India's SEBI Lets Wealthy Investors' Portfolio Managers Buy Foreign Stocks and Short Sell for the First Time

India's market regulator just handed the country's wealthiest investors a much bigger playing field and cut its own rulebook nearly in half while doing it.

The Securities and Exchange Board of India approved a sweeping overhaul of portfolio management services rules at a board meeting Thursday, September 24, according to Business Standard, NDTV Profit, and PTI's report carried by The Print. The changes affect an industry that manages roughly 44.4 trillion rupees, about $463 billion, as of August, up from 40 trillion rupees a year earlier and more than double its size since 2020, according to SEBI data cited by All Weather Finance.

Two firsts: going overseas and going short

For the first time, discretionary portfolio managers will be allowed to invest client money in foreign securities, including listed equities, debt, overseas mutual funds, ETFs, index funds, and REITs, according to Business Standard and BigGo Finance. Those investments run through India's existing Liberalized Remittance Scheme, which caps how much any Indian resident can send abroad at $250,000 per financial year, meaning the overseas door is real but not unlimited.

SEBI also authorized portfolio managers to hold uncovered short positions in equity options for the first time, per BigGo Finance and All Weather Finance. Managers can allocate up to 1.25 times a client's assets under management to exchange-traded derivatives. The regulator has not yet published the actual caps on those short positions, both outlets note, meaning the specific risk limits investors will operate under remain unannounced even as the authority to use them is now in place.

More room to invest, less paperwork to file

The board also let portfolio managers buy into IPOs and primary market debt issuances, invest up to 10% of client assets in investment-grade unlisted debt with client consent, and launched a new lower-cost mutual fund route called PRIM with a minimum ticket of 25 lakh rupees, according to NDTV Profit and Business Standard. A new class of "Independent Fund Managers" can now operate portfolios alongside registered managers, who retain full liability, per Business Standard.

On the compliance side, SEBI excluded statutory levies from the 0.5% operating expense cap, let graduates serve as principal officers, and relaxed dealing-room requirements for smaller managers below 100 crore rupees in assets, a group SEBI says covers 48% of registered portfolio managers. The regulator says the rewrite shrank its rulebook from 70 pages to 33, a 53% cut, and trimmed the word count by 42% to 11,308 words, according to Business Standard.

Separately, the board expanded foreign portfolio investor access to physically settled, non-agricultural commodity derivatives, let FPIs qualify as accredited investors, and allowed REITs and InvITs to issue depository receipts in overseas jurisdictions, per The Print's PTI report.

The timing isn't neutral

This reform lands while India's benchmark Nifty 50 is on track for a seventh straight week of losses, matching its longest losing streak since April 2020, according to Bloomberg. That selloff has been driven largely by financial and insurance stocks after proposed IRDAI regulatory changes rattled the sector. NDTV Profit notes PB Fintech shares dropped 34% on the news, with Zerodha co-founder Nithin Kamath warning that "the biggest risk is regulatory risk." Bloomberg also flags persistent foreign outflows weighing on the rupee.

Opening a new legal channel for wealthy Indians to send money overseas, right as foreign capital is already leaving and the rupee is under pressure, could accelerate that outflow. But the $250,000-per-person annual cap under the Liberalized Remittance Scheme limits how much any single account can actually move, and the mutual fund industry's own separate overseas quota was exhausted years ago without triggering a currency crisis, a point BigGo Finance notes in comparing the two channels.

Separately, Breitbart's business newsletter pushed back this week on a New York Times narrative that global investors are souring on U.S. assets, citing Treasury Department data showing foreigners bought a net $1.75 trillion in long-term American securities over the 12 months through July, more than double the roughly $799 billion bought in the equivalent period ending July 2024. That's a different story about a different market, but it underscores why Indian regulators are opening this door now: U.S. equities, particularly AI-driven tech names, are exactly where global money, and now Indian portfolio managers, want exposure.

SEBI approved the authority to short sell and go overseas. It has not yet published the specific position limits that will govern how much risk portfolio managers can actually take with client money under the new rules, and the industry is waiting on that follow-up circular before any of this becomes operational in practice.