SEBI :-The recent fall in the Indian stock market has raised concerns among investors. Especially small investors, who felt the direct impact of this fall. Know about it? 
SEBI:-Recently, the huge fall in the Indian stock market has worried investors. Especially small investors felt its big impact. This fall in the market is not limited only to the rising bond yields in the US or the weak results of Indian companies. Another big reason behind this is the circular issued by SEBI (Securities and Exchange Board of India) in August 2023. Let us understand in detail in simple language what this circular is and why it had an impact.
SEBI Circular: What was the purpose?
This circular of SEBI focuses on those companies which were not following the rules of Minimum Public Shareholding (MPS).
MPS means: At least 25% stake in a listed company should be held by the public (ie common investors).
SEBI directed to ensure that foreign portfolio investors (FPIs) who hold more than 50% of Indian equities or have assets under management (AUM) of more than ₹25,000 crore (about $3 billion) give full details of their stake by September 9, 2024.
What will happen in case of non-compliance?
SEBI made it clear that if FPIs do not follow these rules, they will have to exit the Indian market by selling their stake.
Heavy selling and impact on the market
Due to this circular, foreign investors, especially global and emerging market funds (GEMs), started selling shares on a large scale.
During October-November 2024, FPIs sold shares worth ₹1.16 lakh crore (about $13.75 billion).
Of these, about ₹25,000-₹42,000 crore (3-5 billion dollars) of selling happened only due to the new rules of SEBI.
Change in MSCI index
Another reason for the decline in the market was the change in the MSCI index.
For example, HDFC Bank, which was supposed to get an investment of ₹16,032 crore due to the change in the MSCI index, had to face a sell-off of ₹31,088 crore on the same day.
GEMs and global funds thought it better to sell their stake.
Figures of decline in Indian market
Between September 2023 and November 2024, the total investment of FPIs in the Indian equity market came down from $930.36 billion to $823.77 billion.
During this period, the Nifty index declined by 6.5%, which was the worst performance in the emerging markets.
Role of Domestic Institutional Investors (DIIs)
During this period, domestic institutional investors continued to buy in the market.
DIIs bought ₹1.52 lakh crore.
However, the increased supply of new IPOs and other shares could not stabilize the market.
For example, Hyundai and Swiggy’s IPOs issued shares worth ₹39,197 crore in October-November, putting additional pressure on the market.
Will the market rise again?
The fundamentals of the Indian economy are strong, and India remains an attractive market for global investors for the long term.
Kotak Mahindra CEO Nitin Jain says that the government’s attempt to control the fiscal deficit, and the lack of expected growth in private investment, may affect the market.
However, the long-term outlook of the Indian market is positive.
There are many reasons involved in the decline in the Indian stock market.
SEBI’s new rules led to selling by foreign investors.
Changes in the MSCI index and new IPOs put additional pressure on the market.
However, the long-term attractiveness of India’s economy remains. Investors should focus on the long-term rather than worrying about short-term fluctuations.