Sebi chairperson Madhabi Puri Buch on Monday said there are pockets of “froth” in small and mid-cap stocks which appear like “irrational exuberance” to the capital markets regulator.
Buch also said that Sebi has evidence, pointing to signs of “price manipulation” in the small and medium enterprises (SME) segment, and asked investors to be more cautious while investing in the risky segment.
Speaking to women journalists on the sidelines of an event here, Buch said the ‘T+0’ settlement of securities will begin on March 28 but on an optional basis.
When asked about the small and mid-cap space, which has seen a fast-paced rise in valuations over the last few months, Buch admitted that there are “pockets of froth in the market” which are like bubbles.
“It may not be appropriate to allow the bubble to keep building, because when it bursts, they impact the investors adversely. That is not a good thing,” Buch said.
She added that the valuation parameters are “not supported by fundamentals at all” and it appears like “irrational exuberance”.
Since January 2023, small and mid-cap indices have significantly outperformed the broader equity indices, and many asset management companies have stopped accepting lumpsum amounts into schemes and also capped monthly investments in such schemes.
Buch also said that the Sebi has seen evidence of “price manipulation” in the SME segment, including both initial public offerings (IPOs) and secondary trading activity.
“We do see the signs (of price manipulation)’, we have the technology to do it. We are able to see certain patterns. I’d say it is still on the kitchen table, it’s not yet gone into the oven,” Buch said.
The capital markets regulator is still working with advisors to understand all the dimensions and analyse the data, she said, adding that if it finds some malpractices the next step may be to issue a public consultation on it.
However, she did not give any specific timelines by which the capital markets regulator is mulling to act against entities which are indulging in the malpractices.
She said the investors need to understand that the SME segment is different from the main board and it is necessary for Sebi to push the companies to make the necessary disclosures to investors.
Regulations governing the SME segment, the disclosures and therefore, the nature of risk are all different, she said, defending the decision to have such a platform.
The regulator was desirous of playing a facilitative role and introduced the SME segment where the regulations were not as high as the main board because some SMEs find it difficult to comply with the requirements, she explained.
To a question on Sebi’s plan to reduce the settlement plans and introduce the T+0 or same-day settlements, Buch said the regulator plans to make such settlements live by March 28 but added that the same will be optional for investors. As per the plans, T+0 settlement will eventually lead to instantaneous settlement of trades as well.
She declined to comment specifically on the actions against non-bank lender JM Financial but admitted that while there is no collaboration between the financial sector regulators, there is better data sharing. The orders against the Kampanis-promoted lender by the RBI and Sebi on consecutive days this month is only a coincidence, she said.
