SEBI was set up to protect investor interests, promote development, and regulate the securities market for any matters connected to it. The most critical function, though, is “protecting the investor’s interests in the stock markets.”
The regulator has been taking steps to caution investors and keep them informed to empower them. For example, this month saw SEBI planning risk factor disclosures on market trends, surges, and collapses to help investors learn from the insights and make the right investment decisions.
The preliminary discussions are on and may help keep investors from following the herd, especially when it means large sell-offs or sharp surges in buying when the markets fall or rise without considering the reasons for such market events. Stock market investment without understanding the fundamentals is a recipe for subsequent losses.
Why Is the Securities Exchange Board Of India Planning Such Market Risk Factor Disclosures?
The largescale losses investors sustained in stock market investments, particularly IPOs, and F&O transactions, prompted the regulator to plan for such disclosures. Another issue is stock market scandals like the NSE frauds, the AXIS Bank Mutual Fund issues, and Game Stop-like schemes have been increasing.
Indian stock markets see a similar pattern in every investment cycle –investors rush to buy when the markets are high and then panic selling every time there is a crisis or a fall. SEBI believes one of the key reasons for such investor behavior is the lack of independent market insights.
The two-year Bull Run giving way to the Bear the world over, high losses incurred due to over-priced tech startup IPOs, increasing investor population, and the buying frenzy in unregulated segments like crypto finally fading could have prompted such a move.
What’s more, after getting high returns during the Bull Run, new investors suffered losses for the first time since entering the market as it fell from its highs in October last year. These investors voice their displeasure, and their sheer number may have turned up the heat on SEBI.
Market participants share their research on stocks and market trends, which means the chance of bias in information and insights is high. The reasons above are why SEBI is considering risk factor disclosures that will include insights on uptrends and downtrends.
How will the Market Risks Factor Disclosure Work?
SEBI has access to plenty of facts, figures, and datasets, using AI, Big data, and other latest technologies to regulate the markets. Understanding the future is possible when you can analyze the past, and the present and SEBI is in the right place to do so.
Currently, SEBI laws mandate that all listed companies, some market participants, and market infrastructure institutions must disclose their resolutions, strategies and plans to help investors make the right investment decisions. SEBI has been tightening and fine-tuning its regulations for disclosures over the years. The RBI has also warned investors against market investment in unregulated assets like cryptocurrencies, which have fizzled out recently. However, the regulator is not subject to such rules.
But if investors are looking for a trusted source for information, datasets, and risk disclosures, then there is none better than SEBI. As a regulator, it has a complete view of the market and its functioning.
So, the Securities Exchange Board of India will use innovative technology and the data collected over the years to analyze market trends. It will then pass on this information via disclosures so investors can make informed decisions.
But what can SEBI disclose?
As a regulator, SEBI must offer an unbiased view of the markets, so it cannot comment on companies, specific industries, and stocks individually as it may become liable to misses and scams. However, it can offer a general analysis of fundamentals and market risk factors. Unlike SEBI, showing such information is the domain of the RBI, finance ministry, and the NITI Aayog.
One thing SEBI can do is mandate better and more in-depth disclosures from listed companies and institutions. It could also ask all the exchanges to submit themselves to the RTI Act, which can prove to be a huge deterrent.
Will SEBI successfully implement such a scheme remains to be seen. Meanwhile, remember that due diligence is vital before deciding on stock market investments.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.