Market's Steady Course
The Indian market's steadfastness is attributed to a blend of global confidence and domestic conviction, the SEBI chief noted. Despite the fluctuations
in foreign portfolio investor (FPI) activity influenced by global factors like the US Federal Reserve's interest rate decisions, India's foundational story remains solid. This story is built on sustained economic growth, evolving regulatory frameworks, and increasing investor participation. Notably, the assets under the custody of FPIs have seen a substantial increase, growing from $827 billion to approximately $907 billion within a decade, reflecting an impressive compound annual growth rate exceeding 12%. The SEBI chief emphasizes that these movements are a part of a larger global trend, not necessarily a cause for specific concern tied to India.
Domestic Investor Strength
Domestic institutional and retail investors have emerged as a key stabilizing force in recent years, counterbalancing the volatility caused by global flows. India's primary market is thriving, with a high volume of initial public offerings (IPOs). This trend signifies robust domestic liquidity and indicates confidence in the quality of new listings. The secondary market has also shown considerable growth, with daily turnover doubling in the last five years, rising from approximately ₹50,000 crore to ₹1 lakh crore. Market regulators are focused on enhancing liquidity, particularly in the securities lending and borrowing market (SLBM), aiming to boost depth and efficiency within the market.
Managing IPO Deluge
The surge in IPO activity has increased the workload for SEBI. The regulator has adopted artificial intelligence tools to expedite document scrutiny and ensure adherence to standards. Officials emphasize that their role is to ensure transparency and completeness in public offer documents, not to assess valuations. The average processing time for IPO clearances has significantly decreased, making India's regulatory regime one of the most competitive globally. SEBI is focusing on real-time surveillance and database analytics to proactively identify potential risks in the small and medium enterprise (SME) sector, rather than implementing additional regulatory changes.
Oversight on Derivatives
SEBI has cautioned retail investors against speculative behaviour in derivatives trading, especially those influenced by social media influencers promising assured returns. Derivatives are primarily designed for hedging purposes, and recent measures have already reduced trading volumes in futures and options by roughly 20%. Further steps are planned, with a consultation paper for public debate prior to implementation. The regulator is overhauling its penalty framework for stockbrokers, introducing a uniform structure across exchanges to ensure fairness and consistency. Minor procedural breaches will result in “financial disincentives” instead of penalties, aiming to remove the stigma attached to minor infractions.
Enhancing Market Integrity
Ensuring market integrity remains a top priority for SEBI. The regulator is upgrading its surveillance capabilities at both the exchange and regulatory levels, combining technology with human expertise. Cybersecurity and investor protection are also critical focus areas. The regulator has intensified financial literacy campaigns, educating investors about diversified portfolios and the risks involved. India's investor base is rapidly expanding, with approximately 32 million households currently participating, which represents 9.5% of all homes, and is expected to double in the coming years. With over 134 million unique investors already participating, SEBI is preparing systemic safeguards to protect this growing community, including the UPI Verified Handle system for secure online transactions.
RBI Collaboration
SEBI is deepening coordination with the Reserve Bank of India (RBI) to align regulations and improve ease of doing business, extending to areas like FPI registration, bonds, and derivatives. Discussions are ongoing to introduce bond derivatives for corporate debt, which has significant untapped potential. India has already launched electricity derivatives on two exchanges, and similar frameworks for commodities are under consideration. These measures are part of a broader effort to diversify market offerings and bolster India’s position as a comprehensive capital market hub, as stated by the SEBI chief.
