Demand-supply mismatch a sign of imbalance: Sebi WTM Ananth Narayan

Low risk, high returns can create complacency; market not a one-way street, warns Ananth Narayan

The Securities and Exchange Board of India’s (Sebi’s) wholetime member Ananth Narayan on Monday sounded an alarm on an “imbalance” in the market, citing a mismatch between demand and supply of securities. Speaking at the National Stock Exchange’s (NSE’s) bell ringing ceremony for World Investor Week, Narayan cautioned investors about risks in the equity market — technology-related scams, cybersecurity threats and financial influencers with ulterior motives.

“If you look at all the amount of money that came into stock markets through individual investors, mutual funds, insurance companies, pension funds, and foreign portfolio investors (FPIs) during FY24, it was Rs 3.6 trillion. Against that, the supply of fresh paper through initial public offerings (IPOs), rights issues, qualified institutional placements (QIPs), and so on was only Rs 1.95 trillion. So, the demand-supply mismatch is a clear sign that there is a bit of an imbalance building in — which by itself leads to short-term growth in markets but you also worry whether it is becoming a little too much,” said Narayan.

He emphasised the need for investor awareness initiatives, warning that consistent returns with lower volatility in Indian markets over the past few years may have created complacency among investors.

“It is like the best of all worlds — low risk and very high return. That unfortunately has a negative side-effect. It can build complacencies. We see a lot of young people opening accounts now; they seem to be convinced that this is a one-way street with very high returns and no risks at all. That is not the case. Just because one year had low risk does not mean there will not be risks, going forward,” he warned.

Narayan noted that Indian markets have delivered around 15 per cent compound annual growth rate (CAGR) over the last five years, outperforming Chinese markets.