SEBI whole-time member raises concern on F&O, SME IPO frenzy

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A senior SEBI official reiterated the regulator’s concern on the increased retail participation in derivative products and SME IPOs.

“Increased retail participation in derivative segment and other risky products is a matter of concern. While it signifies growing confidence among individual investors, it also necessitates caution and the need for continuous investor education,” Ashwani Bhatia, Whole-Time Member, SEBI, said at 14th Morningstar Investment Conference on Tuesday.

SEBI rejigged its F&O norms earlier this month, with a few tweaks to its earlier proposals. The contract size for index derivatives has been raised to ₹15-20 lakh. Each exchange will now be able to provide derivative contracts for only one of its benchmark index with weekly expiry. Margins will be collected upfront.

Bhatia said that investors are protesting against the regulator’s decision to introduce some of these curbs.

“More than 50 per cent of F&O volumes globally are done in India. This is a crown we do not wish to wear. F&O cannot be a national pastime, savings of retail investors cannot move into institutional hands. The odds of making money for retail investors is terrible. We need to do serious investing and investors should participate in wealth creation through pooled vehicles like mutual funds or directly,” he said.

Stable investing

Mutual funds are one of the most stable and diverse investing options available to investors, according to Bhatia. In five years, assets under management (AUM) of mutual funds rose from ₹24 lakh crore to ₹67 lakh crore, driven by strong market performance, efforts in distribution, and inroads made into B30 cities. Ratios like AUM to bank deposit has crossed 30 per cent and AUM to GDP at about 20 per cent compared with the global average of 60-70 per cent.

Similarly, there is concern about retail participation in SME IPOs. SME listings are closely monitored by SEBI and the exchanges to ensure there is no irrational exuberance, price manipulation or fraudulent activity. The number of times the issues are being subscribed and the way market making happens is a cause for concern, Bhatia said.

Bhatia said the need of the hour was investor education. SEBI conducts market training programmes through Securities Market Trainers or SMARTs who are empanelled by SEBI. As on March 31, there were 418 empanelled SMARTs.

“We may require one lakh SMARTs, we are currently working on that with NISM. We are also working on broadening and deepening the bond markets,” Bhatia said.