The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing to allow foreign portfolio investors (FPIs) to net their cash market trades. This significant regulatory move, announced on Friday, January 16, 2026, aims to enhance operational efficiency and reduce the cost of funding for FPIs operating in the Indian equity markets. Currently, FPIs are required to settle all cash market transactions on a gross basis, meaning that even if they execute both buy and sell orders of equivalent value on the same day, they must arrange full funds for the purchase and deliver securities for the sale separately. This system often leads to higher temporary liquidity requirements and increased funding costs, especially on high-volume trading days such as those involving index rebalancing. The proposed 'netting of funds' mechanism would allow FPIs to offset their purchase and sale obligations in 'outright transactions' – where different securities are bought and sold within the same settlement cycle – and only fulfill the net cash obligation. However, the proposal explicitly states that netting will not be permitted for intra-day transactions involving the same security, which will continue to be settled on a gross basis to mitigate risks of market manipulation. This distinction aims to balance efficiency gains with market integrity. Industry experts have largely welcomed the proposal, anticipating it will make the Indian market more attractive and competitive for global institutional investors by freeing up capital and simplifying operational procedures. The consultation paper is open for public comments until February 6, 2026, reflecting SEBI's collaborative approach to market reforms.