gone up from 3.8 crore to over 14 crore. That’s a seminal achievement. So, let me start there—the expansion of this community. One of the big fears for this community now is whether we are losing the favour of foreign investors. Does that worry you? I mean, whether it is the currency market or the bond market or the rupee market, there is a fear that FPIs have kind of sidelined us for the past two years. Is there anything that SEBI is doing to make them feel more welcome?
Pandey: I think this is not really an issue of being welcomed or not welcomed. I think the frameworks of Indian regulations are well in place, and FPI decisions are contingent on how they look at different markets and returns. They also look at earnings growth, currencies, and geopolitical factors, and they are in a position to come in and go out as well.
Now, if you really look at it, FPIs have invested to the extent of $900 billion in the Indian market. Yes, there has been about $18 billion of movement—outflows—over a period. But it also depends on cyclical factors.
On regulations, we can only say two things. One is making our markets deeper and more diversified, especially the debt markets and the corporate bond markets, so that, to some extent, it will not be pro-cyclical and other approaches can be taken. People can also shift from equity to debt, depending upon the situation and circumstances.
The second issue, of course, is whether there are any frictions that we can improve structurally—whether we can improve the market. One area we have looked at very closely is the registration process: how we can have faster registration, digitising the whole process, and looking at whether FPI KYC across SEBI and RBI can be done very quickly.
We’ve introduced the concept of SWAGAT-FIs, bringing in a greater amount of certainty in the registration period over time with less paperwork and more flexibility. Going forward, this will also extend to digitising digital signatures. We have also allayed certain fears that they had following the thresholds and other levels that were brought in, which were later relaxed.
Another point we are looking at very closely is netting. I think the consultation paper will be out very soon to allow them to net, in some respects, so that there is greater operational efficiency while they operate.
Q: When do you think we may see this getting closer? I guess there will be some conversations with the banking system also on that. Should we expect it sooner rather than later?
Pandey: Maybe it is out today. We are looking very closely at the closing auction session. I should presume that this will also be out, possibly today.
Q: As I said, an unfair question because we have the upcoming Budget. One of the complaints we get from FPIs on our channel is about the withholding tax. You’ve been at North Block and now at Kartavya Bhavan. Do you think there is a case to withdraw it, simply because now we have to fight for FPI funds more?
Pandey: I would not like to comment on that. That’s not my prerogative, and this is not the forum to express views on this issue close to the Budget.
Q: Speaking of FPIs, and just to conclude that conversation, clearly valuations are an issue. We are running at 22 times when earnings are growing at probably single digit. Therefore, FPIs constantly tell us that. One reason from the market is the highly differential capital gains tax between equity and debt. This big tidal wave of investors who have come from 2020 to 2025 has largely gone to equity because people are not planning asset allocation depending on their risk appetite or their age. I know retired people now going into direct index funds and equity funds simply because the tax is lower. Purely as an academic, and as someone who has been in Kartavya Bhavan before, do you think this wide difference between capital gains on equity and fixed income at least merits a debate?
Pandey: Again, I would like to avoid sharing my thoughts on this issue close to the Budget. People have been talking about it, and the Finance Ministry will take a view. It is the Finance Minister who has to take that view.
Q: Can you give us a third headline? You already told us last week that the NSE IPO announcement may come very soon, and the settlement issue is something you have taken in your stride. You’ve taken a call on it. Can we hear when the final NOC comes? Since you’re in the mood, give us a headline.
Pandey: No, I’ve already indicated that. There is no further information. The NOC will come within this month.
Q: Let me now move to the other issue—the corporate bond market. From time immemorial, from the time I joined journalism, I’ve been asking when we will have a more vibrant corporate bond market. Anything up your sleeve now?
Pandey: First of all, the corporate bond market is more vibrant than before. Whether it should be still more vibrant—yes, it should be.
Q: I mean, we mostly hold to maturity. Trading in bonds is limited, and issuance is mostly AA or A and above, not below.
Pandey: I’m afraid that’s not entirely correct. It’s not completely hold-to-maturity. Bonds are being traded, and you can check the volumes. Maybe we would like volumes to be higher. Both SEBI and RBI are working closely on bond derivatives and bringing in additional opportunities, because secondary trading in bonds is taking place, but it needs to be much better. There are certain constraints.
If you look at the size of the bond market, it used to be about 40–43% of total bank credit to industry and services a few years back. It has now climbed to around 60%. About ₹56 lakh crore of bonds are outstanding. This is still lower than in China or some other markets.
One constraint is that we do not have too many issuers. The number of issuers needs to expand. Similarly, we need bonds across a wider range of ratings—A-rated and below—to build a proper yield curve. Those efforts are continuing.
A third important issue is retail participation in bonds. We have facilitated this by bringing down the threshold from ₹1 lakh to ₹10,000, and online bond platform providers are offering liquidity and access to retail investors. But we need to do far more.
In terms of education and awareness at the retail level, that is certainly lacking. We need something like the “Mutual Funds Sahi Hai” campaign to educate people about what investing in bonds entails. Bonds need not always be held till maturity; they can also be sold. The question is whether the secondary market will provide sufficient liquidity.
