If retail investors do not have a problem with T+1, why are FPIs and other sophisticated investors complaining about T+1?

You are right that small investors have reasons to celebrate as their funds get churned faster under T+1 system. The T+1 system almost make intraday, BTST and T+1 settlement seamless. It also ensures better churn of capital for investors.

From an investor point of view, since capital is better deployed, it means higher volumes in the market and better ROI for investors. Also, the risk in the entire system comes down sharply on account of the settlement time being crunched by one day.

Now let me tell you that the reason foreign investors are miffed is a more practical reason to it and they are not entirely wrong. You would recollect that it was, first and foremost, the association of FPIs based out of Hong Kong was the first to cry foul. Actually there is a reason.

Foreign Portfolio Investors typically operate out of different time zones spread across the US, UK, Middle East and South East Asia. Institutional trades entail custodial confirmation so there is an additional level in the flow.

The real handicap is in forex hedging. Most FPIs hedge their net exposure in dollar terms with futures in the non-deliverable forwards or NDF market. This could get complicated in the case of T+1 settlement as a typical FPI trade takes more than a day for full cycle.

For T+1 to really take off, total FPI buy-in would be essential and SEBI would not go ahead unless there is FPI buy-in. After all, FPIs still account for a chunk of the volumes in the large cap segment and continue to be the drivers of market sentiments.