The finance ministry is not in favour of any major regulatory intervention in the stock market, and believes that over-regulation could lead to nervousness among participants, ETNow news channel reported, quoting sources.
The news comes in the backdrop of the recent measures taken by the Securities and Exchange Board of India (SEBI) to check on the building froth in the small and midcap stocks.
In February, the market regulator had asked the Association of Mutual Funds in India (AMFI) to put in place a framework to regulate the flows into the midcap and smallcap funds which have been unprecedented in the last one year.
Asset management companies were also asked to conduct a stress test and share the results of the same.
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These developments triggered some nervousness and increased volatility in the market.
While S&P BSE Smallcap index has logged more than 55% returns in FY24, the alarm bells rung by the market regulator saw the index crack more than 8% and the Nifty Smallcap gauge to plummet 10% in March.
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While Sebi remains concerned over the bubble formation in the broader market, the government is in favour of increasing retail participation in the stock market, given that
India is predicted to see high growth over the next three years, the news channel sources said.
Even Sebi former executive director and a top lawyer Sandeep Parekh voiced concerns
over the stress tests directed by the market regulator, saying it was unnecessarily spooking the market.
He asserted that it was not the job of the regulator to predict either market levels or liquidity.
“It can be a self-fulfilling prophecy – if you are trying to predict that the markets are overvalued and that liquidity can vanish – the prediction itself would dry liquidity and reduce prices,” Parekh said.
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