India’s stock market continues to demonstrate remarkable resilience even as foreign portfolio investors (FPIs) recalibrate their positions amid changing global conditions, Sebi chief Tuhin Kanta Pandey told ToI in an interview on October 10. Despite intermittent outflows, the long-term trajectory of foreign investments in Indian equities remains firmly positive. Assets under custody of FPIs have climbed from $827 billion to around $907 billion in a decade, reflecting a compound annual growth rate exceeding 12%, Pandey told ToI's Surojit Gupta.
Analysts say these movements are part of a broader global trend rather than a signal of concern specific to India. FPI behaviour is influenced by multiple factors -- relative price-to-earnings ratios across emerging markets, developments in China and other Asian economies, and the US Federal Reserve’s stance on interest rates.
Indian markets typically command a valuation premium, yet the country’s solid macroeconomic fundamentals, including a growth rate above 6.5%, continue to attract long-term investors, Pandey said.
Domestic Investors Hold the Fort
In recent years, domestic institutional and retail investors have emerged as a formidable stabilising force. Their steady participation has offset the volatility caused by global flows.
India’s primary market has been one of the most active globally, especially in terms of the number of initial public offerings (IPOs). This trend signals not only robust domestic liquidity but also investor confidence in the quality of new listings.
Daily turnover in the secondary market has doubled over the past five years -- from around ₹50,000 crore to ₹1 lakh crore -- although market regulators believe more liquidity is needed. One area under focus is the securities lending and borrowing market (SLBM), which the Securities and Exchange Board of India (Sebi) aims to further activate to enhance depth and efficiency.
Coping with the IPO Deluge
Sebi’s workload has expanded alongside the surge in IPO activity. To keep pace, the regulator has turned to artificial intelligence tools to accelerate document scrutiny and ensure that disclosures meet prescribed norms.
Officials emphasise that Sebi’s role is not to assess valuations but to ensure transparency and completeness in public offer documents.
The average processing time for IPO clearances has been significantly reduced, making India’s regulatory regime one of the more competitive globally.
On the small and medium enterprise (SME) front, Sebi has strengthened guardrails but does not foresee immediate additional regulatory changes. Instead, the focus is shifting to real-time surveillance and database analytics to identify potential risks before they escalate.
Tightening Oversight on Derivatives
The rapid expansion of derivatives trading has prompted Sebi to caution retail investors against speculative behaviour, especially those guided by social media influencers promising assured returns.
Derivatives are primarily designed for hedging, not unbridled speculation, Pandey reiterated.
Recent measures have already reduced trading volumes in futures and options by roughly 20%. Sebi plans to study the impact of these interventions before introducing further steps, which will first be released in a consultation paper for public debate, he said.
Reforming Penalty Structures
Another key reform under way is the overhaul of Sebi’s penalty framework for stockbrokers. The regulator is introducing a uniform structure across exchanges to ensure fairness and consistency. Minor procedural breaches will attract “financial disincentives” instead of penalties, aiming to remove the stigma associated with such infractions, Pandey informed.
In a bid to streamline compliance, Sebi and the exchanges have jointly launched Samuhik Prativedan Manch, a technology-driven platform that allows brokers to file compliance reports with a single exchange instead of multiple submissions across markets, he added.
Strengthening Market Integrity and Cybersecurity
Ensuring market integrity remains a top priority, Pandey said. Sebi is upgrading its surveillance capabilities across both exchange and regulatory levels, combining technology with enhanced human expertise. Cybersecurity and investor protection form another critical focus area.
The regulator has intensified financial literacy campaigns, educating investors about diversified portfolios and the risks involved in various instruments. India’s investor base is expanding rapidly -- currently encompassing around 32 million households, or 9.5% of all homes -- and is expected to double in the coming years.
With more than 134 million unique investors already participating, Sebi is preparing systemic safeguards to protect this growing community, he said.
One such initiative is the UPI Verified Handle system, designed to add a layer of security for investors transacting online.
Closer Coordination with the RBI
Sebi is also deepening coordination with the Reserve Bank of India (RBI) to align regulations and improve ease of doing business. This collaboration extends across areas such as FPI registration, bonds, and derivatives. Discussions are ongoing to introduce bond derivatives for corporate debt -- an area with significant untapped potential.
