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Informist, Wednesday, Dec. 11, 2024

 

--SEBI Narayan:Rise in retail investors huge advantage for financing growth

--CONTEXT: SEBI member Ananth Narayan at CII's Global Economic Policy Forum

--SEBI Narayan: Can't take fresh retail inflows for granted

--SEBI Narayan: FPI outflows Oct-Nov matched by MF inflows

--SEBI Narayan: IPO numbers in India staggeringly large vs other countries

--SEBI Narayan: Need more checks on cash-equivalent collateral in equity mkt

--SEBI Narayan: Brokers earn float income on huge cash-equivalent collateral

--SEBI Narayan:Optional T+0 settlement to reduce risks to client funds, shrs

--SEBI Narayan: India still needs foreign flows despite strong retail inflow

 

NEW DELHI – The Securities and Exchange Board of India is mortified by prospects of serious market wrongdoing, considered a type 1 error that signifies inadequacy of the regulatory structure, killing retail investors' trust, Ananth Narayan G., SEBI whole-time member, said Wednesday.

 

Speaking at the Confederation of Indian Industry's Global Economic Policy Forum 2024 in New Delhi, Narayan said that while corporate associations want facilitative regulations, they must not be blind to any instance of consequential and obvious misconduct taking place in the fundraising and listed company landscape.

 

"Before we find out from our inspections, or through our friends in the media, or through some other intelligence... if you see something egregiously wrong, tell us," Narayan told the associations. "This is not snitching," but it will improve the regulator's trust in advice from the associations on easing regulations, he said. "Anything that goes wrong can kill the golden goose (retail investor trust)," Narayan said.

 

SEBI, therefore, cannot take for granted the strong retail inflows through direct stock investing and domestic equity funds, Narayan said. The huge rise in retail investor numbers in the past four years has been an advantage for financing growth in the economy through capital formation, according to the whole-time member.

 

The substantial selling by foreign portfolio investors in the domestic equity market in Oct-Nov was absorbed by investments by domestic mutual funds, which, in turn, were aided by sustained retail investor inflows into equity funds, Narayan said. This is similar to the situation in 2022, when the domestic equity market saw a large FPI sell-off that was negated by buying by domestic mutual funds, he said. But Narayan said that despite strong retail inflows, the Indian equity market still needs the inflow of foreign funds.

 

Narayan said that although the Indian secondary market's settlement and payment system is the "best in the world" and the Indian securities market infrastructure is "world class", there is still room to improve efficiency and reduce risks for investors. According to him, the amount of cash equivalent collateral from investors and traders sitting in the stock market ecosystem with brokers, clearing members, custodians, and clearing corporations is about INR 4.5 trillion on a given day on average. "It's like a mid-sized bank by itself," he said.

 

SEBI believes this has given rise to hidden costs, and the float income earned from the sum is the reason why brokerages and custodians are able to charge their clients less, Narayan said. "It also creates risks, because, after all, these are not banks... and these are not transparent," he said. Narayan said there were enough regulatory checks and balances, but SEBI is keen to strengthen them further.

 

SEBI's latest moves to make optional T+0 settlements available for investors and allow for a block on their bank balances before trading in the secondary market were steps in that direction, according to Narayan. The whole-time member said SEBI is keen to ensure that investors, who may have never seen a downfall in the equity markets, are aware of all risks, and is making efforts to raise awareness of those risks.

 

Narayan said the fact that the securities markets have played a crucial role in financing economic growth in the country can be seen from the surge in primary market issuances. The number of initial public offerings in the Indian primary market is staggering when compared to numbers in other regulated securities markets that are members of the International Organization of Securities Commissions.

 

In terms of capital supply, the current financial year has already, till November, seen record high fresh issuances of INR 3.1 trillion through initial public offerings, qualified institutional placements, rights issues, further public offers, and other issues, according to Narayan. According to data from SEBI's latest monthly bulletin, capital raised from the primary market through 302 public and rights issues of equity till October in the financial year 2024-25 (Apr-Mar) amounted to INR 1.22 trillion, while 25 debt public issues raised INR 55.26 billion. The total capital raised from the primary market through qualified institutional placements in the same period was INR 803.39 billion, while preferential allotment issues by listed companies raised INR 612.98 billion.  End

 

Reported by Rajesh Gajra

Edited by Rajeev Pai

 

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