We introduced a liquidity window facility with put options, but so far there has not been much movement. Not many issuers have come forward. The market is still largely an OTC market. We have provided platforms—the RFP platform at the primary stage and the RFQ platform at the secondary stage. Many steps have been taken to improve transparency.
Secondary market trading has improved, but it is far from what is desired. I believe bond derivatives will be another important way of creating further liquidity and depth in this market.
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Q: SEBI has done a lot, but every now and then there are lapses. I don’t want to name names, but there were two companies where disclosures were even pulled up by the courts for not being made on time. Now, on other aspects—such as entities and finfluencers—you have PaRRVA (Past Risk and Return Verification Agency), as you mentioned. What are you looking at in terms of further improving disclosures, imposing higher penalties, or strengthening institutions like PaRRVA?
Pandey: One normal thing which should not be really, you know, accusing SEBI of is the lack of disclosures. SEBI, as an institution, if you look at it over a lot of period of time, has given every possibility, every system to for the disclosures and we constantly say that this is a disclosure-based regime, even for that matter, when valuations, it's clearly, we don't look at the valuations, because you have to let the markets work.
Our job is not to become the market, but let the markets work where there are buyers and sellers and the expertise and the traders and the speculators. We have to really be very clear that disclosures wherever possible we make, and so therefore we make disclosures. We make compulsory disclosures for primary purpose, in terms of IPOs and FPOs.
There are disclosures for corporate governance, all kinds of disclosures the companies need to disclose. An LODR has been amended to facilitate such disclosures. Materiality of disclosures have been there. On disclosures, SEBI’s record is, is not of a recent origin, but of a very longish origins and therefore this market has actually developed.
Sometimes, of course, there was an issue of excessive nature, the very lengthy disclosures and now the people are wanting how quickly we can grasp it, and we have heard their voice, for example, in case of IPOs, we said, and very soon, we will be notifying it, but the board has approved it, that we will have a draft abridged prospectus whenever the IPOs are issued, and there will be a QR code people can access it in all these advertisements. So, the draft abridged prospectus also, we will define very clearly all the factors which are needed to be disclosed for very quick glance by the media as well as by investors.
We want more active participation of investors in terms of their understanding of what it contains. But we have to also educate, always investors, and so is your duty to educate them - is to not to have always a herd mentality, to really look at their exposure, do a bit of their research. Today, there are opportunities available of a very high order in order to really find information, and find all kinds of information. So therefore, before they take investment decisions, they should be clear where they are investing.
Q: SEBI has been excellent in ensuring that capital market does its main job - allow companies to raise capital, and the latest strides in including REITs, as to be defined as equity is a very large step and then now, of course, Infrastructure Investment Trust (InvITs) also? Can you inform us as to what are the other steps in the direction? If you have to think of a second round of improvement of capital raising from the market, anything on your mind?
Pandey: We have a whole range of measures, and we have different kinds of markets, and we have different types of risks which are associated with the market. We want to really make it available as a very diversified market with diversified regulations, keeping with the view the diverse needs and the diverse risk profile of the investors, and we should not have always a one size fits all.
For example, the investor protection, the investors themselves are of a different type. What it means for an institutional investor may be different from a retail investor. What it will mean for an accredited investor will be a different from an ordinary investor. In derivatives, we have to look at - who knows the market. So, there is an investor education. We have also to see what markets the investors will be more comfortable with,.
There could be a light touch regulation for those areas where we feel the risk is well understood by the investors, like, for example, AIFs and therefore we have an AIF Accredited Investor Scheme only, and we are going to liberalise the way the accreditation is granted, because that itself will speed up the process of such investors to come and quickly come to the market.
And there will be other markets where we will be more intensive in regulations, because there is so much of retail money is involved.
Q: These new batch of investors that have come, especially the later ones, and it's almost a flood now, in the last four or five years, they are coming at a time when valuations don't seem to be working in their favour at all. Does it worry you, do you want to warn investors about valuations and earnings growth? Does it make you cautious?
Pandey: My views on valuations are well known because I have answered these questions at various forums. Valuation is, in fact, the most difficult question ever encountered by human beings, and they have never got the real story. Valuation can be quantitative, the methodology can be quantitative, but it is still subjective. Because if the valuations is based on the future, what you look to the future - future means there is no such theory to say this is the way it is going to be future.
Future is about beliefs, and different people believe it differently, and that is why you have bulls and the bears and they keep fighting in the stock markets in order to determine what is going on. And so therefore, how is it that such a people with fantastic degrees, they take wrong decisions?
I am reminded of the seminal work of Mr. Daniel Kahneman and a lady was asking me this question, and she's teaching, and I told her that, please teach your students what Daniel Kahneman told about the Prospect Theory about the way people's minds work. People’s mind do not work in the way we thought that they will be most efficient, even If they are well educated and so therefore panic selling takes place when they should be patient.
We are talking of patient capital, - the power of compounding, in which the people should stay and not really try to do that. And many of the frequent day traders and others they have realised, to their horror that what they wanted, that to make a big money they haven't. But there are others who are advising, who have built up very big portfolios, about the proper investing and choosing the right investing and staying on has helped them.
Nobody can advise. People are different advisors. People have to take their advice. Nobody can say I am the advisor and my advice is the best one, and the least of all, that of SEBI Chairman, who is not allowed to invest anyway.
