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India's market regulator is canvassing opinion on plans to strengthen disclosure requirements for a set of "high-risk" offshore funds investing in the local markets, it said on Wednesday.

The move, which could help unravel opaque structures through which some offshore funds invest in Indian listed companies, follows the regulators' investigation of suspected violations by the Adani group of companies, including the flagship company Adani Enterprises. The investigations have drawn a blank so far and the AdanI Group has denied wrongdoing.

In a consultation paper that set a June 20 deadline to receive market comments, the Securities and Exchange Board of India (SEBI) said that certain categories of funds, seen as high-risk, will be required to identify all investors in it and those that may have control over its operations.

The categories include funds that have more than 50% of their assets under management invested in a single group of companies and those that have more than 250 billion Indian rupees ($3 billion) invested in the Indian equity markets.

Funds owned by the government, sovereign wealth funds, pension funds and public retail funds will be exempt from this requirement.

"For greater investor protection, and for fostering greater trust and transparency in the Indian securities market ecosystem, there is a felt need for additional disclosures from certain types of foreign portfolio investors," SEBI said.

As per SEBI estimates, 2.6 trillion rupees worth of foreign funds would need to make such disclosures, which is about 6% of the total foreign investor flow in Indian equities.

In particular, the market regulator is trying to curb violations of public float norms by ensuring that controlling shareholders of listed companies are not pumping their own money back into their stocks via offshore funds.

Current rules require that at least 25% shareholding in a listed company is held by the public.

SEBI said: "concentrated investments raise the concern and possibility that promoters (founding shareholders) of corporate groups, or other investors acting in concert, could be using the FPI (foreign portfolio investor)route for circumventing regulatory requirements such as that of maintaining Minimum Public Shareholding (MPS)."

This could make a stock more susceptible to price manipulation, SEBI said.

The regulator has proposed that existing funds be given six months to reduce exposure to a single group of companies to below 50% if they wish to avoid the more rigorous disclosure requirements.

($1=81.7800 Indian rupees)

ce Fernandez)