Mumbai, In a bid to bring some cheer to the equities market, India's markets watchdog Securities and Exchange Board of India (SEBI) Monday removed some curbs on foreign funds like the 40 percent cap on participatory notes and overseas derivative instruments.

The regulator also decided to review the entire working of foreign institutional investors (FIIs) in the country and said a policy paper will soon be floated to invite comments and suggestions from all stakeholders.

The decisions, taken at a meeting of the SEBI board here, were announced by its chairman C.B. Bhave and came even as the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) dropped to its lowest level in over two years, with a fall of nearly six percent Monday.

“We've gone back to the pre-October position,” he told a press conference.

“The 40 percent cap on assets under custody in the cash market will also be removed,” Bhave said, clearly signalling the regulator's move to curb the outflow of investments by foreign funds.

Foreign funds are feared to have sold over $9 billion worth of equity in Indian stock markets this year, resulting in a drop of over 30 percent in the Sensex during a 52-week period.

“The entire framework for foreign institutional investor participation needs to be reviewed," Bhave said, adding: “Such curbs are no longer necessary.”

Participatory notes or P-Notes are financial instruments used by foreign funds that are not registered with the markets regulator to invest in Indian equities. But their use was curbed in October last year to make trading more transparent.

Similarly, it was also decided to cap the percentage of P-Notes or the offshore derivative instruments at 40 percent of the outstanding assets under custody of a registered foreign portfolio investor.

The foreign funds were also required to wind up their excess positions within 18 months.

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