Algo traders are a tiny fraction of FPIs in India

SEBI’s action against Jane Street is unlikely to have a broader impact on foreign investor sentiment or participation. Only 2.5 percent of FPIs in India currently use algorithmic trading strategies, according to SEBI data, which limits the fallout from any regulatory tightening in this space.

While algo-trading is rising in popularity across the globe as a result of its speed, efficiency, and data-driven strategies, its adoption among FPIs in India remains relatively low.

“SEBI’s tighter norms are not roadblocks but guardrails to protect investors and keep the market fair. The recent focus on safer, more transparent algo participation shows that India wants to open this up responsibly without sudden risks,” said Trivesh D, COO Tradejini.

Traditionally, foreign investors usually allocate only a small percentage of their capital towards emerging markets. In that, they usually look towards long-term, blue-chip bets to reduce their risk factor to offset the inherent volatility in EMs.

Further, of all the equity derivatives turnover, FPIs form around three to eight percent, while prop traders make up 60-65 percent.The rest of the volumes is made up by individuals, retail players, and other participants.

Additionally, the low number of FPIs in the algo and derivatives segment, indicates that FPIs could drive around 3-4 percent of the turnover on the BSE, noted Jefferies. Comparatively, derivatives, in general, will drive around 58 percent of BSE’s FY26 revenues.

If foreign investors increase their usage of algorithms, it can deepen liquidity, tighten spreads and bring more efficiency, Trivesh D added. However, large algorithmic flows can also cause sudden price swings if not watched carefully. “So for this. SEBI’s stricter registrations and strategy disclosures should be designed to help manage this balance, allowing the benefits while keeping risks in check.”

When asked how SEBI’s order on Jane Street would affect FPIs’ perception of India, Samir Arora, founder of Helios Capital, said, “This is great as no serious player in the market would like to see random movements, leave alone FPIs.”

“With millions of active retail traders and deepening institutional activity, India’s market opportunity is structural, not cyclical and certainly not dependent on any one firm,” added Dinesh Thakkar, MD, Angel One.

Not just Jane Street, but FPIs such as Citadel Securities, IMC Trading, Optiver and Millennium are expanding their footprint in India, betting on the rapidly expanding and deepening equity markets. According to experts, SEBI’s crackdown on Jane Street shouldn’t keep them away, but give FPIs more confidence to trade the Indian markets after seeing a fair, transparent setup with proper checks.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.