Sebi chairman urges caution over micro-cap stocks, calls for transparency

Sebi Chairman Tuhin Kanta Pandey urges mutual funds to exercise caution when investing in micro-cap stocks and bespoke deals, highlighting risks beyond investment

Tuhin Kanta Pandey, chairman of the Securities and Exchange Board of India (Sebi), on Friday asked mutual fund (MF) houses to exercise caution while investing in microcap companies in bespoke deals.

 

“While there is a need to diversify beyond the blue chip, mutual funds as a retail product should exercise caution while investing in microcaps or debt papers in bespoke deals,” said Pandey, adding that the fund houses should be mindful of operational risks beyond investment risks that can undermine investor confidence.

 

Pandey was speaking at the 30th foundation day of the Association of Mutual Funds in India (Amfi). 

 

The Sebi chief further asked the asset management companies (AMCs) to maintain proper documentation for such investment decisions to ensure transparency and due diligence.

 

The statement comes at a time when there have been several new scheme launches in the microcap category. Microcap refers to companies where the market capitalisation is generally between ₹500 crore and ₹1,000 crore.

 

The market regulator also recently issued a consultation paper on reforms on categorisation of mutual funds, addressing concerns of the mutual fund industry on limited opportunities in certain categories.

 

The Sebi chairman also highlighted the “menace of fraudulent redemptions by impersonators”.

 

“As fraudsters grow more creative, we must be more vigilant. Each time such a case is detected, AMCs must act promptly and monitor the evolving patterns in such practices… In this battle, speed of information is our greatest weapon,” noted Pandey, calling for more checks on technological vulnerabilities.

 

Addressing concerns of data privacy, Pandey outlined responsibilities of AMCs for protecting investors’ highly sensitive personal information.

 

“Protecting that data is as important as protecting their money. Third, while outsourcing has enabled efficiency, it does not reduce accountability. Mutual funds remain fully responsible for the actions of vendors or partners. Thus, AMCs' agreements with vendors or third parties must ensure there is no scope for data leakage,” said the Sebi chief.

 

Amidst push for “Chhoti SIP” or ₹250 systematic investment plan (SIP), the Sebi chairman asked the industry if there was a need for tweaks to promote the scheme for first-time investors.

 

Despite push from the regulator, the offtake has been slow for Chhoti SIPs with less than 1,000 such plans, according to industry sources.

 

Pandey said the product is still at a nascent stage and can have big potential to create significant impact in the years to come.

 

The Sebi chief also laid stress on encouraging women investors and new individual investors pan-India. He further emphasised efficient disclosures by AMCs and fairness in treatment of all classes of investors during subscriptions and redemptions. 

Sebi revises plan for close auction session 

Sebi on Friday proposed tweaks to its initial draft on close auction session (CAS) for cash equity. In the revi­sed proposal, Sebi said that initially it would be applicable only to the stocks that are available in the derivati­ve segment — those which have sufficient liquidity. It may be extended to other scrips at a later stage following feedback. The regulator has also extended the timi­ngs. CAS may be implem­ented as a separate session of 20 minutes from 3.15 to 3.35 pm. Further, it may be split into four sessions.

 

3 new EDs to take charge at Sebi 

Sebi on Friday announced the appointment of three new executive directors. Sanjay Purao, who joined Sebi in 1996, will oversee the Corporation Finance Investigation Department, Recovery and Refund Department, and Internal Investigation Department. Amit Pradhan has been entrusted with the Legal Affairs Department (Vertical 1) and Prosecution & Settlement Department (PSD) and Avneesh Pandey will lead the Information Technology Department (ITD).

 

Mangal Electrical’s public issue booked 9.46x on last day 

The initial public offering (IPO) of transformer components manufacturer Mangal Electrical Industries received 9.46 times subscription on the closing day of bidding on Friday. The three-day IPO received bids for 49,674,638 shares against 5,253,301 shares on offer, according to NSE data. The category for non-institutional investors fetched 18.79 times subscription, while the qualified institutional buyers quota got subscribed 10.54 times. Retail individual investors received 4.84 times subscription.