Moneycontrol Pro Panorama | SEBI’s right intent, but wrong approach

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For the first time in the history of equity markets, a market regulator is attempting to issue regular disclosure on market trends, including surges and collapses, to help investors take right decisions by learning from such insights.

Media reports say the Securities and Exchange Board of India (SEBI) is planning to issue reports which can help investors avoid a herd mentality that was particularly discernible during the pandemic selloffs in the first quarter of 2020 and the subsequent surge in buying of stocks following the slowing of COVID-19. According to the media reports, such buying was not backed by fundamentals and precipitated the current fall.

SEBI, through its disclosures, also wants to help investors cut losses in IPOs and the derivative segments as it considers them to be “highly complicated”.

The market regulator is of the view that the huge amount of facts, figures, and data sets that are at its disposal can be of immense help to investors and other market participants.

The reports further say such fact-based disclosures will be on a regular basis — annual, half-yearly or quarterly.

It is said that the road to heaven is paved with good intentions. SEBI’s intentions are good, but will have little or no impact on the market. If anything, it will have the opposite effect of what is being intended.  What benefit can an investor get from a report, which points to a short build-up in the market during the pandemic, if it comes after a quarter?

SEBI is unable to handle the present set of data properly. FII flows are reported every evening. However, such numbers are released by brokers and not accurate. SEBI reports FII numbers the next day after collecting them from the custodian. The market regulator’s figures, in most cases, are at variance with the FII numbers.

Take, for example, FII selling figures for the first four months of this financial year. According to data released on the same day, the number stands at Rs 196,327 crore. However, according to SEBI data, it is Rs 133,802 crore — a huge difference of Rs 62,525 crore.

These accurate numbers are not widely reported by either media or social media. Markets' reaction to such short-term data has an immediate impact rather than long-term trend data.

SEBI is under the impression that disclosing data and issuing red flags will prevent investors from getting hurt. All new-age company IPOs had mentioned that they were loss-making and, in some cases, the managements candidly admitted that they were clueless about when they would turn profitable. Yet investors, both retail and institution, flocked to these issues that were massively over-subscribed.

SEBI has largely two types of data sets. One caters to the fundamentals of companies. These are available to all investors on a real time basis, as and when the companies file them with the exchanges and are publicly available.

Second is market-related data, such as foreign participation, insider trading, and accumulation and disposals among others, which are updated daily. Releasing this set of data after a quarter will not have the same impact as releasing them on a real-time basis.

Besides releasing the data, SEBI needs to work on making them accessible. At present, insider trading data are reported at various places and will require a patient and meticulous investor to dig it daily from all these links.

While SEBI’s intent is right, it needs to know that data become stale unless consumed very fast. Further, no amount of spoon-feeding will help a retail trader, who is in the game for a quick buck. He is more interested in the next money-making idea than going through reams of data and interpreting them.

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Shishir Asthana
Moneycontrol Pro