Bottomline | SEBI on high alert, as risks build

Stock markets have always been a big draw for investors in boom times, but when the tide turns, the same individuals abandon the market, often with a vow to never return. India has lived through the boom-and-bust cycles like other markets. Today, though it is uniquely poised with a new generation of investors that have taken to the market, perhaps aided by the Covid phase, that have not seen the ugly side. And no regulator or government would want any systemic episode or mishap that can shake their confidence.To be sure, the equity cult seems to be growing by leaps and bounds. According to NSE’s Market Pulse report, the number of investors has grown from 31 million in FY20 to 90 million in February 2024, that’s a three-fold increase. This even as the demat account tally has topped 160 million. Even in terms of geographical mix, while Maharashtra, UP and Gujarat continue to top the charts, high growth has been seen in the northeast states, Bihar, Uttarakhand, Himachal, Chhattisgarh, Jharkhand, Bihar and Madhya Pradesh, among others, that were not traditionally big on equities.

This makes it even more important for SEBI, which also plays a role in developing the Indian capital markets, to ensure the expansion and deepening of the equity cult continues, so that idle resources can be channeled into the productive economy.

Growing risks in equities Stocks climbing 20% in a day or over 100% in a few months is not typical market behaviour. Most money managers wouldn’t guide for more than 15-16% annual returns in equities on a sustained basis. The current phenomena, therefore, is an anomaly typical of bull markets, and that itself should infuse a dose of caution.

What’s more, the flying rockets are usually found amid small cap stocks that typically have low liquidity, are easy to manipulate by operators (often in cahoots with promoters) and more-often-that-not have weak fundamentals. Turnaround or high-growth yarns spun around them often propel them to dizzying heights, drawing in more investors and eventually leading to the stocks being dumped on the uninformed, emotionally swayed investors.

There are also the greed mongers who assure unimaginable riches to gullible folk and rob them of their hard-earned money. These parasites come out to prey in bull markets, as it is the perfect hunting ground. Two recent communications by NSE on such instances point to the growing menace:

1) It has been brought to the notice of the Exchange that a person named “Anila Shah” operating through mobile number “+447880072764” is providing securities market tips and assured returns on investment in stock market. The investors are cautioned and advised not to subscribe to any such scheme/ product offered by any person/entity offering indicative/assured/guaranteed returns in the stock market as the same is prohibited by law.

2) It has been brought to the notice of the Exchange that a person named “Sachine Verma” operating through mobile number “7440341281” is providing securities market tips, assured returns on investments in stock market and offering to handle trading account of investors by sharing Login ID/password. The investors are cautioned and advised not to subscribe to any such scheme/ product offered by any person/entity offering indicative/assured/guaranteed returns in the stock market as the same is prohibited by law. Further, investors are advised not to share their trading credentials such as user id/password with anyone.

Source: NSE

SEBI cracks down 

The recent spate of actions by SEBI seems directed to address some of the ills of the market, which in a roaring bull phase can cause irreparable damage. The regulator has called for better liquidity management and greater disclosure by mutual funds, it has cast a keen eye on the derivatives segment and called for a revision of the slab-wise fees charged by stock exchanges to curb unbridled speculation, it has reviewed the F&O stock inclusion criteria, it has introduced guidelines to prevent market abuse in brokerages by increasing accountability, it has stepped up probes into front running and strengthened its surveillance.

The path taken by SEBI to root out ills is directionally positive and should be commended. The only risk with any such drive is that there could be overreach or over regulation. But the moves are timely, more so because any derailment of the market now can have far wider implications.

Wealth is at stake 

At a time when things look bleak on the employment front, with prime engineering colleges reporting poor fresher placements, and weak consumption of low-and-mid-income goods suggesting some stress in the lower rungs of the economy, the wealth engine is one that has been keeping the premium-end chugging along. Any mishap in the equity markets can create a big ripple effect, impacting not just stock investments but cascading into real estate and hurting the one sector that has been driving growth with its multiplier effects.

Given this, it becomes even more important for the regulator to ensure that the markets function in an orderly fashion. And while SEBI is doing its bit on this front, it is also important for investors themselves to become more cautious and careful, to ensure they don’t throw away their hard-earned gains.

Happy investing!

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