After the Securities and Exchange Board of India (SEBI) sounded alarm on increasing froth in the small and midcap segments, the Reserve Bank of India echoed the same concern in it monthly bulletin.
"Stocks are riding an intense bull market — notwithstanding intermittent corrections — driven by a broad-based boom. While large caps are gaining, mid- and small-caps are rising even faster, with hints of froth and a spreading equity culture," the central bank has said in its monthly bulletin.
The RBI bulletin is a monthly publication that offers insights into the developments in domestic and global economies but doesn’t represent the views of the central bank.
The FPI holdings in Indian equities have fallen to decadal lows at 16.3 percent, which is a sign of increased buying by domestic institutions, including mutual funds, the banking regulator said.
Follow our market blog to catch all the live updates
The RBI said the rupee is among the least volatile currencies and is steadily appreciating. "The INR has been bolstered by a pick-up in foreign direct investment by 11.4 percent year-on-year in October-December 2023," it said.
Bond yields are at a nine-month low; corporate bonds are in strong demand with finer cut-offs. "The inclusion of Indian sovereign bonds in global bond indices is spurring a strong demand for offshore rupee-denominated bonds issued mostly by multilateral institutions seeking exposure to India," the central bank said.
Also Read | Mid and smallcap indices turn negative for 2024: Four factors weighing on sentiment
The RBI isn't the first regulator to note the froth in the mid and smallcap segments. On February 27, mutual fund industry body AMFI issued a circular based on an email received from SEBI. In a note to mutual fund trustees, the Association for Mutual Funds (AMFI) said that SEBI has advised that given the froth in small and midcap stocks, mutual funds should put in place a policy to safeguard the investors in these schemes.
In 2023, midcap funds saw inflows worth Rs 22,913 crore and smallcap schemes Rs 41,035 crore. On the other hand, largecap schemes saw outflows of Rs 2,968 crore.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
