Amid the correction happening in the smallcap and midcap stocks, global brokerage firm Jefferies sees the development as healthy as it is not a larger meltdown.
Jefferies said an alert from the Sebi chief and ICICI Prudential Mutual Fund move to suspend fresh subscriptions through lumpsum mode into its small cap fund (IPSCF) and midcap fund (IPMCF) have fuelled the selloff spree in small and mid-cap stocks.
Notably, the correction gained significance after the Association of Mutual Funds in India (AMFI) recently issued an advisory to its members, urging them to moderate inflows to small and midcap schemes and to rebalance their portfolios.
SEBI chief Madhabi Puri Buch had flagged concerns over the potential buildup of speculative activity in small and mid-cap segments.
Later, the AMFI had issued notice over the same. Small and mid-sized funds have experienced significant inflows, raising concerns among authorities about their resilience in the event of a sharp downturn in the market. Sebi has also been reviewing stress tests conducted by these funds.
After the Sebi chief’s statement and AMFI notice, the market reacted significantly as the Nifty Small Cap index slumped over 5 per cent to 14,295 on Wednesday while the Nifty Mid Cap index lost over 4 per cent to 45,971.
As per the data, over 80 per cent of stocks in the BSE SmallCap index have recorded negative returns since February 19.
Buch had said that besides the technology to identify patterns that suggest manipulation, the regulator has also received feedback from market participants on how such fraudulent activity can be identified and how they can be dealt with.
Despite these inputs, action is pending because the regulator is trying to construct a case in a robust manner.
She highlighted that the regulator attempted to provide a listing environment for SMEs that is more facilitative, and thus less regulated than listing for the mainboard.