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India's markets regulator, the Securities and Exchange Board of India (SEBI), dropped a big update on Friday. It said that large foreign portfolio investors (FPIs) could soon settle just the net value of their cash market trades, skipping the hassle of handling every single transaction. This SEBI netting mechanism for FPIs promises to slash funding costs and draw more global money into Indian stocks.
SEBI chief Tuhin Kanta Pandey spelled it out at a recent event that this is part of a broader push to boost FPI flows, deepen markets and speed up registrations. In tough times with FPIs pulling back, these SEBI reforms for FPIs in 2026 feel like a clever play to keep the cash coming.
From Gross to Net: How SEBI's FPI Netting Works
Instead of settling buys and sells separately (that is gross settlement), FPIs offset them across two or more stocks under the new net settlement for FPIs in India. It covers exchange-traded funds (ETFs) and index funds, but single-stock day trades stay out. Settling only the net value, called “netting”, the goal is to boost efficiency, cut funding costs and let FPIs meet just net obligations, no more gross payouts eating into returns.
Akshaya Bhansali, managing partner at Mindspright Legal, puts it plainly by saying that this new mechanism shines brightest for index rebalancing or big portfolio shifts. Market pros have complained about gross settlement forever, especially on hectic trading days. FPIs and netting talks have bubbled up for years and now SEBI's consultation paper makes it real, Bhansali added.
On the other hand, Vipin Kumar, assistant Vice President of equity research at Globe Capital Market, sees the upside and says, "The higher FPI returns will bring more foreign inflows to Indian equities". The money from sales goes directly to purchases, avoiding issues with currency conversion and unexpected costs, he added.
Must Read: Role and Functions of SEBI: Why It Matters to Investors
What Exactly is the Netting Mechanism?
Netting lets investors do multiple buys and sell transactions in a day, settling one net amount. Right now, FPIs are handling equity cash market trades on a gross basis, which means each trade is treated as a separate transaction for settlement. Now, no margins are collected from the brokers or the custodians in case of FPI trades in the cash market.
In the old system, when you bought something, the funds did not take sales into account and confirmations were separate. In the new system, purchases and sales depend on each other. SEBI notes FPIs face extra liquidity strains and forex costs from gross settling. "We have heard the complaints," the regulator says in its paper, time to fix the inefficiencies.
The regulator said, "SEBI has received feedback that the way foreign portfolio investors (FPIs) currently settle transactions is causing extra demand for liquidity and creating inefficiencies". It further added that this process can also lead to costs because of price changes when buying and selling foreign currency to meet their obligations.
Foreign Portfolio Investors (FPIs) have been selling off stocks since October 2024, although the pace of selling has slowed down. Concerns remain about US tariffs, issues with the rupee, weak earnings expectations and high valuations, even if they are starting to drop.
The Securities and Exchange Board of India (SEBI) is asking for feedback by February 6. This is your chance to share your thoughts on an essential change for FPI cash market netting.
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