Revised market categorization framework coming soon, says SEBI’s Manoj Kumar

Securities and Exchange Board of India (SEBI)

• SEBI will release revised market categorization after including industry feedback
• Framework aims to balance capital formation and investor protection
• Announcement on new categorization expected soon

Did our AI summary help?

The Securities and Exchange Board of India (SEBI) is close to notifying a revised market categorization framework but had to temporarily hold back the release to incorporate industry feedback, SEBI's Manoj Kumar said on Thursday at the AIBI conference in Mumbai.

“We were already prepared to go ahead with releasing a revised framework on categorization. In fact, last week itself we were ready, but the industry came back with some suggestions,” said Manoj Kumar, speaking at an industry conference. “We are now trying to incorporate those inputs, and soon you will hear from us on what we have done on categorization," he added.

Kumar said the exercise is complex, as SEBI has to balance broader capital formation with investor protection, especially at a time when domestic mutual fund inflows and retail participation are at record levels.

“The challenge is how to categorize small-cap, mid-cap and large-cap stocks in a way that is feasible for the long term. Some people suggest a micro-cap category, but recently you would have seen that we had to intervene in one micro-cap,” he said. Recently,  Motilal Oswal AMC announced that they are stopping inflows into their Nifty Microcap 250 Index fund following consultations with SEBI.

Kumar noted that regulatory decisions may not always find immediate acceptance among market participants but stressed that long-term market stability remains the regulator’s priority.

“I am not assuring that whatever we do will always be accepted by the industry. Many times what we do is not immediately accepted, but in the long run, the industry agrees with us,” he said.

In 2017, SEBI introduced major Categorization and Rationalization of Mutual Fund Schemes, standardizing categories like Equity, Debt, Hybrid, Solution-Oriented, and Other Schemes, and implementing a one-scheme-per-category limit for fund houses, plus defining Large, Mid, and Small-cap stocks for clarity and uniformity in equity fund mandate.