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SEBI Watch: Consultative approach on multi-cap issue desirable

Wednesday, Sep 16, 2020

 

By Chiranjivi Chakraborty

 

The Securities and Exchange Board of India's diktat on the investment limit in multi-cap schemes is an odd instance of the regulator flexing its muscles to make the industry remain true to its word.

 

The regulator said that its circular on Friday that outlined the investment limits for a multi-cap scheme in small-caps, mid-caps and large-caps was issued with the objective to keep schemes "true-to-label".

 

"The portfolio should reflect the name of the scheme and the name of the scheme should correctly reflect the nature of the portfolio."

 

The intent and purpose of the circular is correct, no doubt. And, SEBI is right in asking mutual funds to remain true to the objective of the scheme.

 

However, the reaction of the mutual fund industry and fund managers after the release of the circular suggests that the regulator did not consult them prior to setting out defining the investment limits.

 

The fact that regulator had to issue a clarification to its circular on Sunday further underlines the fact that it did not undertake any consultation.

 

That is a concern given that regulator has iterated its consultative approach several times in the past, especially, when it comes to big regulatory changes.

 

SEBI Chairman Ajay Tyagi last year had clarified that the regulator will always embrace a consultative approach to making regulatory changes in response to allegations that some of its moves could be interpreted as strong-arm tactics.

 

In light of Tyagi’s own statement, SEBI’s latest move appears an aberration to its traditional consultative approach. Back in 2017, when the regulator wanted to reclassify mutual fund schemes it undertook lengthy deliberations with Association of Mutual Funds in India and its own advisory committee before setting the contours of a regulation that changed dynamics of mutual fund investment.

 

The circular’s implications are humongous for small-cap and mid-cap stocks as analysts expect buying to the tune of close to 500 bln rupees in both segments, if mutual funds were to implement the changes to a T.

 

Given the chaos that has ensued and the cloud of uncertainty that has now engulfed mutual funds and their investors, consulting the stakeholders would have been the right way, especially when one sees it in the context of the unprecedented environment created by COVID-19.

 

Mutual funds have said that they will now make representations to the regulator to make their case, while SEBI too has iterated that it is all ears.

 

Frankly, regulator could have waited to understand the effects of its decision and then come out with the best path. Now, it has to deal with an antagonised mutual fund industry and its unit holders.  End

 

LATEST ANNOUNCEMENTS

* IL&FS gets SEBI's in-principle OK for 130-bln-rupee road asset InvIT

* SEBI issues clarification on upfront margin collection norms

* SEBI ups multi-cap MFs' equity threshold, mandates invest in all caps

* SEBI allows extending Hexaware's delisting bid offer till today

 

ORDERS, ADJUDICATION PROCEEDINGS

* SAT sets aside SEBI order on 700,000-rupee penalty for NHAI

* SEBI tightens grip on board composition at market infra institutions (BS)

* SEBI bars Global Securities, 12 others from capital markets for fraudulent trading (PTI)

* SEBI bans one individual for providing unauthorised investment services (PTI)

 

REGULATIONS (Announced in the past three months)

* SEBI's new margin norm may nudge trading towards buy-and-hold investing (BS)

* SEBI extends deadline to process FPI documents for certain entities 

* SEBI issues framework for bourses, listed cos to redress grievances 

* SEBI comes out with guidelines for local proxy advisors (ET)

 

DATA FROM SEBI

 DateUnit LatestPrevious
FII/FPI net equity investmentSep 14US$ mln  81.77  334.51
FII/FPI net debt investmentSep 14US$ mln  31.20(-)56.25
DIIs net equity investment#Sep 11bln rupees(-)0.18 (-)2.98
DIIs net debt investment#Sep 11bln rupees

   4.47

   22.34

 

IPO/FPO/NFO

* Kalyan Jewellers files papers for 17.5-bln-rupee offer 

* Happiest Minds Technologies gets SEBI OK for public offer 

* PGIM India MF seeks SEBI nod for balanced advantage fund

* Baroda Mutual Fund seeks SEBI's approval for value fund 

 

SEBI IN NEWS

* SEBI suggests various options for MFs to meet new multi-cap fund norm

* Frenzy in mid-caps, small-caps after SEBI circular may not sustain

* SEBI audit points to CG Power promoters-lenders collusion (Mint)

* SEBI's Manoj Kumar joins GIFT City's regulatory body (BL)

 

Sources – Television, Print, or Web Editions of: PTI–Press Trust of India, BS–Business Standard, ET–The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL–The Hindu Business Line, TH–The Hindu, RTR—Reuters, BT–Business Today, IANS–Indo-Asian News Service, IE— The Indian Express, ToI–The Times of India, BB-Bloomberg Quint

 

Internet links: http://www.sebi.gov.in

 

# –- Data not available for Sep 14

 

End

 

Compiled by Pooja Sawant

Edited by Arshad Hussain

 

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