In the wake of global shocks in the Indian Stock market and reactions to Indian events, Sebi itself has at times pulled the reins on the running horse by cracking the whip of new regulations. Markets are in a frenzy as ordinary or private investors are hardly aware of SEBI's smart moves. Earlier, Sebi's push for reclassification of Mutual Funds caused panic among many portfolio managers and their companies. In what is called a critical period in terms of the country's economy, when the prices of 500-700 shares fell rapidly at once, crores of rupees of investors were washed away for no reason. The echoes of American and some European banks are also falling on the market.
The sudden erosion in small and mid-cap stocks could not have been foreseen by Kherkhans. This new correction has created a sort of chaos in Dalal Street. Mutual funds, which collect huge funds by taking weekly (SIP) money from investors and invest it in the market and have the concept of taking high profits in the medium term, have also become familiar with the market this time. There is a serious debate in the market over the Mauritius chapter which ends up giving unknown foreigners business tie-ups with the Indian defense sector. The central government believes in the forgetfulness of the people that soon the people will forget. For the past few days, the Finance Ministry has stopped the process of issuing ajab gajab fatwas.
Files are currently circulating between the Finance Secretary and the Prime Minister's Office to revise the personal income tax norms and there is still a possibility of a slab increase i.e. tax reduction before the Lok Sabha elections. There is also a possibility of withdrawing some of the tax burden levied by the Finance Ministry on the income of mutual funds. However, it has taken the last three years to mend Arun Jaitley's mess and whatever the government, the finance ministry has to do it. Over the past weekend, prices in some stocks have fallen by as much as 94 percent from their year-to-date highs. Small and mid-cap stocks are likely to witness more shocks in the coming days as SEBI continues to keep a close eye on the investment strategy of mutual funds in the interest of investors and on the other hand the Adani factor is no longer letting the market sway.
Fund managers have the ability to earn more than the average of the index. A large segment of investors now outsource their portfolios to others. Others i.e. portfolio managers have wholesale accounts averaging five to ten lakhs. Managers in Mumbai have multi-crore accounts and it is now a common order. Such managers hire themselves technical analysts, chartists and fundamental analysts at very high salaries. Small and mid-cap stocks have taken a tumble from peak to trough this time around, leaving even the experts stunned. All the mutual funds have washed hard in the market investments last week. Same is the case with LIC. This loss despite Sensex and Nifty remaining positive is a remarkable event in the history of Dalal Street.
Where did fund managers get in trouble? He had to change all investment tracks overnight. According to SEBI's new classification, at least 80 per cent of the investment of a large-cap scheme should be invested in large-cap stocks, otherwise it becomes an offense under the SEBI Act. Same goes for mid-cap funds. At least 65% of mid-cap funds should be invested in mid-cap stocks. One of the reasons for this erosion is the unrealistic valuation of stocks. Also, the old jogis smell that some of the players who have been banned by the court have started the game behind the scenes by showing intimate relationship with the BJP. It is heard in Dalal Street that the alchemists of various co-operative bank scams have activated a new ring of brokers representing themselves in the market. While the mid-cap and small-cap indices of the Bombay Stock Exchange also declined significantly, the Sensex was not affected much as volumes in many other stocks remained high.