India has already launched electricity derivatives on two exchanges, with similar frameworks for commodities under consideration. These measures are part of a broader effort to diversify market offerings and strengthen India’s position as a comprehensive capital market hub, Pandey said.
Analysts say these movements are part of a broader global trend rather than a signal of concern specific to India. FPI behaviour is influenced by multiple factors -- relative price-to-earnings ratios across emerging markets, developments in China and other Asian economies, and the US Federal Reserve’s stance on interest rates.
Indian markets typically command a valuation premium, yet the country’s solid macroeconomic fundamentals, including a growth rate above 6.5%, continue to attract long-term investors, Pandey said.
Domestic Investors Hold the Fort
In recent years, domestic institutional and retail investors have emerged as a formidable stabilising force. Their steady participation has offset the volatility caused by global flows.
India’s primary market has been one of the most active globally, especially in terms of the number of initial public offerings (IPOs). This trend signals not only robust domestic liquidity but also investor confidence in the quality of new listings.
Daily turnover in the secondary market has doubled over the past five years -- from around ₹50,000 crore to ₹1 lakh crore -- although market regulators believe more liquidity is needed. One area under focus is the securities lending and borrowing market (SLBM), which the Securities and Exchange Board of India (Sebi) aims to further activate to enhance depth and efficiency.
Coping with the IPO Deluge
Sebi’s workload has expanded alongside the surge in IPO activity. To keep pace, the regulator has turned to artificial intelligence tools to accelerate document scrutiny and ensure that disclosures meet prescribed norms.
Officials emphasise that Sebi’s role is not to assess valuations but to ensure transparency and completeness in public offer documents.
The average processing time for IPO clearances has been significantly reduced, making India’s regulatory regime one of the more competitive globally.
On the small and medium enterprise (SME) front, Sebi has strengthened guardrails but does not foresee immediate additional regulatory changes. Instead, the focus is shifting to real-time surveillance and database analytics to identify potential risks before they escalate.
Tightening Oversight on Derivatives
The rapid expansion of derivatives trading has prompted Sebi to caution retail investors against speculative behaviour, especially those guided by social media influencers promising assured returns.
Derivatives are primarily designed for hedging, not unbridled speculation, Pandey reiterated.
Recent measures have already reduced trading volumes in futures and options by roughly 20%. Sebi plans to study the impact of these interventions before introducing further steps, which will first be released in a consultation paper for public debate, he said.
Reforming Penalty Structures
Another key reform under way is the overhaul of Sebi’s penalty framework for stockbrokers. The regulator is introducing a uniform structure across exchanges to ensure fairness and consistency. Minor procedural breaches will attract “financial disincentives” instead of penalties, aiming to remove the stigma associated with such infractions, Pandey informed.
In a bid to streamline compliance, Sebi and the exchanges have jointly launched Samuhik Prativedan Manch, a technology-driven platform that allows brokers to file compliance reports with a single exchange instead of multiple submissions across markets, he added.
Strengthening Market Integrity and Cybersecurity
Ensuring market integrity remains a top priority, Pandey said. Sebi is upgrading its surveillance capabilities across both exchange and regulatory levels, combining technology with enhanced human expertise. Cybersecurity and investor protection form another critical focus area.
The regulator has intensified financial literacy campaigns, educating investors about diversified portfolios and the risks involved in various instruments. India’s investor base is expanding rapidly -- currently encompassing around 32 million households, or 9.5% of all homes -- and is expected to double in the coming years.
With more than 134 million unique investors already participating, Sebi is preparing systemic safeguards to protect this growing community, he said.
One such initiative is the UPI Verified Handle system, designed to add a layer of security for investors transacting online.
Closer Coordination with the RBI
Sebi is also deepening coordination with the Reserve Bank of India (RBI) to align regulations and improve ease of doing business. This collaboration extends across areas such as FPI registration, bonds, and derivatives. Discussions are ongoing to introduce bond derivatives for corporate debt -- an area with significant untapped potential.
India has already launched electricity derivatives on two exchanges, with similar frameworks for commodities under consideration. These measures are part of a broader effort to diversify market offerings and strengthen India’s position as a comprehensive capital market hub, Pandey said.
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