United Spirits case: Sebi slaps Rs 3 cr penalty for insider trading

Markets regulator Sebi on Tuesday imposed a penalty totalling more than Rs 3 crore on three persons for insider trading activities in the shares of United Spirits Ltd.

Markets regulator Sebi on Tuesday imposed a penalty totalling more than Rs 3 crore on three persons for insider trading activities in the shares of United Spirits Ltd.
The watchdog has slapped a fine of Rs 1.32 crore on Poonam Haresh Jashnani, Rs 93.24 lakh on Haresh Parmanand Jashnani and Rs 80.76 lakh on Varun Haresh Jashnani.

An investigation was carried out with respect to the scrip of United Spirits Ltd (USL) for the period from January to April, 2014 as well as into the possible violation of norms by these three persons.

Sebi found that Jananis indulged in insider trading activity in USL shares on the basis of information passed by Nishant Gupte, who was the global business development manager (mergers and acquisitions) at Diageo.

He was in possession of Unpublished Price Sensitive Information (UPSI) relating to the open offer for acquisition of shares of United Spirits by Relay BV, together with Diageo Plc as the person acting in concert.

Gupte, who is the son-in-law of Haresh and Poonam and husband of Varun's sister, was part of the core team which represented Diageo/PAC in the transaction to consolidate shareholding of the acquirer in USL and was guiding the team since the beginning of the transaction lifecycle.

In three separate orders, Sebi said trades of Haresh, Varun and Poonam showed a strong preponderance of probability that they were executed when they were in possession of UPSI.

Financial firms' clout wanes after coronavirus-triggered market fall

During the start of the year, private banks alone accounted for a fourth of the index weight.

Financial stocks have had a dominant run in the past decade and a half. In 2005, they weren’t even among the top five sectors when it came to their weighting in the Nifty index.

In 2009, private banks’ weighting in the index rose to 12.9 per cent, from just 5.4 per cent in 2005. Since then, it has only gone up. During the start of the year, private banks alone accounted for a fourth of the index weight.

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If one added the weighting of NBFCs and PSBs, the weighting in the index would shot up to 42 per cent. However, the Covid-triggered market fall has hit the financial pack the hardest.

The weighting of the sector has come off from the peak of 42 per cent in December 2019 to less than 33 per cent. Given the underperformance of banking stocks, it could shrink further.

Meanwhile, stocks in the pharma, and consumer goods space have seen their weighting go up in the benchmark indices. On a stock specific basis, Reliance Industries has seen the highest increase in weighting.

Sebi to vet pleas for new FPI registrations from neighbouring countries

Market players suggest that the move could be specifically aimed at vetting applicants from China wanting to register as FPIs.

The Securities and Exchange Board of India (Sebi) has asked designated depository participants (DDPs) to refer all applications for new FPI registrations coming from the neighbouring countries to the regulator for approval.

Market players suggest that the move could be specifically aimed at vetting applicants from China wanting to register as FPIs and may have been prompted by the controversy surrounding the recent increase in stake in HDFC by the People’s Bank of China (PBoC). At present, there are 16 FPI investors coming from China, of which 15 hold Category-I licence.

At present, DDPs grant licences to investors based on the criteria laid down by the regulator but do not have to take prior approvals for grant of licence.

In a letter written to DDPs on Monday, the regulator has said Sebi permission will be required for granting licences if the FPI applicant or its beneficial owner is from India’s neighbouring countries.

Such countries include the likes of China, Pakistan, Nepal, Sri Lanka, and Bangladesh.

With stock prices crashing, there have been apprehensions that Chinese companies, both private as well as public, are ramping up investments in companies across the world.

According to reports, several European countries such as Italy, Spain, and Germany have tightened FDI rules to prevent hostile takeover of their companies by Chinese entities.

Chairman Deepak Parekh, however, has clarified that PBoC has been buying stake in HDFC for the last two years and that the purchase was not for the Chinese apex bank itself.

Sebi relaxes guidelines for investment through non-FATF countries

Move to benefit investors from countries and regions like Mauritius, Cayman Islands who are eyeing Category-I licence.

The Securities and Exchange Board of India (Sebi) has relaxed its guidelines for foreign portfolio investors (FPIs) seeking a Category-I licence, a move seen giving a boost to overseas investment in stocks.

Investors from countries which are not Financial Action Task Force (FATF) members can still qualify for such registrations if the countries are specified by the Indian government. The move may benefit funds and investments routed through countries, such as Mauritius and those from West Asia, and aid overseas flows coming into India, said experts.

At present, the FATF has 39 members, including Australia, Singapore, Luxembourg, South Korea, the US, the UK, and China. West Asian nations, such as Bahrain, Oman, Qatar, Kuwait, and the UAE are not its members.

Nearly 80 per cent of FPIs were put under Category-I after the reclassification of three categories into two in September last year. Being part of Category I implies lower compliance burden, simplified know-your-customer (KYC) norms and documentation requirements, and fewer investment restrictions. Such investors can subscribe and issue offshore derivative instruments and are not subject to indirect transfer provisions.

Prior to the reclassification, less than 3 per cent FPIs were part of Category-I and more than four-fifths were part of Category-II. About 13 per cent of the funds were classified as Category-III.

“The move will expand the list of countries eligible for the Category-I status beyond the FATF member countries. It will not only mean fewer KYC requirements for FPIs from such countries but also exemption from indirect share transfer regulations,” said Rajesh Gandhi, partner, Deloitte India. “Along with the MSCI index rejig, this will help boost inflows into India, especially from India-focused funds.”

Experts reckon non-FATF countries, such as Mauritius and those from West Asia, may now lobby to get included in the list of specified countries to be put out by the Indian government